The Foreign Resident Capital Gains Withholding (FRCGW) rules are changing from 1 January 2025. Under the new rules, 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. As a result, all Australian residents selling property will require a clearance certificate from the ATO, or withholding will apply to the transaction.
Key Takeaway Points:
- The Foreign Resident Capital Gains Withholding (FRCGW) rules changed on 1 January 2025.
- Prior to 1 January 2025, Australian residents for tax purposes (Australian residents) selling property were obliged to provide a clearance certificate to the purchaser at or before settlement to avoid having 12.5% withheld from a property sale where the value of the property was $750,000 or more.
- Under the changes, the withholding rate has increased to 15% and the $750,000 property value threshold has been removed. The withholding regime now applies to all property sales.
- All Australian residents selling property will require a clearance certificate from the ATO, or the withholding regime will apply to the transaction.
Previous FRCFW Rules
Under the previous FRCGW rules, Australian residents selling a property were required to apply for a clearance certificate to be provided to the purchaser at or before settlement to avoid having 12.5% withheld from a property sale where the value of the property was $750,000 or more.
Changes from 1 January 2025
The changes applicable from 1 January 2025 have increased the withholding rate to 15% and removed the $750,000 property value threshold. The withholding regime will therefore apply to every property sale by Australian residents, and all residents will now be required to apply for a clearance certificate to be provided to the purchaser prior to settlement. Where a clearance certificate is not provided to the purchaser prior to settlement, 15% of the purchase price will be withheld by the purchaser and paid to the ATO.
Obtaining a clearance certificate
Sellers should apply for a clearance certificate as soon as possible prior to settlement as some may take up to 28 days to issue. Certificates issued by the ATO are valid for 12 months, so a certificate can be applied for and obtained in advance. FRCGW clearance certificates can be applied for online. Here is a link to the ATO’s current application page – https://www.ato.gov.au/single-page-applications/frwt-certificate .
Refund of withheld funds
Where an amount is withheld at settlement and paid to the ATO, a refund (in instances where FRCGW does not apply) will only be made to the seller after their next income tax return is processed at tax time.
Conclusion
Given the requirement to obtain a FRCGW clearance certificate now applies to the sale of all property in Australia, it is important sellers are aware of their obligations prior to settlement. A FRCGW clearance certificate should be obtained as early as possible to avoid invoking the withholding regime.
Next steps
Our Property team is happy to assist if you have any queries about how the changes to the FRCGW rules may affect you / your clients.
