Sweeping Changes to Foreign Resident Capital Gains Withholding Rules
The Australian Taxation Office (ATO) has introduced significant changes to its Foreign Resident Capital Gains Withholding (FRCGW) regime, now requiring all Australian property sellers—not just foreign residents—to obtain a clearance certificate.
Effective 1 January 2025, these updated regulations mean that anyone selling property in Australia must provide a clearance certificate at settlement to confirm their status as an Australian tax resident. Failure to do so will result in 15% of the sale price being withheld and paid directly to the ATO.
This is a major shift from previous rules, where only foreign residents or Australian homeowners selling properties valued at $750,000 or more were required to obtain clearance certificates. Now, every property transaction—regardless of value—falls under these new guidelines.
What Does This Mean for Property Sellers?
If you’re planning to sell residential, commercial, or vacant land, you will need to apply for a clearance certificate before settlement. Without one, 15% of your property’s sale price will be withheld and sent to the ATO—a hefty financial impact for those unaware of the rule change.
For example, on a property sale worth $800,000, a seller without a clearance certificate could have $120,000 withheld until their next tax return is processed—an unnecessary financial burden that could delay access to crucial funds.
How to Apply for a Clearance Certificate
The good news is that obtaining a clearance certificate is free and relatively straightforward. Applications can be submitted online via the ATO website, and sellers will need to provide:
- Full name and contact details
- Tax File Number (TFN)
- Date of birth
- Confirmation of Australian tax residency status
While many clearance certificates are processed within a few business days, delays can occur. If an application is flagged for additional review, it may take up to 28 business days. Therefore, applying as soon as you decide to sell your property is crucial to avoiding settlement delays.
Important Note: If multiple people own a property, each owner must apply for a separate clearance certificate in their own name.
How Buyers Are Affected
The new regulations also impact property buyers. If a seller does not provide a clearance certificate before settlement, the buyer is legally required to withhold 15% of the purchase price and send it directly to the ATO.
Failing to do so could leave the buyer financially liable for the withheld amount. As a result, real estate professionals, mortgage brokers, and legal representatives will need to ensure buyers are aware of their obligations under the updated law.
Don’t Get Caught Off Guard—Plan Ahead with Boa & Co.
With the ATO’s expanded withholding rules now in effect, it’s more important than ever to ensure your property transaction goes smoothly. At Boa & Co. Chartered Accountants, we help property sellers navigate these changes, apply for clearance certificates, and avoid unnecessary tax complications.
If you’re planning to sell property in 2025, don’t wait until it’s too late—reach out to our expert team today. Call 1300 952 286, email [email protected], or visit www.boanco.com.au to ensure your sale is tax-efficient and hassle-free.