Legislation making changes to foreign resident capital gains withholding (FRCGW) passed Federal Parliament last week and will apply to contracts for property entered into on and after 1 January 2025.
FRCGW is designed to support the collection of tax liabilities owed by non-residents selling Australian properties.
Australian residents and citizens are exempt from paying withholding. However, currently, they are required to provide a clearance certificate from the ATO to purchasers, at or before settlement, where the value of a property is $750,000 or more to avoid having 12.5 per cent withheld from the sale.
Under the changes:
* the $750,000 property value threshold will be removed and the withholding rules will apply to all property sales
* the withholding rate will increase from 12.5 per cent to 15 per cent.
The changes mean all Australian residents selling property will require a clearance certificate from the ATO and will be required to provide this by settlement, otherwise 15 per cent of the sale price will need to be withheld by the purchaser and paid to the ATO.
If an amount is withheld from the sale price, the vendor will only receive any refund due after their income tax return is processed at tax time.
If you are planning to sell a property next year, act early. Most clearance certificates will be issued within a few days, however some can take up to 28 days to issue. Delays can occur if the vendor's tax affairs are not up to date.
Clearance certificates are valid for 12 months, so the vendor doesn't need to wait until they have signed a contract.
