The clearance certificate that holds up settlement
Since 1 January 2025 the foreign resident capital gains withholding rate is 15 per cent and there is no property value threshold. If your sale includes the freehold, the certificate is on the critical path.
General information only, not financial, legal or taxation advice. Tony Pope holds Queensland Office of Fair Trading licence 4963575.
The short version
- From 1 January 2025 foreign resident capital gains withholding is 15 per cent and applies to the value of all property. The old $750,000 threshold is gone.
- An Australian resident vendor needs a valid ATO clearance certificate at or before settlement. Without one the buyer must withhold and pay it to the ATO.
- Being an Australian resident does not exempt you from the paperwork. It only means you can get the certificate.
- It is free and it is the easiest thing in a settlement to leave too late. Apply when the business goes to market, not when the contract goes unconditional.
This one is pure administration, it costs nothing, and it is one of the more common reasons an otherwise finished settlement does not settle on the day.
Since 1 January 2025 the foreign resident capital gains withholding rate is 15 per cent and it applies to the value of all property. Before that it was 12.5 per cent and only on property valued at $750,000 or more. The threshold is gone entirely.
What the rule actually does
It puts an obligation on the purchaser, not the vendor. Where the rules apply and the vendor has not given the purchaser a valid clearance certificate at or before settlement, the purchaser must withhold the amount from the sale proceeds and pay it to the ATO.
Read that again with your own settlement in mind. The money does not go to you and then get sorted out later. It comes off the cheque on the day, and you recover it through your tax return.
Why it catches Australian residents
Because the certificate is the mechanism, not the residency.
An Australian resident vendor is not carved out of the rule. They are entitled to obtain a clearance certificate from the ATO, and producing it is what stops the withholding. No certificate, and the purchaser is legally obliged to withhold regardless of the fact that you have lived here your whole life and the ATO knows exactly who you are.
It is a paperwork rule with a cash consequence, which is the worst kind to leave to the last week.
Where this touches a business sale
If your sale includes the freehold premises, it is in play. That covers a great many of the businesses I appraise: the workshop with the yard, the farm, the premises the trading entity has occupied for fifteen years.
If you are selling the business and the premises are leased, it generally does not arise on the business assets. Generally is doing work in that sentence, because the assets in a particular deal and the way it is structured decide the answer. Put the question to your solicitor when the contract is drafted rather than assuming either way.
What to do, and when
Apply when the business goes to market. Not when you have a buyer, and not when the contract goes unconditional. The certificate is free, it is valid for 12 months, and applying early costs you nothing but a few minutes.
Check the name matches. The certificate has to be in the name of the entity that is actually the vendor on the contract. Where the property is held by a trustee company or in personal names and the business trades through something else, that is not always the name people assume, and a mismatch is as good as no certificate.
Give it to the buyer in writing and keep the proof. Your solicitor will want it on file well before settlement.
The pattern this belongs to
There is a small group of items in every business sale that are free, quick, and capable of stopping settlement if they are not done: the clearance certificate, the PPSR searches, the lease consent, the licence transfers. None of them is difficult. All of them take longer than expected when they are started late, because each one depends on somebody else.
Start them at the beginning of the campaign. The cost of doing that is an hour. The cost of not doing it is a settlement that moves, and a settlement that moves is when buyers start renegotiating.
Common questions
Does foreign resident capital gains withholding apply if I am an Australian resident?
The withholding obligation sits with the purchaser and applies unless the vendor gives them a valid clearance certificate issued by the ATO at or before settlement. So yes, it applies to you in the sense that you have to produce the certificate. Being a resident is what entitles you to one, it is not what exempts you from the process.
Does this affect a business sale, or only a property sale?
It applies to Australian real property and to certain other assets. A business sale that includes the freehold premises brings it into play. A pure asset sale of goodwill, plant and stock with a leased site generally does not, but the structure of your particular deal decides that and it is a question for your solicitor and accountant rather than an assumption.
How long does an ATO clearance certificate take?
Most are issued quickly, but the ATO notes that some can take longer where there are irregularities or where returns are outstanding. That is exactly why it is applied for early. A certificate is valid for 12 months, so applying at the start of a campaign costs nothing and removes the risk.
Keep reading
All notes on selling a business · All seller guides · What is my business worth?
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