A Clearance certificate is used to prove the seller is not a foreign resident and that withholding tax is not applicable to the property transaction. The seller is responsible for obtaining a clearance certificate from the ATO to avoid the buyer of the property withholding the GST component of the transaction. Clearance certificates typically take up to 28 days to be issued and should be provided to buyer at or before settlement. The issuance of clearing certificates is a way to reduce the risk of foreign residents selling Australian real estate and relocating overseas without remitting the tax component of the transaction to the ATO. Unless the seller can produce a Foreign Resident Capital Gains Withholding Clearance Certificate (FRCGW) the buyer will withhold 12.5% of the purchase price on settlement.
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