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Are you considering selling property in Australia? If so, you need to make sure the ATO knows your name!

Since 2016, an essential part of many property sales has been obtaining an ATO Clearance Certificate to avoid a withholding payment to the Australian Taxation Office at settlement. This requirement was introduced by the Federal Government as a measure to ensure that foreign investors paid capital gains tax when disposing of land in Australia.

As of 1 January 2025, this requirement was amended to extend to all sales of property in Australia (previously, it was only required for those above a certain monetary threshold that was changed twice). This means that if a seller is unable to provide an ATO Clearance Certificate before settlement, the buyer is required to withhold 15% of the purchase price and direct this amount to the ATO.

While the process for obtaining an ATO Clearance Certificate is relatively straightforward (lodging an online form), the validity of the certificate depends on the correct recording of a seller’s name with the ATO historically. If a person’s name is incorrectly recorded with the ATO, their ATO Clearance Certificate will reflect this error.

A Recent Case:

A recent New South Wales case has highlighted the importance of complying with the withholding requirements, unfortunately demonstrating the dire financial consequences of failing to properly consider these obligations. A retiree entered into a contract for the sale of their family home in Sydney for approximately $1.5 million. The seller failed to provide an ATO Clearance Certificate to the buyer, and accordingly $187,500 was withheld (given the withholding rate was 12.5% at this point in time). The NSW Supreme Court found that it was the Seller’s responsibility to provide the ATO Clearance Certificate, and that the withholding had been validly made by the Buyer.

Funds withheld:

In light of the strict obligations imposed on buyers regarding withholding, we have seen recent instances of buyers withholding 15% of the purchase price at settlement simply because of an administrative error in the recording of a seller’s name with the ATO. These withholdings could have been legitimately avoided had the seller proactively confirmed that their name was correctly recorded with the ATO before commencing the process of selling their property and applying for a clearance certificate.

What sellers should be doing:

It is vitally important that all prospective sellers in Australia:

  1. Confirm their details are correctly recorded with the ATO before commencing the time-sensitive process of selling property; and
  2. Apply for an ATO Clearance Certificate before signing a contract to ensure no further action needs to be taken before the time crunch of contract deadlines set in.

If you have any questions or concerns regarding ATO Clearance Certificates, or if you require assistance with a property sale, then our Property + Business Transactions Team can assist you.

For further information, contact Amanda Tolson.

The assistance of Patrick Gellatly, Lawyer, in researching this article is gratefully acknowledged.