The Australian Tax Office (ATO) introduced changes to the Foreign Resident Capital Gains Withholding (FRCGW) rules on 01 January 2025 that will affect all Australian residents selling property.

Prior to 01 January, Australian residents selling property were required to provide a clearance certificate to the purchaser at or before settlement to avoid having 12.5% withheld from a property sale where the value of the property was $750,000 or more.

Under the changes to the FRCGW legislation, all Australian residents now require a clearance certificate from the ATO for all property contracts signed on and after 01 January 2025, regardless of the sale price. In short, the changes are:

• the withholding rate will increase from 12.5% to 15%.
• the $750,000 property value threshold will be removed, and the withholding rules will apply to all property sales.

Without a clearance certificate, the tax – calculated at 15% of the sale price – must be withheld from the sale proceeds by the purchaser and paid to the ATO. If tax is withheld from the sale price, the vendor will only receive any refund due after their next income tax return is processed at tax time.

Australian residents selling property can apply for a certificate (free of charge) from the ATO – and as certificates are valid for 12 months, it's not necessary to wait until a signed contract of sale is in place.

The seller must provide the certificate to the purchaser before the settlement date. According to the ATO website, clearance certificates usually issue within a few days, but can take up to 28 days in some circumstances - that's why it's important to apply for a certificate as early as possible when planning to sell a property.

If you're considering selling a property in 2025 and want to know more about the ATO rules around Foreign Resident Capital Gains Withholding, feel free to reach out to one of our Accounting Advisers at The Peak Partnership.