Changes to Foreign resident capital gains withholding
Foreign resident capital gains withholding, Tax changes (FRCGW)
The Australian Government has recently made changes to the rules relating to Foreign resident capital gains withholding (FRCGW). These changes came into effect on 1 January 2025.
Under the previous rules, if a property in Australia was sold for $750,000 or more, the seller/s had to provide an ATO clearance certificate to the buyer/s before settlement. Otherwise, an amount equal to 12.5% of the purchase price was withheld at settlement and paid to the ATO for FRCGW.
From 1 January 2025:
- the withholding rate will increase from 12.5% to 15%; and
- the $750,000 property value threshold will be removed, and the withholding rules will apply to all property sales.
This means that all seller/s selling property in Australia regardless of the property value, will be required to provide an ATO clearance certificate to the buyer/s before settlement. Otherwise, the buyer is required to withhold 15% of the purchase price to be paid to the ATO at settlement.
The changes apply to contracts entered into on or after 1 January 2025.
The REIQ Contracts will not be updated as the relevant provisions already cater for changes to FRCGW thresholds/amounts.
How do you get an ATO clearance certificate?
Parties can apply for an ATO clearance certificate via the ATO website. Generally, most clearance certificates will issue within a few days. However, in some circumstances it can take up to 28 days to issue.
ATO clearance certificates are valid for 12 months. Seller/s don't need to wait until they have signed a contract before applying for an ATO clearance certificate, they can apply for the certificate when the property is listed or earlier.
Do real estate agents need to apply for the ATO clearance certificate?
No. Generally, the seller’s solicitor will undertake this as part of the conveyancing process and will order the certificate within the first few days of receiving the signed contract.
The REIQ recommends that if the buyer requests a settlement period shorter than 28 days, that agents may direct your seller client to seek advice on whether their circumstances may lead to a delay in the processing of the clearance certificate.
A seller can also apply for their own certificate. An agent may assist by directing the seller to apply for their own certificate through the ATO website, if they have not engaged a solicitor.