The Foreign Resident Capital Gains Withholding (FRCGW) tax regime was introduced in July 2016 and from 1 January 2025 it has been updated again to increase the tax rate and lower the threshold for when it will apply. The changes apply to any contract entered into on or after 1 January 2025.
What Changed?
The Taxation Administration Act 1953 (Cth) was amended to:
- Increase the FRCGW tax rate: From 12.5% to 15%.
- Lower the threshold: The withholding tax now applies to the sale of all real property transactions regardless of the market value or sale price (previously $750,000 or more).
Purpose of the FRCGW Tax
The FRCGW tax ensures that foreign residents meet their Australian tax obligations by withholding a portion of the proceeds from property sales. This mechanism helps the Australian Taxation Office (ATO) collect taxes from foreign residents, who may be harder to pursue once they leave Australia. It is not an additional tax but a pre-payment of the Capital Gains Tax.
Who is Affected?
The changes affect all sellers and buyers of taxable Australian real property, regardless of their residency status or if the property is exempt from Capital Gains Tax . Taxable properties include:
- Vacant land
- Residential and commercial properties
- Buildings
- Leases over real property
- Mining, quarrying, or prospecting rights tied to Australian land
Key Obligations for Sellers and Purchasers
Sellers:
- If you are an Australian Resident for tax purposes you can obtain an ATO clearance certificate: This certificate confirms the seller’s residency status and exempts them from withholding tax. Clearance certificates are valid for 12 months and typically issued within a few days for Australian residents. However, it may take up to 28 days in some cases.
- If the property is owned by a company or trust, you can obtain an ATO clearance certificate, if the company or trust are Australian Residents for tax purposes.
- If you are a non Australian Resident for tax purposes you can apply for a variation notice to reduce the rate that must be withheld.
- If no clearance certificate is provided, the buyer must withhold 15% of the purchase price and remit it to the ATO following settlement.
Purchasers:
- Ensure withholding tax is paid to the ATO if the seller does not provide a clearance certificate.
- Submit an FRCGW purchaser payment notification form online to obtain a Payment Reference Number (PRN).
- Remit the withholding tax on or before settlement using the PRN.
Variations to the Withholding Amount
A seller who cannot obtain a clearance certificate may apply for a variation to reduce the withholding rate. This is possible if:
- The transaction results in a capital loss or is subject to a capital gains tax roll-over.
- The seller has no income tax liability due to carried-forward tax losses.
- The property’s sale proceeds are insufficient to cover both the withholding amount and secured debts (e.g., mortgage).
- A creditor acquires the property through foreclosure.
Approved variations can lower the withholding rate to as little as nil.
Penalties for Non-Compliance
If a purchaser fails to withhold the required amount, the ATO may impose penalties equal to the withholding amount. General interest charges may also apply.
Post-Sale Tax Obligations
For Sellers:
- Foreign resident sellers must lodge a tax return at the end of the financial year, declaring any capital gains or losses.
- Sellers can claim a credit for the withholding tax paid.
- Australian resident sellers who had withholding tax applied in error can also claim a refund when filing their tax return.
For Purchasers:
- Ensure withholding tax payments are processed correctly and on time to avoid penalties.
How to Pay the Withholding Tax
The withholding tax can be paid using the PRN and payment slip provided by the ATO. Payment methods include:
- Electronic funds transfer
- BPAY
- In-person payment at Australia Post
- Mailing a cheque to the ATO
A confirmation of payment will be issued to all parties involved.
Need Assistance?
Navigating the complexities of the FRCGW tax regime can be challenging. We can assist you in applying for the clearance certificate or variation certificate if you are selling and if you are buying we can assist you ensuring that any amount collected on settlement is paid to the ATO as required. If you have questions or need guidance, please contact our office at (07) 3876 5111 to schedule a consultation.