The Foreign resident capital gains withholding (FRCGW) rules are changing from 1 January 2025.
Currently, Australian residents selling property must provide a clearance certificate to the purchaser at or before settlement to avoid having 12.5% withheld from a property sale where the value of the property is $750,000 or more.
Under the changes:
- the withholding rate will increase from 12.5% to 15%
- the $750,000 property value threshold will be removed, and the withholding rules will apply to all property sales.
The changes apply to contracts entered into on or after 1 January 2025.
FRCGW is designed to support the collection of tax liabilities owed by non-residents selling Australian property.
All Australian residents selling property will require a clearance certificate from the ATO, or withholding will apply to the transaction. If an Australian resident vendor doesn’t provide a clearance certificate by settlement, 15% of the sale price must be withheld by the purchaser and paid to the ATO.
If an amount is withheld from the sale price, the vendor will only receive any refund due after their next income tax return is processed at tax time.
Most clearance certificates will issue within a few days, but it is important to apply early because some can take up to 28 days to issue. They are valid for 12 months, so the vendor doesn’t need to wait until they have signed a contract.
Foreign resident vendors may be able to apply to vary the withholding rate.
