Foreign Resident Capital Gains Withholding (FRCGW): What Australian Residents Need to Know

If you’re planning on selling property in Australia, major changes to the Foreign Resident Capital Gains Withholding (FRCGW) rules will come into effect from 1 January 2025. These updates will impact how property sales are managed, and it’s crucial for both Australian residents and foreign residents to understand their obligations to ensure compliance and avoid unnecessary complications.

At Lloyd Estate Agents, we’re here to provide you with valuable insights into these changes, so you can confidently prepare for upcoming property transactions.

What’s Changing in 2025?

The FRCGW rules, introduced to prevent foreign property owners from avoiding Australian tax obligations, are evolving. From 1 January 2025, two key changes will take effect:

1. Increase in Withholding Rate

   • The withholding rate, currently standing at 12.5%, will rise to 15%.

2. Removal of the $750,000 Property Value Threshold

   • The existing threshold that exempts properties valued under $750,000 will be scrapped.
   • These rules will now apply to all property sales, regardless of value.

Who Does This Impact?

Understanding whether you’re affected is essential for a smooth transaction.

Australian Residents

• If you’re an Australian resident selling property, you will now need to obtain an ATO clearance certificate before settlement.
• Without this clearance certificate, buyers are legally required to withhold 15% of the sale price and remit it to the Australian Taxation Office (ATO).
• If withholding occurs, any refund you’re entitled to can only be reclaimed after lodging your next income tax return.

Foreign Residents

• Foreign vendors will continue to fall under the FRCGW rules but may apply to vary the withholding rate based on individual circumstances.

Key Dates to Note

• These changes apply to contracts signed on or after 1 January 2025.
• If you’re planning to buy or sell property from this date, make sure you’ve accounted for these updates in your preparations.

The Importance of ATO Clearance Certificates

Clearance certificates are critical under the new rules. Here are the key details you need to know:

• Processing Times
  Most applications are processed within a few days, but some may take up to 28 days. Applying early is highly recommended to avoid delays.

• Validity
  Certificates are valid for 12 months, meaning you don’t need to wait until you’ve signed a contract to apply.

• Application
  You can apply for clearance certificates through the ATO’s online portal.

What Sellers, Buyers, and Property Professionals Need to Know

For Sellers

• Apply for your ATO clearance certificate well ahead of settlement. This ensures you avoid the 15% withholding, which could significantly reduce your immediate proceeds from the sale.

For Buyers

• If the seller doesn’t provide a clearance certificate by settlement, you are required to withhold 15% of the sale price and remit it directly to the ATO.

For Property Professionals

• Conveyancers, estate agents, and tax consultants play a crucial role in ensuring compliance.
• Update your clients about these changes and guide them through the clearance certificate process to avoid potential issues.

Why These Changes Matter

The updated FRCGW rules aim to tighten compliance with tax obligations across all property sellers, regardless of their residency status. This significant shift makes it essential for everyone involved in the transaction process to stay informed and act proactively.

A Final Word

At Lloyd Estate Agents, we’re here to help our clients and partners understand industry changes as they happen. However, it’s important to note that this information is designed to provide general guidance only. It does not take into consideration your specific situation and should not be treated as financial advice. We strongly recommend consulting a financial adviser, tax expert, or the ATO for tailored advice that suits your needs.

Stay Well-Prepared

Property transactions can already feel complex, and these changes may bring additional steps to the process. Use this time between now and 1 January 2025 to plan ahead, so you’re ready for the transition. If you have questions or need assistance navigating your next sale or purchase, contact Lloyd Estate Agents today – we’re here to help every step of the way.

Disclaimer: The content in this blog is for informational purposes only and should not be considered financial or tax advice. Always consult with a professional for personalised advice tailored to your circumstances.

Stay informed, act early, and ensure compliance for a hassle-free transaction in 2025 and beyond.