Some important changes to Australia’s Foreign Resident Capital Gains Withholding (FRCGW) came into effect on January 1st 2025. At The Henry Wong Team®, we like to keep our sellers and buyers updated with their tax obligations, and it’s important you are aware of these changes, what they entail and the reasons behind them. To start off with, let’s look at what the FRCGW is.
What is Foreign Resident Capital Gains Withholding (FRCGW)?
The Foreign Resident Capital Gains Withholding (FRCGW) is a tax measure designed to ensure foreign property sellers pay their capital gains tax (CGT) obligations. It requires Australian property buyers to withhold a portion of the purchase price and pay it directly to the ATO. This system means that property sellers who aren’t Australian residents for tax purposes still contribute their share of taxes to the Australian economy.
The recent changes to the FRCGW increase the amount buyers have to withhold and direct to the ATO from 12.5% to 15%, as well as abolishing the $750,000 threshold on the property value that triggered the tax. These changes enhance tax compliance and ensure equitable tax treatment across all property transactions. Let’s take a closer look at them and what they imply.
Key Changes to the FRCGW
Two key changes to the FRCGW came into place on January 1st. Here they are:
Removal of Market Value Threshold
Previously, FRCGW applied only to transactions where the market value of the property being sold was greater than $750,000. Now, The $750,000 threshold has been abolished. All property transactions are subject to FRCGW, regardless of the value of the property.
Increase in Withholding Rate
Previously, the amount buyers were required to withhold was 12% of the property value. With the changes, this has been increased to 15%.
What Does This Mean for Property Sellers?
If you’re an Australian resident for tax purposes you’ll want to avoid the 15% withholding tax. To do this, simply obtain a clearance certificate from the ATO that confirms your residency for tax purposes. This means you’ll receive the full sale proceeds without deductions.
If you’re a foreign resident for tax purposes selling a property in Australia, you have a withholding obligation. The purchaser will withhold 15% of the sale price and remit it to the ATO. the amount is credited against your capital gains tax liability, and if it exceeds your CGT liability, you can apply for a refund when it comes to lodging your tax return.
What Does This Mean For Property Buyers?
If you’re buying a property in Australia, you need to check with the seller if they have a valid clearance certificate from the ATO. If they fail to produce one, you must withhold 14% of the sale price and transfer it to the ATO. If you don’t, you could be held liable for the amount, plus there may be other penalties and interest to pay.
Are There Any Exemptions?
There are some exemptions for certain transactions. According to the ATO website, these are:
- transactions through an approved stock exchange (such as the Australian Stock Exchange) or those using a broker-operated crossing system
- transactions subject to another withholding obligation, see List of CGT assets and exemptions
- securities lending arrangements, as these don’t cause a CGT liability
- transactions when a vendor is in external administration, or transactions from a bankrupt estate, a composition or scheme of arrangement, a debt agreement, a personal insolvency agreement, or same or similar circumstances under a foreign law.
How to Stay Compliant
It’s important to stay compliant with tax and legal obligations when entering into a property transaction. After all, it’s likely to be one of the biggest, if not the biggest, financial transactions you make in your life.
If you’re a seller, we’d recommend you apply for a clearance certificate well in advance of the sale to ensure timely processing. If you’re a buyer, it’s vital you ensure the seller produces a valid clearance certificate before settlement. If they can’t do this, remit the 15% of the sale price to the ATO in a timely fashion.
More Information on the FRCGW
If you want in depth information on the FRCGW, we’d recommend getting in touch with your preferred solicitor or conveyancer to assist you with them. If you don’t have one yet, contact us and we’ll gladly refer you to one.
You will also find these links helpful:
Click here for the ATO page on the FRCGW
Click here to apply for a clearance certificate if you’re selling a property
Hopefully this information helps anybody selling a home in 2025! All the best and chat soon. Henry.
