There have been significant changes to the Foreign Resident Capital Gains Withholding (FRCGW) Tax Regime that have come into effect from 1 January 2025. These changes will affect all property sales.
Summary of Changes
| Previous Regime | New Regime (effective 1 January 2025) | |
| Withholding Rate | 12.5% | 15% |
| Applicable To | Purchase Price greater than or equal to $750,000 | All Property Sales regardless of Purchase Price |
What is FRCGW?
The FRCGW Tax Regime was first introduced on 1 July 2016 and applies to Sellers disposing of certain taxable property.
The FRCGW Tax Regime supports the collection of tax owed by foreign residents. However, it also impacts Australian residents. Australian residents who sell property must provide an ATO Clearance Certificate to Buyers, prior to Settlement to confirm the tax does not need to be withheld as part of the sale process. It imposes an obligation on the Buyer to withhold 15% of the purchase price and pay it to the ATO if the Seller does not provide an ATO Clearance Certificate prior to Settlement. There is no discretion allowing Buyers to not withhold it and remit 15% of the purchase price at Settlement. In fact, Buyers need to be aware that they may be in breach of tax legislation if they fail to withhold and pay the relevant amount to the ATO at Settlement.
How do you get an ATO Clearance Certificate?
You can apply for an ATO Clearance Certificate via the ATO website, and they can take up to 28 days to issue.
ATO Clearance Certificates are valid for 12 months. Sellers do not need to wait until they have a signed Contract to apply for an ATO Clearance Certificate. Sellers can apply for the certificate once the property is listed for sale or earlier. At Big Law, we assist Sellers in applying for the ATO Clearance Certificate, as part of the conveyancing process.
How these changes may affect you
These changes impact all sales contracts, whether or not the Seller is a foreign entity. Removing the $750,000 threshold will bring lower value property transactions into the FRCGW Tax Regime.
For contracts entered into from 1 January 2025, Buyers will be required to withhold 15% of the purchase price and pay it to the ATO unless the Seller has obtained and provided them with an ATO Clearance Certificate prior to Settlement.
In practical terms, all Sellers of real property need to either:
- Attach an ATO Clearance Certificate to the Sale Contract; or
- Provide an ATO Clearance Certificate before Settlement, to avoid the withholding obligation.
Foreign Entities
If you are a foreign entity selling property, be aware of the increase in the withholding rate and the removal of the threshold, and plan accordingly.
Unclear? Contact our Expert Team
If you as either a Buyer or a Seller are unsure of what is required as part of the updated FRCGW Tax Regime, contact our expert property team at Big Law today for more information and guidance.
