Foreign Resident Capital Gains Witholding (FRCGW) Regime Changes

Under the FRCGW Regime, Australian residents must have a valid clearance certificate on or before settlement of a sale of property. Without a valid clearance certificate, FRCGW must be withheld from the sale proceeds by the purchaser and paid to the Australian Taxation Office (ATO).

Foreign residents may incur capital gains tax (CGT) on the sale of Australian property. Purchasers must withhold FRCGW from the sale price and remit this to the ATO to go toward payment of this liability. FRCGW must be withheld unless the foreign resident vendor has a variation notice from the ATO specifying a reduced rate of FRCGW.

Australian residents must apply for a clearance certificate. Certificates are valid for 12 months. There is no need to wait until a contract has been entered into before applying for a clearance certificate.

From 1 January 2025,  the following FRCGW rates apply to the market value of property contracts signed:

• Up to and including 31 December 2024, a rate of withholding is 12.5% and applies to property valued at $750,000 or more if clearance certificates are not provided. Vendors of properties transacted below the $750,000 threshold are exempt from having to obtain clearance certificates.
• On and after 1 January 2025, a rate of witholding increases to 15% of the value of all properties transacted. All vendors must provide purchasers with clearance certificates prior to or at settlement to avoid the withholding obligations being imposed.
• From 1 January 2025, vendors need to obtain clearance certificates regardless of the sale price as the $750,000 threshold no longer applies. 

These amendments impact all sale contracts, whether or not the seller is a foreign entity.

For contracts entered into from 1 January 2025, purchasers will be required to withhold 15% (previously 12.5%) of the purchase price and remit it to the ATO unless the vendors obtain valid clearance certificates prior to settlement. 

Contracts entered into before 1 January 2025 will not be affected by these changes. However if an option has been entered into before 1 January 2025 but is only exercised after that date, the new regime will apply to the resulting contract.

If you are a foreign entity selling property, you should be aware of the increase in the withholding rate and the removal of the $750,000 threshold. It is still possible to apply for a reduction in the rate of FRCGW in certain circumstances.