December 10, 2024
Changes to the Foreign Resident Capital Gains Withholding (FRCGW) Regime: What Sellers Need to Know
In December 2023, the Australian Government proposed changes to the Foreign Resident Capital Gains Withholding (FRCGW) . These changes have now passed into law and will apply to property contracts entered into on or after 1 January 2025. Whether you’re an Australian resident or a foreign seller, these amendments could have significant implications for your property transaction.
Here’s what you need to know.
Key Changes to the FRCGW Regime
- Withholding Rate Increase
- The withholding tax rate will rise from 12.5% to 15% of the sale price.
- Removal of the $750,000 Property Value Threshold
- Previously, only property transactions valued at $750,000 or more were subject to the withholding rules.
- From 1 January 2025, these rules will apply to all property sales, regardless of value.
What This Means for Australian Resident Vendors
To avoid having 15% of the sale price withheld, all Australian resident vendors will need to obtain a clearance certificate from the Australian Taxation Office (ATO) before settlement.
What Happens Without a Clearance Certificate?
If an Australian resident vendor does not provide a clearance certificate by settlement, the purchaser is legally required to:
- Withhold 15% of the property’s sale price.
- Pay the withheld amount directly to the ATO.
How to Obtain a Clearance Certificate
Applying for a clearance certificate is a straightforward process, but timing is crucial.
- Application Process
- Vendors can apply for a clearance certificate through the ATO’s online portal.
- Processing Times
- Most clearance certificates are issued within a few days.
- However, in some cases, it can take up to 28 days for the certificate to be processed.
- Validity
- Clearance certificates are valid for 12 months from the date of issue.
- Vendors don’t need to wait until they have signed a contract to apply; applying early ensures the certificate is ready when needed.
Why These Changes Matter
The removal of the property value threshold and the higher withholding rate mean that all sellers must pay closer attention to their tax compliance obligations. This includes ensuring they apply for a clearance certificate well in advance of settlement.
Tips for Vendors
- Apply Early
Don’t leave your clearance certificate application until the last minute. Applying as soon as you decide to sell your property ensures there’s ample time for processing. - Stay Informed
Work closely with your conveyancer or solicitor to understand your obligations under the updated FRCGW regime.
Conclusion
The changes to the FRCGW regime reflect the Government’s commitment to enforcing tax compliance in property transactions. With the removal of the $750,000 threshold and the increased withholding rate, it’s more important than ever for Australian resident vendors to be proactive in meeting their obligations.
By applying for clearance certificates early and staying informed, vendors can navigate these changes smoothly and avoid potential delays or financial setbacks. If you have questions about how these changes might affect you, consult your conveyancer or tax advisor for tailored advice.
More Questions?
If you want more information about the conveyancing process, give our friendly, expert team of conveyancers a call today. Alternatively, get in touch via our contact form, or have a custom quote emailed to you.
The above is not legal advice and is general information only.
