Like all other property owners in Australia, SMSF trustees must obtain a Clearance Certificate when selling or disposing (including in specie transfers) Australian real property and give it to the purchaser at, or before settlement. Without a clearance certificate, the purchaser must withhold up to15% of the sale price (or market value if not sold at arm’s length).

The purpose is to prevent foreign residents from avoiding the capital gains withholding rules and assumes that all property owners are foreign residents unless proven (by way of certification) otherwise. Prior to 1 January it was only a requirement for $750k plus properties (and the rate was 12.5%) but now includes all direct property, irrespective of value, such as:

• vacant land, buildings, residential and commercial property
• mining, quarrying or prospecting rights where the material is situated in Australia
• indirect Australian real property interests (IARPI), where the holder has a right to occupy land or buildings on land.

The certification process is free and rather straight forward but must be attended to. A clearance certificate can be applied for well in advance of selling a property as they are valid for a year (can be longer for delayed settlement contracts) – unless there is a change of residency status. They can take up to 28 days (can be longer if there are complications) to issue so early action is advisable as they must be provided to the purchaser before settlement date to avoid the 15% deduction. Processing may take longer if:

• the vendor hasn’t lodged income tax returns recently
• there’s a change in residency status
• the names on the ATO’s records don’t match the names on the Certificate of Title
• the property is owned by complex entity structures and determining the residency takes longer.

The deducted amount is remitted to the ATO. If the vendor is not a foreign resident, but just failed to provide the certificate in time, they will not be able to access the withheld amount until they have lodged their tax return for the year in which the contract was signed. This cash flow delay can have significant commercial consequences.

Where the vendor involves multiple parties, each must provide certification, or the withholding will be applied to their share.

In addition to the vendor (who can apply on MyGov), clearance certificate applications can be made by, legal practitioners, tax agents, conveyancers, real estate agents and solicitors and registered tax agents representing the vendor on their behalf.

The entity that has legal title to the property applies for the clearance certificate. For an SMSF this should be the trustee of the fund but there may be some instances where another entity is holding the property title in trust for the SMSF. The name on the Certificate of Title and clearance certificate must match.

Early applications are advisable.