understanding the Clarence Certificate: a must-have for property sellers in 2025
- Life Home Loans
- Feb 17
- 3 min read
What is a Clarence Certificate for Property Sales?
From January 1, 2025, the Australian Taxation Office (ATO) requires a Clarence Certificate for anyone selling a property that is subject to Capital Gains Tax (CGT). This new rule impacts the residential property sector and was introduced to curb tax avoidance and ensure that capital gains tax is correctly applied when properties are sold.
A Clarence Certificate is a document that confirms whether the seller of a property is up to date with their tax obligations and whether the property in question is subject to CGT. It's a way for the ATO to confirm that the seller is complying with all tax laws, especially when dealing with properties that may be subject to CGT (which includes most properties sold that are not the seller’s primary residence).
Why the Clarence Certificate is Now Required
The introduction of this certificate aims to:
Prevent Tax Avoidance: The ATO is increasingly focused on preventing tax avoidance schemes where properties are sold without properly accounting for capital gains tax.
Enhance Property Transaction Transparency: The Clarence Certificate is part of a broader effort to create more transparency in property transactions, ensuring sellers don’t bypass their tax obligations.
Ensure Compliance: By making the Clarence Certificate a mandatory part of the property sale process, the ATO can easily track whether sellers have paid or are liable to pay CGT, reducing the chances of tax non-compliance.
What is the Process for Obtaining a Clarence Certificate?
To obtain a Clarence Certificate, the seller must request the certificate from the ATO before selling their property. The process involves:
Application: Sellers need to apply through the ATO’s online portal or consult with their tax advisor.
Review of Tax Status: The ATO will review the seller's tax history and determine whether they are up to date with any CGT obligations. If the seller is in good standing, the ATO will issue the Clarence Certificate.
Presentation of the Certificate: The certificate must be provided during the settlement process of the property sale, and it may be required by the buyer’s legal or conveyancing team.
Who Needs a Clarence Certificate?
The Clarence Certificate is generally required for any property sale where CGT is applicable. This includes:
Investment Properties: If you’ve owned an investment property, the proceeds from the sale are typically subject to CGT.
Second Homes: If the property is not your primary residence and you sell it for a profit, it may be subject to CGT.
Development or Commercial Properties: These are also typically subject to CGT and would require the certificate.
However, properties sold under certain exemptions (such as your main residence under specific conditions) may not require a Clarence Certificate, though this depends on the individual circumstances.
When is the Clarence Certificate Required?
From January 1, 2025, the Clarence Certificate will be mandatory for property sales where CGT applies. The seller must obtain the certificate before settlement occurs, which means it’s crucial to factor this into the sales process.
What Happens if You Don’t Have a Clarence Certificate?
If the seller does not obtain the Clarence Certificate before the sale is finalized, they could face penalties, or the sale may be delayed until the proper documentation is submitted. This could also complicate the settlement process and possibly result in legal disputes or complications with the buyer’s tax obligations.
How to Prepare for This New Requirement
Keep Records Updated: Ensure that you have accurate records of your property’s purchase price, improvement costs, and any other relevant documents that may affect CGT calculations.
Consult a Tax Professional: If you’re unsure about whether CGT applies to your property sale, it’s a good idea to speak with a tax professional or accountant. They can help you understand whether the Clarence Certificate is required and assist you in obtaining it.
Allow Time for the Process: Since you’ll need to request the Clarence Certificate before settlement, be sure to plan ahead and request it well in advance of the sale date.
Conclusion
The Clarence Certificate is an important new step in the property transaction process starting January 1, 2025. If you’re selling property that is subject to CGT, make sure to apply for the certificate and include it in your sale documents. By understanding this requirement now, you can avoid unnecessary delays and penalties during the sale process. Always consult with a tax professional to ensure that you are in full compliance.
Disclaimer: This article provides general information only and does not necessarily reflect the views of the publisher or supplier. It is current as of the publication date and may change over time. Readers are advised to consult with a financial advisor, broker, or accountant before making any investment decisions, as this article is not a substitute for professional advice.
Comments