Clearance Certificate RequirementsThe Australian Federal Government recently announced a series of changes to land sale and purchase requirements. One such change is in relation to the clearance certificate requirements, a document which states whether or not there is any land tax owing on a property and is used as proof that the vendor is not a foreign investor.

To date, a clearance certificate has been required for any property selling for in excess of $2 million. The purchaser must obtain a clearance certificate from the vendor either prior to, or at the time of, settlement. If no clearance certificate can be obtained from the vendor, then the onus moves to the purchaser who must then withhold 10% of the purchase price. The purchaser will then pay that 10% to the Australian Taxation Office at settlement. The change was introduced in order to ensure foreign investors are complying with Australian capital gains tax requirements.

As of July 1 2017, a clearance certificate will be required for the transfer of any property over the value of $750,000, a significant change from the previous threshold of $2 million. Further to this, the withholding rate has risen from 10% to 12.5%. These changes are expected to raise about $600 million revenue.

According to Domain.com.au, Sydney is home to 395 suburbs where at least half of the houses cost more than $750,000 and 126 suburbs with apartments in the same price range. The change is going to have an obvious impact on the amount of paperwork required and will likely increase the legal fees payable by the vendor. To avoid any complications or delays it is recommended that vendors apply for the clearance certificate early on in the sales process however Australian residents can expect to receive their certificate approximately two weeks after applying. It may also be prudent for purchasers ensure contracts include a clause requiring the vendor to provide a valid clearance certificate prior to settlement.

Further to this, foreign investors will be subject to additional fees in New South Wales as of July 1 2017 with the State Government announcing additional fees for foreign investors, including increasing the surcharge from 4% to 8% and raising land tax from 0.75% to 2%.