Tax News for Residents Selling Property from 1st January 2025

As of January 1, 2025, significant changes to the Foreign Resident Capital Gains Withholding (FRCGW) rules will come into effect.

The changes are expected to increase government receipts and improve housing affordability for Australians by ensuring all foreign residents meet their tax obligations.

These changes are crucial to understand for both Australian residents and foreign residents involved in property transactions. Here’s what you need to know avoid any surprises during your property transactions.

‍Key Changes to FRCGW Rules

1. Increased Withholding Rate: The withholding rate will increase from 12.5% to 15%. This means that if you are selling property, 15% of the sale price will be withheld unless you provide a clearance certificate from the ATO at or before settlement.
2. Removal of Property Value Threshold: The previous threshold of $750,000 for property value will be removed. This means that the withholding rules will now apply to all property sales, regardless of the sale price.
3. Clearance Certificate Requirement: All Australian residents selling property will need to obtain a clearance certificate from the ATO to avoid the withholding. If a clearance certificate is not provided by settlement, the purchaser must withhold 15% of the sale price and pay it to the ATO. Sellers who fail to provide the clearance certificate may face financial penalties, and the withheld amount may only be refunded after filing a tax return.
4. Impact on Foreign Resident Vendors: Foreign resident vendors may apply to vary the withholding rate. This is particularly important for those who may have different tax obligations or circumstances.

‍What This Means for You

For Australian residents, it is essential to apply for a clearance certificate well in advance of any property sale. Most clearance certificates are issued within a few days, but some can take up to 28 days to process. The certificates are valid for 12 months, so you don’t need to wait until you have signed a contract to apply.

For foreign residents, understanding the new withholding rate and the removal of the property value threshold is crucial. If you are planning to sell property in Australia, consider consulting with a tax professional to understand how these changes may affect your tax obligations and to explore the possibility of varying the withholding rate.

‍How We Can Help

We are here to assist you with navigating these changes. Our team of experienced tax professionals can help you apply for clearance certificates, understand your withholding obligations, and provide tailored advice to ensure compliance with the new rules and the possibility of varying the withholding rate for foreign residents.

If you have any questions or need assistance with your property transactions, please do not hesitate to contact us. We are committed to helping you stay informed and compliant with the latest tax regulations.