Significant changes to Foreign Resident Capital Gains Withholding (FRCGW) legislation have recently been passed by Federal Parliament, impacting all Australian property sellers from January 1, 2025. While designed to ensure tax compliance for non-resident sellers, these changes will also directly affect Australian residents.

What is FRCGW?

FRCGW is a mechanism to collect potential tax liabilities from non-residents selling Australian property. While Australian residents are exempt from the withholding itself, they currently need to provide a clearance certificate from the Australian Taxation Office (ATO) for properties valued at $750,000 or more to avoid having 12.5% of the sale price withheld.

Key Changes Effective January 1, 2025

Two major changes will come into effect for property contracts entered into on or after January 1, 2025:

• Removal of Threshold: The current $750,000 property value threshold will be removed. This means all property sales, regardless of value, will be subject to the FRCGW rules.
• Increased Withholding Rate: The withholding rate will increase from 12.5% to 15%.

What This Means for Australian Residents

These changes mean that all Australian residents selling property will now need to obtain a clearance certificate from the ATO. This certificate must be provided to the purchaser at or before settlement to avoid 15% of the sale price being withheld and sent to the ATO.

Consequences of Not Providing a Clearance Certificate

If a clearance certificate is not provided by settlement, the purchaser is legally obligated to withhold 15% of the sale price and remit it to the ATO. The vendor will then only receive any applicable refund after their income tax return is processed. This could result in a significant delay in accessing those funds.

Act Now to Avoid Delays

If you are planning to sell a property in 2025 or beyond, it’s crucial to act early and apply for your clearance certificate well in advance. While most certificates are typically issued within a few days, some applications can take up to 28 days to process, particularly if your tax affairs are not up-to-date.

Key Takeaway

Clearance certificates are valid for 12 months, so there is no need to wait until you have a signed contract to apply. Applying early can prevent potential delays and ensure a smooth settlement process. We strongly advise contacting the ATO or a qualified tax professional for further information and assistance with obtaining your clearance certificate.