A new rule designed to prevent foreign investors falling down on tax liabilities is coming into force in Australia on 1 July.

Australia’s tax authority has warned would-be buyers or sellers of real estate that deals valued at A$2 million ($1.44 million) or more will be affected by a new regulatory requirement, designed to ensure foreign residents do not dodge capital gains tax liabilities.

Residents in Australia who are selling a taxable Australian property with a market value of $2 million need to get what is called a clearance certificate from the Australian Taxation Office, to confirm 10 per cent does not need to be withheld from the transaction, the ATO said.

“We encourage all Australian residents who are looking to sell property with a value of $2 million or more to apply for a clearance certificate as early as possible," said Malcolm Allen, assistant commissioner at the ATO. The new rule comes into force on 1 July.

Clearance certificates are valid for 12 months from issue, and must be valid at the time it is made available to the buyer.

The new rules have been introduced to ensure foreign residents meet their capital gains tax liabilities. Amounts withheld will be credited against their final income tax liability assessed on foreign residents’ income tax returns, the ATO said.