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Changes to Australia’s Foreign Resident Capital Gains Withholding Regime Starting 1 January 2025

Changes to Australia’s Foreign Resident Capital Gains Withholding Regime Starting 1 January 2025: What Australian Expats Should Know

Are you an Australian expat living overseas and dealing with property transactions back home? If so, significant changes to Australia’s Foreign Resident Capital Gains Withholding (FRCGW) regime are coming into effect from 1 January 2025. These changes will impact property sales involving both Australian residents and foreign entities. Here’s everything you need to know to stay informed and avoid unexpected surprises.

What’s Changing in the FRCGW Regime?

Starting from 1 January 2025, several key updates will affect how Australian expats and foreign investors handle property sales:
  1. Increased Withholding Rate: Buyers must withhold 15% of the contract price (up from the current 12.5%), and remit it directly to the Australian Taxation Office (ATO) unless the seller provides a valid Clearance Certificate.
  2. Removal of the $750,000 Threshold: Due to the regime changes, all property sales will now be subject to FRCGW rules, regardless of the property’s sale price. This means that even properties under $750,000, previously exempt, will now be subject to withholding.
  3. Options Contracts: If an option to purchase property is exercised after 1 January 2025 (even if the option agreement was entered into before that date), the updated withholding rules will apply.

How These Changes Will Affect You

 

For Australian Residents Selling Property

If you’re an Australian resident selling a property, here’s how you can navigate the changes:

  • Obtain a Clearance Certificate: To avoid the 15% withholding, you must apply for and obtain a Clearance Certificate from the ATO before settlement.
  • Every Seller Must Apply: If the property is jointly owned, each seller must individually apply for a Clearance Certificate to ensure no withholding is applied.
  • No More Sale Price Exemption: The removal of the $750,000 threshold means that every property transaction is now subject to FRCGW rules, regardless of the sale price.
  • Plan Ahead: Clearance Certificates are valid for 12 months. Given that processing times may increase due to heightened demand, it’s recommended that frequent sellers apply for certificates annually to avoid delays.

Without a Clearance Certificate, the buyer will be required to withhold 15% of the sale price, which you can later claim as a credit when filing your tax return.

For Non-Residents and Foreign Investors Selling Property

If you are an expat or foreign investor selling property in Australia, here’s what you need to know:

  • Higher Withholding Rate: The withholding rate will increase to 15% for all foreign sellers with the new FRCGW regime changes.
  • New Thresholds Apply: The new rules remove the previous $750,000 threshold, meaning all property sales will be subject to withholding, regardless of the sale price.
  • Reduced Withholding Rate: In some situations, foreign sellers can apply for a reduced withholding rate. If this applies to you, consider seeking professional advice to reduce the amount withheld.

What Australian Expats Need to Do

As an Australian expat, these changes will impact how you handle your property transactions in Australia. Here’s what you should do to stay ahead of the curve:

  1. Familiarise Yourself with the New Rules: Whether you’re selling an investment property, your family home, or preparing for a return to Australia, make sure you’re fully aware of the updated FRCGW regulations.
  2. Apply for a Clearance Certificate Early: Don’t wait until the last minute! Ensure you have a valid Clearance Certificate before your settlement date. Processing times may be longer as the deadline approaches, and delays could affect your sale timeline.
  3. Consult a Tax Professional: If you’re unsure how these changes affect you or need personalised advice, reach out to a tax advisor or financial professional who specialises in Australian tax law.

Conclusion: Prepare for the FRCGW Changes in 2025

These changes to the Foreign Resident Capital Gains Withholding regime are designed to streamline compliance. However, they also introduce complexity for both Australian residents and foreign sellers. As an Australian expat, staying informed and preparing in advance is critical to avoid costly delays and withholding at settlement.

Whether you’re transacting or monitoring your property investments, it’s essential to understand your obligations under the new FRCGW rules. This will help you avoid unnecessary surprises.

Stay proactive and make the most of your property transactions by ensuring you’re fully prepared for these changes.

 

To learn more, check out Atlas Wealth Groups’ podcast: Expat Chat

 

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