Here is a scenario happening more and more across NSW and Queensland.
A vendor sells their property. Settlement is days away. The buyer’s conveyancer asks for an ATO clearance certificate. The vendor has never heard of it. Nobody mentioned it. The accountant did not bring it up. And now there is a problem.
Because without that certificate, the buyer is legally required to withhold 15% of the purchase price and pay it directly to the ATO at settlement.
On a $1 million property, that is $150,000 that does not arrive in the vendor’s bank account on settlement day.
This is not a glitch. It is not negotiable. You cannot agree to accept $2,000 instead of the full 15%. You cannot provide an undertaking that it will be sorted later. And you cannot shake hands and hope for the best.
Let us explain what is going on, in plain English.
⚠️ General information only, not legal or tax advice. Speak to your conveyancer and accountant about your specific situation. Tax rules can change, always verify current requirements with the ATO.
What Is This All About? 🤔
The rule is called Foreign Resident Capital Gains Withholding (FRCGW).
It was introduced because the Australian government was losing capital gains tax revenue from foreign residents selling Australian property and taking the money overseas without paying their tax bill.
So the ATO introduced a system where the buyer is required to withhold a portion of the sale price at settlement and pay it directly to the ATO, unless the vendor can prove they are an Australian resident for tax purposes.
How do you prove that? With an ATO clearance certificate.
When Does This Apply? 📋
Here is the change that has caught a lot of people off guard, and frankly, it is annoying.
✅ This now applies to ALL property sales in Australia, every single one, regardless of price. There is no minimum threshold.
It does not matter if the property is worth $200,000 or $5 million. All properties. All sales. No exceptions.
❌ Common misconception: “I am Australian, this does not apply to me.”
✅ The reality: It applies to everyone selling property in Australia. Australian residents are simply able to get a clearance certificate to avoid the withholding. Without the certificate, the buyer must withhold 15% regardless of whether the vendor is actually Australian or not.
| Scenario | What Happens | |
|---|---|---|
| 🇦🇺 | Australian resident, has clearance certificate | No withholding. Full sale price paid to vendor at settlement. |
| 🇦🇺 | Australian resident, NO clearance certificate | Buyer must withhold 15% and pay it to the ATO. Vendor has to sort it out with the ATO later. |
| 🌏 | Foreign resident, no clearance certificate | Buyer must withhold 15% and pay it to the ATO. This is what the rule was designed for. |
| 🌏 | Foreign resident, variation notice | A reduced withholding amount may apply if the ATO approves a variation. |
What Is the Clearance Certificate and How Do You Get One?
An ATO clearance certificate is a document issued by the Australian Tax Office confirming that the vendor is an Australian resident for tax purposes.
✅ It is free to apply for
✅ The application is done online through the ATO website
✅ It is valid for 12 months from the date of issue
⏰ It can take up to 28 days to be issued, though it is sometimes faster
💡 The Practical Point: Apply for your clearance certificate as soon as your property goes on the market, not when you are two weeks from settlement. If it takes the full 28 days and you are not ready, you have a problem.
If Anyone Offers a Lesser Amount or an Undertaking, This Is Not Allowed Under ATO Rules 🚫
This comes up more than you would think. A vendor, or their agent, will offer to provide an undertaking that the clearance certificate is coming. Or they will suggest the buyer just withholds a smaller amount and they will sort the rest out later.
Neither of these is acceptable under ATO rules. Full stop.
If anyone offers you a lesser amount or an undertaking in place of a valid clearance certificate, you cannot accept it. It does not matter how reasonable it sounds or how trustworthy the vendor seems. The ATO does not recognise undertakings as a substitute for the certificate, and agreeing to a lesser withholding amount does not protect the buyer from penalties.
The only two things that satisfy the obligation at settlement are:
✅ A valid ATO clearance certificate → no withholding required
✅ An ATO-approved variation notice → a specific reduced amount approved by the ATO applies
❌ An undertaking from the vendor → not allowed under ATO rules, buyer remains fully liable
❌ A lesser withholding amount agreed between parties → not allowed under ATO rules, the full 15% applies
🚫 Remember: If the buyer fails to withhold correctly at settlement, the penalties are the buyer’s to wear, regardless of any arrangement made with the vendor.
What Happens If the Buyer Does NOT Withhold When They Should? ⚠️
The penalties are real and they land on the buyer, not the vendor.
A purchaser who fails to withhold and pay the FRCGW at or before settlement may face:
A penalty equal to 10 penalty units or the full FRCGW amount, whichever is greater
General interest charges on any penalty amounts not paid by the due date
Written notice from the ATO of the liability and the reasons for the penalty
💡 In Plain English: If you are the buyer and the vendor does not provide a valid clearance certificate, you withhold 15%. Full stop. You do not take the vendor’s word for it. You do not accept an undertaking. You do not agree to $2,000. You withhold 15% and pay it to the ATO at settlement. The risk of not doing so sits entirely with you.
What Are the Vendor’s Risks? 🤔
If you are selling a property and you do not have a clearance certificate:
✅ The buyer will, and should, withhold 15% at settlement
✅ That money goes straight to the ATO
✅ You then have to deal with the ATO to have it applied against your actual tax liability or refunded, which takes time
❌ You do not get your full sale proceeds on settlement day
❌ You may have serious cash flow issues if you were counting on that money, especially if you have a purchase settling on the same day
For Australian residents, the clearance certificate is simply a matter of applying online well in advance. The cost is zero. The time investment is minimal. The benefit is avoiding a 15% hit on your settlement proceeds.
A Quick Summary: The Things You Must Know
| For Vendors | For Buyers | |
|---|---|---|
| What you need | An ATO clearance certificate, for ALL sales, any price | Clearance certificate OR an ATO-approved variation from the vendor |
| When to get it | As soon as the property goes on the market | Your conveyancer will request it, ask us early |
| What happens without it | Buyer must withhold 15% of full sale price | You must withhold 15%, no exceptions |
| Can you negotiate the withholding amount? | ❌ No | ❌ No — penalties apply if you get this wrong |
| Can an undertaking replace it? | ❌ No | ❌ No — does not satisfy the legal obligation |
| How long does it take? | Up to 28 days — apply early | N/A — your conveyancer manages this |
| Cost to apply? | Free | N/A |
The FAQs 🙋
Q: I am definitely Australian, surely this does not apply to me? It applies to the transaction regardless of your residency. If you do not provide the certificate, the buyer is legally required to withhold. Apply for the certificate, it is free and the online application is straightforward.
Q: Does this apply to all sales now, even cheap properties? Yes. The threshold that previously limited this to sales over $750,000 has been removed. It now applies to all real property sales in Australia. Yes, it is annoying. No, there is no way around it.
Q: Can the vendor just give an undertaking to provide the certificate after settlement? No. An undertaking does not satisfy the buyer’s legal obligation to withhold at settlement. If the buyer accepts an undertaking instead of withholding, they are exposed to penalties if the certificate does not materialise. Do not accept undertakings, get the certificate.
Q: What if the vendor will only agree to $2,000 being withheld? The withholding amount is prescribed by law, it is 15% of the full sale price. The parties cannot agree to a different amount. If the buyer withholds less than required, they face penalties. The vendor’s agreement to accept less does not protect the buyer.
Q: What if the vendor is overseas and cannot be contacted? If there is no clearance certificate and no instructions, withhold. Settling without withholding when you are required to do so exposes the buyer to penalties regardless of the circumstances.
Q: Is this the same as capital gains tax? Not exactly. The FRCGW withholding is a prepayment mechanism, not the tax itself. For Australian residents, the clearance certificate confirms no withholding is required. Your actual capital gains tax position is dealt with through your annual tax return with your accountant.
The Bottom Line 💬
The ATO clearance certificate is now required for every property sale in Australia, not just sales over $750,000. The withholding amount is not negotiable. An undertaking is not a substitute. And $2,000 is not 15%.
If you are selling, apply for your clearance certificate the moment your property goes on the market. If you are buying, make sure your conveyancer is across this from day one.
At Milana Law, we manage the clearance certificate process as part of every transaction. We ask for it early, we follow it up, and we make sure settlement is not derailed by a piece of paperwork that should have been sorted weeks ago.
Buying or selling in NSW or Queensland? Talk to Milana Law, we handle the details so you do not have to.