Changes to the FRCGW Tax Regime and How it Affects All Property Sales

The Australian Government recently announced upcoming changes to the Foreign Resident Capital Gains Withholding (FRCGW) tax regime, the consequences of which will affect all sellers of real property, both in Queensland and throughout Australia generally.

What is the FRCGW tax regime?

The purpose of the FRCGW tax regime is to ensure that foreign residents disposing of real property in Australia meet their tax liabilities in relation to the sale of their property.

How does the current FRCGW tax regime work?

Under the current regime, a buyer of a property with a purchase price of $750,000 or more has an obligation to withhold and remit an amount equal to 12.5% of the purchase price directly to the ATO at settlement.

Generally, this obligation can be addressed if the seller can provide to the buyer either of the following documents prior to settlement:

• A clearance certificate issued by the ATO, which states that the buyer is not required to withhold funds at settlement on the basis that the ATO does not consider the buyer to be a foreign resident; or
• A variation notice issued by the ATO states that the amount required to be withheld by the buyer at settlement is reduced to an amount as stipulated in the notice.

The practical application of this regime is that a seller of a property with a purchase price of $750,000 or more must apply to the ATO to obtain a clearance certificate or variation notice prior to settlement of that sale occurring, failing which the buyer of that property will be required to pay part of the purchase price to the ATO at settlement.

The upcoming changes to the FRCGW tax regime

From 1 January 2025, the following changes to the FRCGW tax regime will be in effect:

1. The threshold to which the withholding obligations apply will be reduced from $750,000 to $0; and

2. The withholding amount will be increased from 12.5% of the purchase price to 15% of the purchase price.

The effect of these changes is that all sellers of real property will be required to obtain a clearance certificate or variation notice in respect of the property.

If the buyer is not provided a copy of the seller’s clearance certificate or variation notice prior to settlement, the buyer will be required to make the relevant withholding payment to the ATO at settlement.

A seller can apply for a clearance certificate or variation notice online via the ATO website, and these documents are typically effective for a year after the application date.

As the ATO can take up to 28 days per seller to process these applications, we would strongly recommend that, once the relevant changes to the regime have been implemented, sellers of real property apply for a clearance certificate or variation notice well before they enter into a contract of sale for their property.

Need Further Assistance?

If you have any concerns regarding the upcoming changes to the FRCGW tax regime and how they may affect you, or if you have any questions regarding property legal issues generally, please do not hesitate to contact us on (07) 5532 3199 for more information.