On 1 January 2025, significant amendments to Australia’s Foreign Resident Capital Gains Withholding (FRCGW) regime came into effect. Designed to ensure the Australian Taxation Office (ATO) can collect tax liabilities from non-residents selling Australian properties, these changes were part of the Treasury Laws Amendment (2024 Tax and Other Measures No. 1) Bill, which passed both houses on 28 November 2024 and received Royal Assent on 10 December 2024.
Key Changes to the Regime
- Increased Withholding Rate The withholding rate increased from 12.5% to 15%, raising the amount that purchasers must remit to the ATO.
- Removal of the Monetary Threshold The previous $750,000 threshold was eliminated. As a result, the withholding rules now apply to all property sales and leases where a premium is paid, regardless of the transaction value.
What Does This Mean for Buyers and Sellers?
For property transactions entered into on or after 1 January 2025, purchasers must withhold 15% of the purchase price and remit it to the ATO unless the vendor provides a clearance certificate confirming their Australian residency status. This change applies to all property transactions, irrespective of their value.
It is important to note that contracts entered into before 1 January 2025 were not affected by these changes. However, if an option was entered into before this date but exercised after, the new rules apply to the resulting contract.
Why Have These Changes Been Made?
These amendments aim to enhance compliance and ensure foreign residents meet their capital gains tax obligations in Australia. By broadening the scope and increasing the withholding rate, the ATO seeks to improve tax collection from non-residents involved in Australian property transactions.
What Should You Do?
Both buyers and sellers should familiarise themselves with these changes to avoid unexpected liabilities. Sellers, particularly non-residents, should obtain a clearance certificate to ensure the withholding does not apply unnecessarily. Buyers must be diligent in withholding and remitting the correct amount to the ATO to comply with their obligations.
Seeking professional advice is highly recommended to navigate these updates and ensure compliance with the updated requirements. If you have any questions or need assistance, our team at Spectrum Lawyers & Consultants is here to help.