The Foreign Resident Capital Gains Withholding (FRCGW) regulations are scheduled to undergo significant changes effective January 1, 2025.
Currently, Australian residents engaged in the sale of property are required to furnish a clearance certificate to the purchaser at or before the time of settlement. This certificate is essential in order to prevent the withholding of 12.5% from the sale proceeds, applicable to properties valued at $750,000 or higher.
Under the impending changes:
- The withholding rate will increase from 12.5% to 15%.
- The property value threshold of $750,000 will be eliminated, and the withholding requirements will extend to all property sales.
These modifications will apply to contracts entered into on or after January 1, 2025. The FRCGW framework is designed to facilitate the collection of tax liabilities owed by non-residents selling property in Australia.
It is imperative for all Australian resident sellers to obtain a clearance certificate from the Australian Taxation Office (ATO); failing to do so will result in withholding being applied to the transaction. Should an Australian resident vendor fail to provide a clearance certificate by the settlement date, 15% of the sale price will be withheld by the purchaser and remitted to the ATO.
In instances where an amount is withheld from the sale price, the vendor will only receive any due refund following the processing of their next income tax return during the tax season.
Most clearance certificates are typically issued within a few days; however, it is prudent to apply early, as certain requests may take up to 28 days to process. These certificates remain valid for a period of 12 months, allowing vendors to apply without waiting for a contract to be signed.
Foreign resident vendors may seek to apply for a variation in the withholding rate.
For more information or assistance please contact Infinite Accounting Solutions on 02 9899 4730 or via the contact page at www.ias-ca.com.au.