As of 1st January 2025, significant changes to the ATO’s Foreign Resident Capital Gains Withholding (FRCCW) regime have taken effect, impacting both Australian residents and foreign investors involved in property transactions.
These updates aim to enhance tax compliance among foreign residents disposing of Australian property. Purchasers & sellers should both be familiar with the updated requirements to ensure that property transactions run smoothly.
A summary of the key changes include:
- Increased Withholding Rate – The withholding rate has risen from 12.5% to 15% on the property’s sale price.
- Removal of Property Value Threshold – The previous threshold of $750,000 has been eliminated and all property sales (regardless of value) are subject to the FRCGW provisions.
In respect to Australian residents, to avoid the 15% withholding a property clearance certificate must be obtained from the ATO and provided to the purchaser on or before settlement. If this certificate has not been provided, purchasers are legally required to withhold 15% of the sale of price and remit this to the ATO.
Foreign residents will generally be subject to the new 15% withholding rate. However, they may apply for a variation if the withholding amount is expected to exceed their tax liability.
A valid clearance certificate is valid for 12 months so it’s advisable to apply as soon as you consider selling your property. While most certificates are issues within a few days, some may take up to 28 days. If you require any assistance with applying for the certificate, please contact our office for assistance.
