EFFECTIVE from January 1, the Federal Government has implemented significant changes to the Foreign Resident Capital Gains Withholding (FRCGW) rules, impacting all property transactions nationwide.
Previously, these rules applied only to properties sold for $750,000 or more, with a withholding rate of 12.5%. Under the new regulations, the withholding rate has increased to 15%, and the $750,000 threshold has been removed, extending the withholding obligation to all property sales, regardless of value.
The FRCGW mechanism was initially introduced to ensure the collection of tax liabilities from foreign residents disposing of taxable Australian property. However, the recent amendments mean that all property sellers, including Australian residents, must now obtain an ATO clearance certificate to avoid the 15% withholding. Failure to provide this certificate to the buyer before settlement will result in the buyer withholding 15% of the purchase price, which is then remitted to the ATO.
Do real estate agents need to apply for the ATO clearance certificate? As quoted from REIQ
“No. Generally, the seller’s solicitor will undertake this as part of the conveyancing process and will order the certificate within the first few days of receiving the signed contract.
“The REIQ recommends that if the buyer requests a settlement period shorter than 28 days, that agents may direct your seller client to seek advice on whether their circumstances may lead to a delay in the processing of the clearance certificate.”
A seller can also apply for their own certificate. An agent may assist by directing the seller to apply for their own certificate through the ATO website, if they have not engaged a solicitor.”
It’s important to note that the updated FRCGW rules apply to contracts entered into on or after 1 January 2025. Therefore, any property transactions initiated from this date forward must comply.
