Foreign resident capital gains withholding to apply to all property sales from 1 January 2025
Legislation making changes to foreign resident capital gains withholding (FRCGW) passed Federal Parliament last week and will apply to contracts for real property entered into on and after 1 January 2025.
FRCGW is designed to support the collection of tax liabilities owed by non-residents selling Australian properties.
Key points:
* From 1 January 2025 foreign resident capital gains withholding will apply to all contracts, the $750,000 threshold has been removed
* Withholding has increased to 15 per cent
* All Australian residents selling property will have to apply for a clearance certificate from the ATO
* REIWA is updating the warning at the top of our Offer and Acceptance documents to reflect the removal of the $750,000 threshold
Australian residents and citizens are exempt from paying withholding. However, currently, they are required to provide a clearance certificate from the ATO to purchasers, at or before settlement, where the value of a property is $750,000 or more to avoid having 12.5 per cent withheld from the sale.
Under the changes:
* the $750,000 property value threshold will be removed and the withholding rules will apply to all property sales
* the withholding rate will increase from 12.5 per cent to 15 per cent.
The changes mean all Australian residents selling property will require a clearance certificate from the ATO and will be required to provide this by settlement, otherwise 15 per cent of the sale price will need to be withheld by the purchaser and paid to the ATO.
If an amount is withheld from the sale price, the vendor will only receive any refund due after their income tax return is processed at tax time.
REIWA is updating the warning at the top of our Offer and Acceptance documents to reflect the removal of the $750,000 threshold. This will be completed before Christmas so the forms are ready for use from 1 January 2025.
Most clearance certificates will be issued within a few days, however some can take up to 28 days to issue. Delays can occur if the vendor’s tax affairs are not up to date.
Clearance certificates are valid for 12 months so the vendor doesn’t need to wait until they have signed a contract.
You can also advise any foreign-resident vendors that the withholding rate has increased. They may be able to apply to vary the withholding rate.
To complete your application, please visit the ATO online portal: ATO Clearance Certificate Application.
Source: reiwa.com.au