Foreign Resident Capital Gains Withholding Update

Introduced in 2016, the Foreign Resident Capital Gains Withholding (FRCGW) rules aim to ensure appropriate tax is withheld by purchasers or lessees of taxable Australian property. Significant changes have been made to the FRCGW regime, with withholding rules now applicable to all property sales. 

Previous regime

Previously, to avoid having 12.5% of the of the value of the property withheld, Australian residents selling property valued at $750,000 or more needed to obtain and provide to the purchaser, at or prior to settlement, a Clearance Certificate from the Australian Tax Office (ATO) confirming their status as an Australian tax resident. 

Major changes

Now, for contracts for sale entered into on or after 1 January 2025:

1. the withholding rate has increased from 12.5% to 15%; and

2. the $750,000 property value threshold will be removed.

In other words, all Australian residents selling property must now obtain a Clearance Certificate from the ATO to avoid withholding. 

Why change?

Changes are intended to address Treasury’s concerns that the previous FRCGW rate did not collect enough tax to keep up with the Capital Gains Tax that should be collected on the disposal of foreign-held Australian property, particularly due to the appreciation in value of Australian real property in recent years.  

Applying for a Clearance Certificate

Whilst most Clearance Certificates are issued within a few days, some can take up to 28 days.  Clearance Certificates are valid for up to 12 months, allowing sellers to obtain them early. 

Clearance Certificate is not obtained

If a Clearance Certificate is not provided by settlement, the purchaser is required to withhold 15% of the sale price and remit it to the ATO.  If an amount is withheld, the seller will only receive a refund after their next income tax return is processed.

Foreigners

Foreign resident vendors or lessors cannot obtain a Clearance Certificate.  However, they may continue to apply for an ATO variation to reduce the FRCGW rate, potentially down to 0%, if they can demonstrate that the prescribed 15% rate is excessive.