Changes to the Foreign Resident Capital Gains Withholding Regime effective 1 January 2025

Recent amendments to Australia’s Foreign Resident Capital Gains Withholding (FRCGW) regime have passed through Parliament and will take effect from 1 January 2025. These changes impact both Australian and foreign entities involved in property transactions.

Limited exclusions to the FRCGW regime continue to apply.

Summary of changes

How this may affect you

These changes impact all sale contracts, whether or not the seller is a foreign entity.

For contracts entered into from 1 January 2025, buyers will be required to withhold 15% (previously 12.5%) of the contract price and remit it to the Australian Taxation Office (ATO) unless the seller obtains a Clearance Certificate prior to settlement. Contracts entered into before 1 January 2025 will not be affected by these changes, however if an option has been entered into before 1 January but is exercised after that date, the new regime will apply to the resulting contract.

If you are an Australian entity

If you are selling property, you must still hold a current FRCGW Clearance Certificate to avoid the 15% withholding being imposed, but from 1 January, you need to obtain it regardless of the sale price. If the property is in more than one name, each seller must obtain a clearance certificate, as before.

As with the current regime, if you do not hold a valid Clearance Certificate prior to settlement, the 15% withholding must be paid by the buyer and you may claim a credit for it when lodging a tax return but not before.

The removal of the $750,000 threshold means all Australian residents must apply for a Clearance Certificate. Processing times may increase, so parties transacting regularly may want to consider applying for a Clearance Certificate on an annual basis. The Certificates are valid for 12 months and there is no need to wait until a contract has been entered into before applying.

If you are a foreign entity

If you are a foreign entity selling property, be aware of the increase in the withholding rate and the removal of the threshold, and plan accordingly. It is still possible to apply for a reduction in the rate of FRCGW in certain circumstances.