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The Tax Office has reminded foreign investors and Australian residents to be aware of upcoming changes to the foreign resident capital gains withholding rules.
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Investors reminded on looming capital gains withholding changes
06 December 2024
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The foreign resident capital gains withholding (FRCGW) rules are set to change from 1 January 2025 and will include an increase of the withholding rate from 12.5 per cent to 15 per cent and the removal of the $750,000 threshold.
The withholding rules would also apply to all property sales, according to the Tax Office.
“Currently, Australian residents selling a property must provide a clearance certificate to the purchaser at or before settlement to avoid having 12.5 per cent withheld from a property sale where the value of the property is $750,000 or more,” the ATO said.
The new changes were set to apply to contracts entered into on or after 1 January 2025.
FRCGW was originally designed to support the collection of tax liabilities owned by non-residents selling Australian property.
The ATO said all Australian residents selling property would require a clearance certificate from the ATO, or withholding would apply to the transaction.
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If an Australian resident vendor failed to provide a clearance certificate by the time of the property’s settlement, 15 per cent of the sale price would be withheld by the purchaser and paid to the ATO.
It was noted that if an amount was withheld from the sale price, the vendor would only receive any refund due after their next income tax return was processed at tax time.
Residents were cautioned to be prepared to apply early when seeking clearance certificates, as despite most being issued within a few days some could take up to 28 days to issue.
Clearance certificates would be valid for 12 months and a vendor isn’t required to wait until a contract has been signed.
The ATO noted foreign resident vendors could perhaps apply to vary the withholding rate, yet systems and finalised updates were still being worked on.
“If you’re assisting clients with property matters, make sure they’re aware of how foreign resident capital gains withholding and the changes apply to their circumstances.”
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