Why is the ATO asking if I’m a foreign resident?

Why does the current government require clearance certificates for capital gains tax (CGT) from every property seller in Australia? What is the purpose of this? I understand the need to identify foreign property owners for CGT, but why apply it to everyday Australians who own and reside in just one property? Surely there must be a better way to identify foreign investors.

I am 68 and live on acreage – I don’t want to downsize because my one-acre block brings me joy in my retirement through flower and vegetable gardening. The issue is that many people might miss this requirement and risk losing a significant percentage of their home’s sale price. What can be done to prevent this?

If you’re thinking of selling a property, it’s wise to get ahead of the tax office by filling out one key form.Credit: Simon Letch

Mark Molesworth, tax partner of BDO, tells me the tax law in relation to withholding tax on sales of Australian real estate has been extended from January 1, 2025. For contracts entered after that date, all sellers must either obtain a residency clearance certificate (if they are a resident, of course) or suffer the buyer withholding 15 per cent of the market value of the property.

These rules have progressively been extended by governments of all persuasions since they were first introduced in 2016.

Molesworth says that applying for a clearance certificate is quite an easy process through the Australian Taxation Office website, and the certificate is valid for 12 months – so it is wise to apply for one as soon as you are thinking of selling a property, rather than waiting to sign the contract before applying. Your solicitor, conveyancer or tax agent can help with the application.

My wife and I are self-funded retirees, relying on my superannuation income account and other savings/investments. Her $600,000 super remains in an accumulation account, where we make occasional after-tax contributions of $10,000-$12,000 per year, allowing it to grow.

As we don’t currently need income from her super, would it be more tax-effective to switch her to an income account, withdraw the required minimum monthly and reinvest all/most back into accumulation? She’s turning 64 soon, giving her one year at a 4 per cent withdrawal rate before it increases to 5 per cent.

The net earnings rate after fees and taxes on your super is the key factor in determining how long your money lasts. Earnings in accumulation mode are taxed at a flat 15 per cent, while returns in retirement pension mode are tax-free.

By moving from accumulation mode to pension mode you should get a higher net return. As you note, the downside of switching to pension mode is the mandatory withdrawals each year, but she can simply reinvest these into a separate super account until she turns 75.

I’m 61, still working full-time, earning a gross salary of $120,000 plus super. I have a $450,000 mortgage on my family home and a share in another property worth $700,000, which will be sold in two to three years and subject to CGT. My super balance is $340,000, but I won’t be able to add more until the second property is sold. My preference is to pay off the mortgage in full and ideally reduce my hours to part-time. Any suggestions?

If you are still working full-time you may not be able to withdraw your superannuation until age 65 unless you satisfy a condition of release earlier. However, you could withdraw the money progressively from your fund at any time, up to 10 per cent annually, using a transition to retirement pension.

Just take advice before you sign a contract for the sale of the property. If you sell it after you retire and your superannuation balance is under $500,000, you may be able to make catch-up superannuation contributions, which could really reduce your CGT.

I am 61 and my wife is 58. I earn $165,000 while she works part-time, earning just under $30,000 per year. Since paying off our mortgage we’ve been directing extra funds into my super, contributing $4000 per year to hers.

This year I will have fully used my carry-forward concessional contributions, and my fund now exceeds $500,000. Since any tax my wife pays is reclaimed through her tax assessment, is there any advantage to using her concessional contributions, or is it effectively the same as making an after-tax contribution?

Due to your wife’s low salary, there’s not much to gain by her making tax-deductible concessional contributions. Given you are in the 37 per cent marginal tax bracket, it would make sense to put as much money as you can from her income as non-concessional contributions.

The only drawback is that she is three years younger than you and therefore may not access her super as quickly as you could.

Noel Whittaker is the author of Retirement Made Simple and other books on personal finance. Questions to: [e-mail]

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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