Alert
Legal practitioners acting in property transactions take note that the foreign resident capital gains withholding (FRCGW) rules are changing on 1 January 2025.
Under the FRCGW changes:
- the withholding rate will increase from 12.5% to 15%
- the $750,000 property value threshold will be removed and the withholding rules will apply to all property transfers.
This means that for all real property transactions, all vendors are required to supply a valid clearance certificate from the Australian Taxation Office, or withholding will apply. Without a valid clearance certificate at or before settlement, 15% of the market value of the property (typically the purchase price) or an ATO approved varied amount must be withheld by the purchaser and paid to the ATO at settlement.
Foreign resident vendors may continue to apply to vary the withholding rate.
The FRCGW changes are made pursuant to the Treasury Laws Amendment (2024 Tax and Other Measures No. 1) Act 2024 (Cth) which was assented to on 10 December 2024 and amends the Taxation Administration Act 1953 (Cth).
The changes will apply to contracts entered on or after 1 January 2025.
Practitioners should monitor the ATO’s website including the Capital gains withholding – a guide for conveyancers for updates. At the time of writing, the ATO’s website states that ‘we are working to have systems ready and update our web content’ to incorporate the FRCGW changes.
