Many are unaware that ATO Withholding Clearance Certificate is issued by the Australian Taxation Office (ATO). The WCC attests to the fact that, for the purposes of taxation, a property seller is an Australian resident. 15% of the purchase price will need to be withheld by the buyer at settlement if the seller is unable to present the WCC.
Assume, for illustration purposes, that the property is being sold for $1 million. At settlement, the buyer will have to deduct $150,000 ($1,000,000 x 15%) and send the seller merely $850,000. The ATO will receive the remaining $150,000. These regulations are designed to guarantee that overseas sellers of real estate pay capital gains tax (CGT) on their sales.
In summary, without the WCC, buyers must withhold 15% of the sale price and remit it to the ATO.
Why Do Withholding Clearance Certificates Matter?
WCCs are important because they ensure that foreign sellers of Australian property meet their tax obligations. To reiterate, the buyer must withhold and pay 15% of the purchase price of the property to the ATO if the seller does not produce a WCC at settlement. This obligation is applicable even in cases when the vendor resides in Australia.
Thus, for Australian residents selling property, providing a WCC is essential to receive the full sale proceeds (e.g., $1 million in the example above). The buyer will be required to retain a portion of the sale price ($150,000 in this case) if the WCC is not provided. Kindly get in touch with your property tax accountant if you would like to discuss an example.
A clearance certificate is required for all property transactions. Previously, there was a minimum sale price of $750,000, but this was changed to no minimum sale price by the Albanese government. These rules apply to most property types, including:
- Residential and commercial real estate
- Vacant land
- Strata title properties
How to Apply for a Withholding Clearance Certificate
The ATO Withholding Clearance Certificate application process is simple and may be completed online. A property tax accountant, like Nobel Thomas, can also assist with the process:
Download the Form: Go to the ATO website and find the online application form for the clearance certificate. The form requires information on the asset as well as the seller’s tax records, including an Australian Business Number (ABN) or Tax File Number (TFN).
Submit the Form: Complete the form and submit it online.
Receive the Certificate: Once issued (most applications are processed within a week), the certificate should be provided to the buyer’s solicitor before settlement to confirm that no withholding is necessary
What Happens if the Seller Fails to Provide a Certificate?
Buyer is legally required to withhold 15% of the purchase price and send it to the ATO if seller does not produce the withholding clearance certificate. When the seller files the tax return for the year of the property sale, this amount may be refunded or deducted from their CGT obligation.
Exemptions and Exclusions
In some cases, such as deceased estates or relationship breakdowns, specific exemptions may apply to the requirement to provide a WCC.
In order to prevent unneeded taxes from being withheld from real estate sales, ATO Withholding Clearance Certificates are required.
If the seller does not produce a clearance certificate, buyers are required to withhold 15% of the sale price.
Sellers who are residents of Australia must apply for the certificate in order to prevent the buyer from deducting tax at settlement.
Online application is available, and the process is simple. A property accountant such as Nobel Thomas can aid with the application procedure and provide answers to any queries.
