2025 Foreign Resident Capital Gains Withholding Regime (FRCGWR) Updates: Impact on Property Transactions from 1 January 2025

If you’re buying or selling property in Australia, it’s crucial to understand the changes to the Foreign Resident Capital Gains Withholding (FRCGW) regime that will apply to acquisitions from 1 January 2025. These updates, recently passed by both Houses of Parliament, could significantly impact property transactions.

What is the FRCGW Regime?

The FRCGW regime requires buyers of certain Australian property to withhold an amount at settlement and remit it to the Australian Taxation Office (ATO) unless the seller provides a clearance certificate. This regime is designed to ensure that foreign residents pay capital gains tax on the sale of taxable Australian property.

What’s Changing?

From 1 January 2025, for contracts entered into on or after this date:

1. Removal of the $750,000 Threshold
   • The current market value threshold of $750,000 will be abolished. This means that all taxable Australian real property (TARP), regardless of value, will now be subject to the FRCGW regime.
2. Increase in the Withholding Rate
   • The withholding rate will increase from 12.5% to 15% of the first element of the property’s cost base (generally the purchase price).

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How Will This Affect Sellers and Buyers?

These changes mean that every seller of TARP will need to provide a clearance certificate to avoid having 15% of the property’s value withheld at settlement. Buyers, meanwhile, need to ensure compliance with the new rules to avoid penalties for failing to withhold the correct amount.

Key Considerations

• Sellers:

• • • Obtain a clearance certificate from the ATO early in the transaction process. Without one, buyers are legally obligated to withhold 15% of the purchase price at settlement.
    • The increase in the withholding rate makes it even more critical to ensure you’re compliant.

• Buyers:

• • Check whether the property you’re purchasing is subject to the FRCGW regime.
  • Confirm that the seller has a valid clearance certificate. If not, be prepared to withhold 15% and remit it to the ATO.

What Types of Property Are Affected?

The FRCGW regime applies to acquisitions of:

• Taxable Australian real property (TARP), such as residential or commercial real estate;
• Certain indirect interests in Australian real property, including shares in land-rich companies; and
• Options or rights to acquire Australian real property or interests.

Why These Changes Matter

With the removal of the $750,000 threshold, even smaller property transactions will now be subject to the FRCGW regime. The increased withholding rate of 15% means that failing to comply can have significant financial implications for both buyers and sellers.

How Aylward Game Solicitors Can Help 

Aylward Game Solicitors is here to guide you through these legislative changes. Whether you’re buying or selling property, our team can assist you with navigating the FRCGW requirements, obtaining clearance certificates, and ensuring compliance. Contact us today for expert advice.

For updates on these changes, follow us on social media. We’ll notify you as soon as the legislation receives assent.

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Call Us (1800) 217 217

Frequently Asked Questions (FAQs)

Q1. What is a clearance certificate, and why do I need one? 

A clearance certificate is issued by the ATO to confirm that the seller is an Australian resident for tax purposes. Without it, buyers must withhold 15% of the property’s purchase price and remit it to the ATO.

Q2. How do I apply for a clearance certificate? 

Sellers can apply online through the ATO’s website. The application requires details about the property and the seller’s tax residency status. It’s best to apply as soon as possible to avoid delays.

Q3. Does the FRCGW regime apply to all property transactions? 

The regime applies to all acquisitions of taxable Australian real property, regardless of the market value, from 1 January 2025. Exceptions may apply to certain transactions, so consult your solicitor for advice.

Q4. What happens if I fail to comply with the FRCGW requirements? 

Buyers who fail to withhold the required amount may face penalties and interest charges from the ATO. Sellers without a clearance certificate risk having 15% of the purchase price withheld.

Q5. Are there any exemptions to the FRCGW regime? 

Some exemptions apply, such as transactions involving company shares that are not considered indirect interests in Australian real property. Contact us to determine if your transaction qualifies for an exemption.

Q6. What should buyers do if the seller doesn’t have a clearance certificate? 

If the seller doesn’t provide a clearance certificate, buyers must withhold 15% of the purchase price and pay it to the ATO as part of the settlement process.

Q7. Can the withholding amount be varied? 

Yes, sellers can apply for a variation if the standard 15% withholding is too high, such as in cases of low capital gains or financial hardship. A variation application must be approved by the ATO before settlement.