Australia: why every property seller needs an ATO clearance certificate

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Kooky

Builder of Shaka, the payment router that pays every agent their commission on closing date.

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The name of the rule points at someone else. Foreign resident capital gains withholding sounds like a matter for overseas owners, and for its first years in Australia it touched only expensive property. That changed for contracts signed from 1 January 2025. The Australian Taxation Office (ATO) now says the withholding must be applied on all real property sales, at 15% of the value, unless the vendor falls within an exception. For an Australian resident, the exception is a piece of paper: a clearance certificate, issued by the ATO and handed to the purchaser at or before settlement.

The practical effect is that a resident selling a modest unit is in the same position as one selling a large house. Without the certificate, the purchaser has no choice but to hold back part of the price and send it to the tax office. This guide follows the ATO's own published guidance, last updated on 9 October 2026 for the pages on clearance certificates, variations and payment. It covers the rates by contract date, the application, the certificate's life, the purchaser's duties at settlement, the variation open to foreign residents, and the route by which a withheld amount comes back to the seller.

Australian Taxation Office guidance on foreign resident capital gains withholding, pages updated 22 June and 9 October 2026.

A rule for foreign residents that reaches every vendor

The withholding is a collection device. Under it the purchaser pays part of the price to the ATO at or before settlement instead of paying the full price to the vendor, and the vendor later claims that amount as a credit in a tax return.

The design explains why residents are caught. A purchaser cannot know whether the person on the other side of the contract is a resident of Australia for tax purposes, and the law does not ask the purchaser to judge. It asks for a document. If the vendor is an Australian resident with a valid clearance certificate issued at or before settlement, nothing is withheld. If the vendor is a foreign resident with a variation notice, the purchaser withholds at the reduced rate the notice states. In every other case the purchaser withholds at the full rate.

The ATO is explicit that entitlement alone is not enough. Its guidance says the purchaser must withhold when no valid certificate is provided at or before settlement, even if the vendor was entitled to one. Residency itself is assessed by the tax office: the ATO says it confirms a person's residency status for these purposes when the clearance certificate is applied for, and that the tax test for individuals is different from the tests used for social security and immigration.

The rate and the threshold, by contract date

Three sets of rules have applied since the regime began, and the one that governs a sale is fixed by the date the contract was signed, not by the settlement date. The ATO sets them out as follows.

The ATO illustrates the changeover with a sale that straddles it. A property is sold under a contract signed on 16 December 2024 for A$1.2 million, with settlement on 6 January 2025. Because the contract predates 1 January 2025, the purchaser withholds 12.5% of A$1.2 million, which is A$150,000. Had the same contract been signed after 1 January 2025, the ATO notes, the amount would have been 15% of A$1.2 million, or A$180,000.

The larger change for resident sellers is the disappearance of the threshold. As a worked example, with illustrative figures: a home sold for A$700,000 under a contract signed in 2024 sat below the A$750,000 line, so no withholding arose and no certificate was called for. The same home sold for the same A$700,000 under a contract signed in 2025 or later is caught, and without a certificate the purchaser withholds 15% of A$700,000, which is A$105,000.

The rate is applied to market value. The ATO says market value is usually the sale price, but where the price was negotiated at non-arm's length, the purchaser must obtain a separate expert valuation from a professional valuer. The amount is worked out on the price before the usual settlement adjustments for council rates, water and sewer charges and strata levies.

What counts as property, and who counts as the vendor

The ATO's list of taxable Australian real property that calls for a clearance certificate is broad. It includes the vendor's home; vacant land, buildings, and residential and commercial property; mining, quarrying or prospecting rights situated in Australia; a lease over real property in Australia; and indirect Australian real property interests where the holder has a right to occupy land or buildings on land. The family home is on the list by name. A sale that will produce no capital gains tax at all still needs the certificate, because the withholding is triggered by the transaction and not by the tax result.

Some transactions fall outside the regime altogether. The ATO lists transactions through an approved stock exchange or a crossing system, transactions already subject to another withholding obligation, securities lending arrangements, and transactions where the vendor is in external administration or the sale comes from a bankrupt estate or a similar arrangement. For the bankruptcy case the ATO cites section 14-215 of the Taxation Administration Act 1953, and says an amount withheld anyway may be reclaimed under section 18-70 of that Act if the conditions in the law are met.

The vendor, for these purposes, is the entity that holds legal title. That definition drives much of the paperwork. Each vendor named on the certificate of title must give the purchaser their own certificate, so a couple who own together need two. The ATO adds that a transfer from one entity to another is a capital gains event even inside a family, so the person transferring needs a certificate or a variation in that case too, with the withholding based on market value as determined by an independent valuation.

Applying for a clearance certificate

The ATO's advice on timing is to apply as soon as a sale is being considered. There is no need to wait for a signed contract, the application is free, and a vendor who then decides not to sell simply does not use the certificate.

Two figures on the ATO's page share the same number. Processing can take up to 28 days, and applications are to be lodged at least 28 days before settlement. The ATO says it cannot guarantee that a certificate will be issued by the settlement date when an application is lodged close to it. Each application is processed on its own, so co-owners may receive their certificates at different times.

The ATO names four circumstances in which processing may take longer: the vendor has no recent income tax returns lodged, there has been a change in residency status, the names on ATO records do not match the certificate of title, or the property is owned through complex entity structures.

On who may lodge, the ATO draws a line that matters to the trade. Vendors can apply themselves, and Australian legal practitioners and registered tax agents can apply on a vendor's behalf. Conveyancers who are not legal practitioners cannot. The guidance describes what such a conveyancer may do instead: assist with a paper application that the vendor signs, and key that data in online.

Names on the title, trusts and estates

A certificate is only useful if the purchaser can match it to the title. The ATO's rule for individuals is that the first and last names on the certificate must match those on the certificate of title. Middle names do not need to be supplied or matched, and neither do honorifics.

A change of name must be backed by legal documentation such as a marriage certificate or a change of name certificate; the ATO says statutory declarations alone are not accepted.

For trusts and superannuation funds, the entity with legal title applies, and that is usually the trustee. The ATO says a purchaser meets the obligation if the vendor shows that the entity on the certificate is the trustee, for example with a copy of the trust deed. A change of trustee alone needs no certificate.

Deceased estates have their own treatment under a legislative instrument the ATO identifies as LI 2026/38. Where the executor or trustee is an Australian resident, withholding is varied to nil if a beneficiary of the will acquires the property, and likewise where a surviving joint tenant acquires it or it passes to the legal representative. If the property is instead sold to anyone outside that list, the legal representative must hold a certificate on behalf of the deceased, or 15% of the sale price is withheld. Where the executor is a foreign resident, the ATO says the withholding applies to the sale.

The same instrument can reduce withholding to nil on certain transfers between former spouses after a relationship breakdown, where the transfer is made under the Family Law Act 1975 or a relevant state, territory or foreign law.

How long a certificate lasts

A clearance certificate is valid for 12 months from its date of issue, provided the vendor's residency status does not change in that time. The ATO gives the example of certificates issued on 29 September 2024 that ran until 28 September 2025, held by two owners who sold for A$650,000. Without them, the ATO calculates, 15% of A$650,000 would have gone to the tax office: A$97,500, or A$48,750 for each of the two owners.

Long contracts raise the question of expiry. Off-the-plan apartments can have more than 12 months between contract and settlement. The ATO's answer is that the purchaser may still rely on a certificate that has since expired if two conditions hold: it was made available to the purchaser within the period stated on the certificate, and that period covers some of the time the transaction is in effect, which runs from the contract date to the settlement date.

A certificate is not beyond recall. The ATO says it can withdraw one at any time if it learns that a vendor is a foreign resident. A purchaser who relied on the certificate in good faith and did not withhold is not penalised. The vendor, on the other hand, is held liable for false or misleading statements and may be prosecuted.

What the purchaser does at settlement

The purchaser's role is mechanical, and the ATO reduces it to three cases.

The documents are read against the title and the contract. For a certificate, the ATO's rule is that first and last names match the title. A variation notice has two further conditions: the asset must be the one in the sale contract, and the price must not exceed the maximum sale price written in the notice. The ATO's example is a notice stating A$1 million against a final price of A$1.1 million: the notice does not apply and the full rate does.

Where there are several vendors, each is treated on their own documents. As a worked example with illustrative figures, take a house sold for A$900,000 under a contract signed in 2026 by two owners with equal shares, one of whom hands over a certificate while the other's application is still being processed. The purchaser withholds nothing on the first share and 15% of the second owner's A$450,000, which is A$67,500.

Several purchasers divide the task in the same way. Each must withhold according to their percentage of ownership, and they may make one payment covering the total or separate payments.

The ATO states the consequences of getting this wrong. A purchaser who fails to withhold and pay at or before settlement may be subject to a penalty which the ATO's payment page states as equal to 10 penalty units or the amount the purchaser failed to withhold, and receives written notice of the penalty and the reasons for it. A purchaser who withholds but does not pay on becoming the owner is charged the general interest charge, which accrues from the settlement date.

The purchaser payment notification

Before any money moves, the purchaser tells the ATO it is coming. The purchaser payment notification is an online form, with a paper version, completed by the purchaser. Once it is processed, the purchaser receives a payment reference number and a link to a downloadable payment slip with a barcode. That reference number is what ties the payment at settlement to the right vendor and the right sale.

The ATO attaches a few rules to the form. Only one payment reference number is issued per form, even if several purchasers are listed on it. One form serves up to 10 purchasers. A notification lodged in error, or overtaken by a valid certificate or variation that arrives by settlement, can be cancelled.

Payment is due on or before the purchaser becomes the owner of the property, and must be made in Australian dollars. The ATO lists BPAY, electronic funds transfer and e-conveyancing as payment methods.

Two documents then matter. A receipt is the purchaser's proof of payment. A payment confirmation, sent by email or letter to the person nominated on the form, is what the vendor will need: the ATO says the purchaser gives the vendor a copy of it at settlement so that the vendor can complete a tax return.

Variations: when 15% is more than the tax owed

The clearance certificate is the route the ATO sets out for Australian residents. For a vendor without one, the full rate is not the only outcome. The ATO allows a vendor to seek a variation only where two things are both true: the vendor is not entitled to a clearance certificate, and the 15% rate is too high given the estimated Australian tax liability on the sale.

The grounds the ATO gives for foreign residents are that there will be no capital gain, for example because of a capital loss or a capital gains tax roll-over, or that the income tax liability is reduced or tax losses are available, so that a rate between 0% and 15% is appropriate. Three further grounds involve Australian residents who may not be the vendor: a property sold to a third party under a family law settlement; a creditor holding a mortgage or other security where the proceeds at settlement will not cover both the withholding and the secured debt; and a creditor that acquires title through foreclosure.

The ATO works through an example on its payment page. A foreign resident and an Australian resident jointly sell a property with a market value of A$1 million. The foreign resident's half is worth A$500,000, so the full withholding on that share would be 15% of A$500,000, or A$75,000. The vendor obtains a variation to 5%. With the notice in hand, the purchaser withholds 5% of A$500,000, which is A$25,000.

The procedure, as the ATO describes it, has conditions of its own. The vendor's Australian tax affairs must be up to date, with all due returns lodged, including rental income where the property produced it, and all due tax debts paid. The application is lodged as soon as the contract is signed and includes the sale contract, the purchase contract if available, and a statement showing how the new rate was calculated. Processing takes up to 28 days. Each vendor applies for their own variation, and it is the vendor's responsibility to give the notice to the purchaser at or before settlement. Besides vendors, the ATO lists legal practitioners and registered tax agents acting for them, creditors owed a debt by a vendor, and purchasers as people who can apply.

Getting a withheld amount back

Money withheld is not lost and it is not a final tax. It is a credit against the vendor's income tax, and it is released through a tax return.

The ATO's steps for a resident vendor are these. The vendor must lodge a tax return to claim the credit, even if their income is below the threshold at which a return would otherwise be required. The vendor needs the payment confirmation from the purchaser as proof of the amount. The amount is entered as a credit for foreign resident capital gains withholding amounts and it is not pre-filled by the ATO. The amount is refunded in full if the vendor has no tax debts and no capital gains tax is payable on the sale.

For a foreign resident the test for a full refund has a third limb: no tax debts, no capital gains tax payable on the sale, and no tax payable on other Australian-sourced income. A foreign resident may need a tax file number before lodging. The ATO says an early tax return may be lodged in certain circumstances; otherwise the vendor waits until the end of the income year.

That wait is the real cost of a missing certificate for a resident. In an ATO example, two residents sold a A$600,000 home under a contract signed on 8 January 2025 and applied for certificates a week later; one certificate was still pending at the settlement on 6 February 2025, so 15% of that owner's share, A$45,000, was withheld, to come back only once a 2025 tax return was lodged and processed.

Credits follow legal title. The ATO says a credit can only be applied to the vendor for whom the amount was withheld, that credits are allocated according to each vendor's legal interest in the property at disposal, and that the allocation cannot be adjusted for court orders or other arrangements made about the proceeds afterwards. For a trust, the credit goes to the relevant beneficiary.

A resident's certificate proves nothing about the sale and everything about the seller, which is why it can be in hand before a buyer exists.

Kooky, from Shaka

Kooky edits Agents Estate and builds Shaka, the payment router he made for real estate professionals. One payment comes in, and every agent, agency and party in the deal receives their signed share on closing date.

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