Starting 1 January 2025, changes will be made to Australia’s Foreign Resident Capital Gains Withholding (FRCGW) rules. These changes will affect both Australian residents and foreign residents selling property in Australia.

What are the changes to FRCGW?

The current withholding rate of 12.5% will rise to 15% on the sale of property.

The property value threshold of $750,000 will be removed, meaning the 15% withholding will apply to all property sales, regardless of the property’s value.

What is FRCGW?

FRCGW applies when a foreign resident sells Australian taxable property, a percentage of the sale price is required to be withheld and paid to the ATO. This withholding tax ensures that foreign residents pay their capital gains tax on profits made from the sale.

All Australian residents selling a property will be required to provide a clearance certificate from the Australian Taxation Office (ATO) to avoid withholding tax. If the seller fails to provide the certificate by the settlement date, 15% of the sale price will be withheld by the purchaser and paid directly to the ATO.

Foreign resident sellers may apply for a variation to the withholding rate. This means they may be able to reduce the amount withheld, depending on their specific circumstances

What is a Clearance Certificate?

Australian residents will be required to provide clearance certificate when selling a property. This certificate lets the buyer and ATO know that the FRCGW tax doesn’t apply to that particular property sale.

If an Australian resident seller does not provide a clearance certificate by the settlement date, 15% of the sale price will be withheld by the purchaser and sent to the ATO. If the 15% withholding is applied, the seller will be able to claim a refund of the amount withheld after their income tax return is processed.

A clearance certificate is valid for 12 months, so it’s advisable for sellers to apply for one ahead of time. Most certificates are processed quickly, but some may take up to 28 days to be issued.