Effective 1 January 2025, changes to the Australian Taxation Office’s (ATO) Foreign Resident Capital Gains Withholding (FRCGW) rules have been implemented, impacting all Australian residents involved in property transactions. Previously, the FRCGW applied only to property sales exceeding $750,000, with a withholding rate of 12.5%. The updated regulations have removed this threshold, and now all property sales, regardless of value, are subject to a 15% withholding unless a valid clearance certificate is provided.

Key Changes Effective from 1 January 2025:

  1. Increased Withholding Rate: The withholding rate has risen from 12.5% to 15% of the property’s sale price.
  2. Elimination of Property Value Threshold: The previous $750,000 threshold has been removed. Now, all property sales, irrespective of their value, are subject to withholding requirements.
  3. Mandatory Clearance Certificates for All Sellers: All Australian residents selling property must obtain a clearance certificate from the ATO and provide it to the purchaser at or before settlement to avoid the 15% withholding. Failure to do so will result in the purchaser withholding 15% of the sale price, which is then remitted to the ATO.

What does this mean for sellers? 

  • Timely Application: It’s crucial to apply for a clearance certificate well in advance of selling your property. While most certificates are issued within a few days, processing can take up to 28 days in certain cases. Certificates are valid for 12 months, allowing flexibility in planning property sales.

  • Financial Impact of Non-Compliance: Without a valid clearance certificate, 15% of the sale proceeds will be withheld. Sellers can reclaim this amount when lodging their annual tax return, but this process may delay access to funds.

What are the steps? 

  1. Application Submission: Apply for the clearance certificate through the ATO’s online portal as early as possible.
  2. Information Accuracy: Ensure all details provided in the application match the information on the property’s title to prevent processing delays.
  3. Certificate Provision: Once received, provide the clearance certificate to the purchaser before settlement to avoid the withholding.

These changes are designed to enhance the ATO’s ability to collect tax liabilities from non-residents selling Australian property. However, they also impose new obligations on Australian residents. Proactive compliance is essential to prevent unnecessary financial and administrative burdens.

For personalized guidance and assistance with these new requirements and conveyancing please contact Reid Legal Group.

Reference:  ato.gov.au