As of January 1st, 2025 significant changes to the Foreign Resident Capital Gains Withholding (FRCGW) legislation came into effect. These changes impact ALL Australian residents selling property, regardless of the sale price. This is a major update, and understanding the new requirements is crucial to avoid significant financial implications.
What’s Changed? ATO Clearance Certificates Now Mandatory for EVERYONE.
Previously, only property sales over $750,000 required an ATO clearance certificate. Now, ALL property sales, regardless of value, require sellers to obtain a clearance certificate from the Australian Taxation Office (ATO).
This means that if you’re an Australian resident selling any property – from a small apartment to a large estate – you MUST obtain a clearance certificate and provide it to the purchaser at or before settlement. Failure to do so will result in 15% of the sale price being withheld by the purchaser and paid to the ATO.
Why the Change?
The updated FRCGW legislation aims to ensure foreign residents pay their capital gains tax obligations before the sale proceeds leave Australia. While Australian residents are exempt from this withholding, the clearance certificate serves as proof of residency status.
What Do Sellers Need to Do?
- Apply for Your Clearance Certificate ASAP: If you signed a contract for sale on or after January 1st, 2025, you need to obtain a clearance certificate. Apply online through the ATO website as soon as possible. Don’t wait until you have an offer.
- Act Now, Even if You’re Not Selling Yet: Clearance certificates are valid for 12 months. Even if you’re not planning to sell immediately, applying now means you’ll be prepared when the time comes.
- Be Aware of Potential Delays: While most certificates are issued within a few days, some can take up to 28 days to process, especially if you have outstanding tax returns or other matters with the ATO.
The Cost of Non-Compliance: 15% Withholding
If you fail to provide a valid clearance certificate to the purchaser, they are legally obligated to withhold 15% of the purchase price and remit it to the ATO. You will then have to wait until your income tax return is processed to receive any refund that may be due. This could significantly impact your finances and cash flow.
Key Dates and Contracts:
- Contracts signed BEFORE January 1st, 2025: The new legislation does not apply, even if settlement occurs in 2025.
- Contracts signed ON or AFTER January 1st, 2025: The new legislation applies, and a clearance certificate is mandatory.
This is a significant change, and we understand you may have questions. Holdsworth Real Estate is committed to keeping you informed and helping you navigate these new requirements.
Contact us today to discuss your specific situation and how we can assist you.
Don’t delay – get your ATO clearance certificate application in today to ensure a smooth and hassle-free property sale!