From January 1st, 2025, significant changes to the Foreign Resident Capital Gains Withholding (FRCGW) legislation come into effect. These changes apply to all Australian property sales, regardless of value. Sellers must understand the new requirements to avoid unnecessary financial consequences.
What’s Changing?
Previously, Australian Taxation Office (ATO) clearance certificates were required for property sales exceeding $750,000. Under the updated legislation, every property sale requires an ATO clearance certificate, regardless of price.
This means all sellers—whether selling a small apartment or a multimillion-dollar estate—must provide a valid clearance certificate to the purchaser at or before settlement. Failing to do so will result in 15% of the sale price being withheld by the purchaser and remitted to the ATO.
Why the Update?
The FRCGW legislation aims to ensure foreign residents meet their tax obligations before sale proceeds leave Australia. While Australian residents are exempt from this withholding, the clearance certificate confirms their residency status.
What Sellers Need to Do:
- Apply Early for an ATO Clearance Certificate
Sellers with contracts dated January 1st, 2025, or later must secure a clearance certificate. Applications can be made online through the ATO and are free. Certificates are valid for 12 months, so applying early ensures you’re prepared for future sales.
- Prepare for Possible Delays
Most certificates are processed within days, but some may take up to 28 days, especially for sellers with outstanding tax returns or other ATO matters.
- Verify Your Legal Name
Ensure your legal name matches the Certificate of Title and ATO records. Name discrepancies can delay the process.
The Cost of Non-Compliance
If a clearance certificate is not provided at settlement, the purchaser is legally required to withhold 15% of the sale price. Sellers can only recover withheld amounts after filing a tax return. This delay could significantly disrupt finances, particularly for those relying on sale proceeds for new property purchases or other commitments.
A Smooth Sale Starts Here
At Sterling Property, we’re committed to guiding you through this transition. Proactive planning is critical – whether you’re actively selling or just considering it. Applying for your clearance certificate now can prevent settlement delays and ensure peace of mind.
Contact Sterling Property today to discuss how these changes may affect your next sale and let us help you navigate the process with ease.