Effective from 1 January 2025, the Australian Taxation Office (ATO) has made significant changes to the foreign resident capital gains withholding (FRCGW) regime, now requiring all Australian resident property sellers to obtain a clearance certificate, regardless of their property’s value. This update has critical implications for property owners, real estate agents, and brokers across the country.
What Has Changed?
Previously, the FRCGW rules applied only to:
- Foreign property owners, and
- Australian residents selling property valued at $750,000 or more.
Under the new regulations:
- All property sellers, regardless of their residency or the sale price, must provide a clearance certificate to the buyer.
- If the seller fails to provide this certificate, the buyer is legally obligated to withhold 15% of the sale price (an increase from the previous 12%) and remit it directly to the ATO.
These requirements apply to all types of property transactions, including:
- Residential properties
- Commercial properties
- Vacant land
Why Are These Rules Important?
The ATO’s rationale for these changes is to enhance the collection of taxes from non-resident property sellers. However, extending these rules to Australian residents has sparked concern, as the process adds an additional layer of complexity to property transactions.
According to Belinda Raso, director of Tax Invest Accounting, “This is a massive change. It no longer matters the value of the property.”
Key Points for Sellers
- Apply Early for Clearance Certificates:
Sellers must apply for clearance certificates through the ATO’s website, which is free of charge. The process typically takes a few business days but can extend to 28 business days if delays occur. - Separate Applications for Co-Owners:
For jointly owned properties, each owner must submit a separate clearance certificate application. The certificate remains valid for 12 months from the date of issuance. - Financial Risks of Non-Compliance:
Sellers who fail to provide a certificate risk having 15% of their sale price withheld by the buyer. For example, on an $800,000 property, the withholding amounts to $120,000, which could take months to recover via a tax refund.
What This Means for Buyers
Buyers play a crucial role in ensuring compliance. If a seller does not provide the required clearance certificate, the buyer must:
- Withhold 15% of the property’s sale price, and
- Remit the amount to the ATO.
Failure to do so could result in penalties for the buyer.
The Role of Brokers
For brokers and real estate agents, integrating this step into the settlement process is essential. Raso emphasized, “It really has to be on the broker’s to-do list to make things easier for sellers.”
Brokers can support their clients by:
- Guiding them through the clearance certificate process.
- Printing out paper applications as needed, though the form must be completed by the seller.
- Proactively reminding clients to apply for clearance certificates early in the selling process.
Take Action Today
If you’re planning to sell property in 2025 or beyond, it’s essential to stay ahead of these changes. Whether you’re a property owner or a professional assisting in property transactions, compliance with these new ATO regulations is critical to avoid delays or unexpected financial setbacks.
For assistance navigating these changes, contact Boa & Co. Chartered Accountants today at 1300 952 286, email us at [email protected], or visit our website at www.boanco.com.au. Our expert team is here to help you understand your obligations and streamline your property transactions.