Foreign Resident Capital Gains Withholding
The Foreign Resident Capital Gains Withholding (FRCGW) tax was first introduced in 2016 to ensure foreign residents met their Australian tax obligations when selling taxable Australian property. Initially, the tax applied only to properties valued at $2 million or more, with a withholding rate of 10%. In 2017, the threshold was lowered to $750,000, and the withholding rate was increased to 12.5%, significantly expanding the number of transactions subject to the tax.
The Australian Government has announced an update to the Foreign Resident Capital Gains Withholding (FRCGW) tax, which will impact anyone selling Australian property. These changes are particularly relevant for foreign residents, but Australian sellers should also be aware of the potential implications.
Key Changes
The key updates to the FRCGW tax include:
- Increase in the withholding tax rate: The withholding rate will rise from 12.5% to 15%, effective for contracts entered into on or after 1 January 2025.
- Lower threshold for taxable property: The threshold for applicable properties will be reduced from $750,000 to $0, meaning all property transactions will be subject to withholding, regardless of value. This will also include your primary residence property which may not be subject to capital gains tax.
- Expanded scope: The changes will apply not only to real estate but also to indirect Australian real property interests and company title interests.
Who Is Affected?
- Foreign Residents Selling Property: If you are a foreign resident, the buyer of your property will be required to withhold 15% of the purchase price and remit it to the ATO.
- Australian Sellers: While the withholding tax primarily applies to foreign residents, Australian sellers should be aware that they may need to provide a clearance certificate from the ATO to avoid withholding.
What Should Sellers Do?
- Foreign Resident Sellers: Prepare for the withholding tax by factoring it into your sale price and seeking professional tax advice.
- Australian Sellers: Obtain an ATO clearance certificate before settlement to confirm you are not subject to withholding. The ATO clearance certificate is valid for up to 12 months as long as your residency doesn’t change, so you will be able to organise these when you are planning on selling the property. Please note the ATO suggest these can take up to 28 days to receive.
If an ATO clearance certificate is not obtained prior to the settlement of the property, 15% will be withheld where you will only be able to get this or a portion back when your tax return is lodged for that year.
We can assist in obtaining a clearance certificate for you prior to the settlement of your property if you met the above requirements. To assist with obtaining a clearance certificate we would require the following;
- Contract date
- Expected Settlement date
- Address for the property being sold
If you have any questions, please feel free to contact any of the accountants at MasterTax on 08 8172 9150 or through info@mastertax.com.au.