Foreign Resident CGT Withholding (FRCGW): 15% Rate and $0 Threshold from 1 January 2025
From 1 January 2025 the FRCGW rate rises to 15% (from 12.5%) and the $750,000 threshold is removed, so every taxable Australian property sale triggers withholding under TAA 1953 Sch 1 Subdiv 14-D.
What changed on 1 January 2025
The Foreign Resident Capital Gains Tax Withholding (FRCGW) regime underwent significant changes from 1 January 2025. These changes, enacted by the Treasury Laws Amendment (2024 Tax and Other Measures No. 1) Act 2024 following Treasury's 2024 consultation, affect contracts for the disposal of taxable Australian real property. The regime is detailed in Subdivision 14-D of Schedule 1 to the Taxation Administration Act 1953.
A key change is the increase in the withholding rate from 12.5% to 15%. This 15% is withheld from the purchase price by the buyer and remitted to the Australian Taxation Office (ATO) at settlement. Another significant alteration is the removal of the market value threshold. Previously, the $750,000 threshold determined whether FRCGW applied; now, all taxable Australian real property disposals are caught regardless of price. CGT main residence exemption: how it works may still apply in some circumstances.
These changes broaden the scope of the FRCGW regime. It’s important to note that Corporate tax residency reform status may also impact certain transactions.
Who must withhold and when
The obligation to withhold payment falls on the purchaser of taxable Australian real property (TARP), indirect Australian real property interests and options/rights to acquire such property. This withholding requirement is triggered on settlement of the transaction, not the contract date.
Australian-resident vendors can avoid the withholding obligation by obtaining a clearance certificate from the Australian Taxation Office (ATO) and providing it to the buyer. Clearance certificates are valid for 12 months and are typically issued within a few days via the ATO online form. FATCA and CRS in Australia explained can provide further context on ATO compliance requirements.
Even if the vendor is an Australian resident, the buyer must withhold 15% from the sale proceeds if a clearance certificate is not provided. This ensures compliance with the Foreign Resident CGT Withholding rules.
Variations and exclusions
Foreign-resident vendors may apply for a variation to the 15% CGT withholding rate if their estimated capital gains tax liability is lower. This could be due to factors such as capital losses, the CGT discount applying to pre-CGT assets, or a main-residence partial exemption. The application process can take up to 28 days, and the approved rate must be provided to the buyer before settlement. Part IVA ITAA 1936 general anti-avoidance provisions apply to any arrangements designed to avoid the withholding obligations.
Certain transactions are excluded from Foreign Resident CGT Withholding. These include transactions occurring on an approved stock exchange and specific securities lending arrangements. Despite the withholding, the vendor remains responsible for lodging an Australian income tax return, and the withheld amount is credited against the final CGT assessment.
If the buyer fails to withhold the required amount, they become personally liable for the unpaid amount, plus general interest charge.
Practical compliance steps
To ensure compliance with the Foreign Resident CGT Withholding (FRCGW) requirements from 1 January 2025, conveyancers should treat every Australian property transaction as in-scope. This means requesting a clearance certificate or variation notice before exchange of contracts.
Buyers should retain a copy of the clearance certificate or variation notice. This documentation serves as the only defence against potential personal liability related to FRCGW obligations. Vendors who are Australian residents but hold property through foreign trusts or partnerships need to determine whether the certificate is required for the entity, rather than the individual. Thin capitalisation 2024 reform: earnings-based test
Settlement agents are increasingly implementing procedures to mitigate risk, with many defaulting to escrow of 15% pending verification of a valid clearance certificate. The ATO provides online services to facilitate bulk lodgement of FRCGW purchaser payment notifications.
Frequently asked
Does the 15% FRCGW apply to Australian citizens living overseas?
Yes if the seller is a foreign resident for tax purposes at the time of disposal, citizenship is irrelevant. Australian citizens who have become non-residents are subject to the 15% withholding and cannot obtain a clearance certificate.
What is the threshold for FRCGW from 1 January 2025?
There is no threshold from 1 January 2025. Every disposal of taxable Australian real property triggers 15% withholding regardless of value, unless the vendor provides a clearance certificate or variation notice.