Recent changes to the foreign resident capital gains withholding regime in Australia
Tony Nunes & Isabella Chin
by Tony Nunes & Isabella Chin
Australia’s foreign resident capital gains withholding (FRCGW) regime is an integrity measure that first came into effect on 01 July 2016. Pursuant to Subdivision 14-D of Schedule 1 to the Taxation Administration Act 1953 (Cth), it imposes an obligation on a purchaser who acquires from a foreign resident a capital gains tax (CGT) asset consisting of:
A taxable Australian real property (TARP);
An indirect Australian real property interest; or
An option or right to acquire such property or interest,
to withhold a percentage of the purchase price and remit that to the Australian Taxation Office (ATO).
Examples of TARP include assets such as vacant land, buildings, leases over real property, and mining, quarrying, or prospecting rights if the minerals, petroleum, or quarry materials are situated in Australia.
Until 31 December 2024, the FRCGW tax rate was 12.5% and applied to real property disposals or the grant of a lease (where a lease premium is paid), where the contract price or lease premium was AUD 750,000 or more.
Effective 01 January 2025, the FRCGW tax rate has increased from 12.5% to 15% and the AUD 750,000 property value threshold has been removed so the withholding rules apply to all property sales and leases where a premium is paid.
Vendors of real estate can avoid FRCGW liability, but need to provide either a clearance certificate or a variation notice to purchasers under section 14-215 of Schedule 1 to the Taxation Administration Act 1953 (Cth).
Where the vendor is an Australian resident for tax purposes, the vendor may make an online application to the ATO to establish their tax residency status as an Australian and thus avoid the FRCGW. The clearance certificate is valid for 12 months from the date of issue. If a clearance certificate is not provided, FRCGW must be withheld from the sale proceeds by the purchaser and remitted to the ATO.
If the vendor is a foreign resident for tax purposes, they may incur capital gains tax on the sale of TARP. However, the foreign resident vendor may apply for an ATO variation to reduce the FRCGW rate potentially down to 0%.
Generally, the ATO may grant a variation to foreign residents for reasons such as the capital gains tax payable on the sale is less than 15% of the price, a double tax treaty applies between Australia and the foreign country of tax residence, or the transaction results in no capital gain due to a CGT rollover or exemption.
Purchasers must withhold 15% of FRCGW where no variation notice is provided by the foreign resident vendor at or before settlement. Foreign vendors who are not aware of this withholding tax may be surprised or potentially even experience cashflow issues.
GGI member firmKelly + Partners Chartered AccountantsSydney, AustraliaT: +61 2 9933 8866
Advisory, Auditing and Accounting, Corporate Finance, Tax, Fiduciary and Estate Planning
Kelly + Partners Chartered Accountants is a specialist chartered-accounting business that assists private businesses, private clients, and families to manage their business and personal financial affairs. The Kelly + Partners Tax Consulting Practice is respected as one of the foremost tax advisory firms in Australia and offers a full range of direct, indirect, and international tax services.
Isabella Chin is a qualified CA, CTA and tax lawyer. She commenced her tax career with one of the “Big 4” accounting firms. She works with a diverse range of clients. Her areas of tax expertise include small business tax concessions, restructures, capital gains tax, and tax residency. Contact Isabella.
Tony Nunes has over 25 years’ experience in providing tax advice to clients, especially on issues affecting cross-border transactions, acquisitions and restructures, and on all aspects of structuring the ownership and financing of corporations and their operations. Contact Tony.
