Selling taxable Australian property as a foreign owner involves specific tax obligations, including Capital Gains Tax (CGT). The Australian tax regime ensures that foreign residents pay CGT on profits from selling taxable Australian real property, ensuring compliance with Australian taxation laws and reporting to the Australian Taxation Office (ATO). Understanding these requirements is essential to avoid penalties or unexpected costs, particularly with the increasing focus on measures to tax foreign residents involved in property transactions.

The Foreign Resident Capital Gains Withholding (FRCGW) rule requires buyers to withhold a percentage of the purchase price when buying property from foreign residents. This ensures that sellers meet their CGT obligations before finalising the sale. Upcoming changes in 2025, including a higher withholding rate and the removal of the withholding threshold, will expand the rule's applicability to all transactions involving taxable Australian property.

Schedule a complimentary consultation today for tailored advice on managing your property transactions while staying compliant with Australian tax laws.

How does Foreign Resident Capital Gains Withholding (FRCGW) work?

Foreign Resident Capital Gains Withholding (FRCGW) ensures compliance with tax law for transactions involving taxable Australian real property. Currently, buyers must withhold 12.5% of the purchase price for property sales valued at $750,000 or more if the vendor is a foreign resident. This withheld amount is remitted to the Australian Taxation Office (ATO) to manage Capital Gains Tax obligations. From 1 January 2025, proposed amendments will raise the withholding rate to 15%, and the $750,000 withholding threshold will be removed, affecting all property transactions involving foreign residents, regardless of value.

To avoid withholding, sellers who are Australian residents or exempt can apply for a withholding clearance certificate. This certificate confirms the seller is not subject to FRCGW and can be obtained through the ATO. Exemptions, such as for the main residence, require documentation and a consultation process with the ATO. Clearance certificates are valid for 12 months and should be secured before the settlement date to ensure smooth transactions.

Certain foreign residents may be eligible for a withholding rate variation.

Why your tax residency status matters

Your tax residency status determines how your income and assets are taxed under Australian tax law. Australian residents are taxed on their worldwide income, including earnings from foreign sources, while non-residents are taxed only on Australian-source income, such as income from property or investments within Australia. This distinction is especially significant for foreign investors and expatriates engaging in transactions involving taxable Australian property.

For non-residents, rules like the Foreign Resident Capital Gains Withholding (FRCGW) ensure compliance with Australian tax obligations on property sales. Conversely, Australian residents may benefit from exemptions, such as the main residence exemption, which reduces or eliminates Capital Gains Tax (CGT) on certain properties. Understanding these differences helps avoid unnecessary tax liabilities and ensures proper application of tax law.

How to apply for a Withholding Clearance Certificate

Applying for a Withholding Clearance Certificate is a key step for sellers aiming to reduce or eliminate Foreign Resident Capital Gains Withholding (FRCGW) obligations on property sales. You can apply through the Australian Taxation Office (ATO) online portal or with assistance from a tax agent.

To complete the application, provide:

• Your Tax File Number (TFN)
• Proof of Australian tax residency
• Details about the property being sold

The ATO typically processes applications within 28 days, but applying well before the settlement date is recommended to avoid delays that could impact the transaction.

Eligibility for a Withholding Clearance Certificate depends on the seller’s tax residency status and exemptions. Australian residents and foreign property owners eligible for exemptions, such as the main residence exemption, can apply. Certificates are valid for 12 months and may cover multiple property transactions within this period. Sellers must reapply for a new Withholding Clearance Certificate if conducting additional transactions after the certificate expires.

When should you apply for a withholding rate variation?

A withholding rate variation is beneficial for foreign property sellers expecting a lower tax liability than the standard withholding rate.

You should apply for a variation if:

• The property sale results in minimal or no capital gain.
• Deductions or exemptions, such as the main residence exemption, apply.
• Secured debts on the property exceed the sale proceeds.
• The property purchase occurred prior to CGT coming into effect, i.e. before 20 September 1985.

To prepare your application, provide the Australian Taxation Office (ATO) with calculations of your expected capital gain or loss, cost base, and relevant deductions.

For example, if a foreign vendor sells a property for $800,000 with a cost base of $750,000 and eligible deductions reducing the taxable capital gain to $20,000, the buyer would typically withhold $100,000 at a 12.5% withholding rate. By applying for a variation, the seller could have the withholding amount reduced to reflect the actual taxable gain, significantly lowering the withheld tax.

Applications should be submitted well before the settlement date to ensure the withholding amount matches your actual tax liability and to avoid delays in the transaction process.

How Causbrooks can simplify your FRCGW compliance

Navigating Foreign Resident Capital Gains Withholding (FRCGW) requirements can be demanding, but Causbrooks simplifies the process. Our team ensures compliance with Australian tax laws, whether you're dealing with taxable Australian real property, withholding clearance certificates, or withholding rate variations. We provide expert guidance to make property transactions involving foreign residents as seamless as possible.

Our services include:

Obtaining Withholding Clearance Certificates

Helping Australian residents and eligible sellers eliminate or reduce withholding tax obligations.

Withholding rate variations

Preparing applications to align the FRCGW rate with the actual taxable capital gain or loss on relevant CGT assets.

Tax compliance support

Keeping you updated on changes, such as the 2025 increase in the FRCGW rate and removal of the withholding threshold for transactions involving taxable Australian property.

Causbrooks focuses on ensuring accurate withholding calculations and compliance, so your settlement process is smooth and stress-free.

Contact us today for tailored FRCGW solutions.