Foreign Resident Capital Gains Withholding (FRCGW) Rate Update
Are you a foreign resident thinking about selling Australian property soon? There have been some big changes to the Foreign Resident Capital Gains Withholding (FRCGW) rules. These are applicable from 1 January 2025, so if you sell property on or after this, you need to know this.
Overview: FRCGW Rate Update
- FRCGW withholding is not an extra tax. It’s essentially a pre-payment of your CGT, which you’ll reconcile in your annual return.
- From 1 January 2025, the FRCGW rate is 15%, applicable on all Australian property sold by Australian tax non-residents regardless of value.
- As an Australian tax non-resident, you cannot get a Clearance Certificate—a withholding variation is your best path to reducing the withheld amount.
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What is FRCGW?
Foreign Resident Capital Gains Withholding may sound complicated, but it’s really just a way of making sure the right amount of tax gets collected when someone sells property in Australia.
Think of FRCGW as paying part of your Capital Gains Tax (CGT) in advance. It’s not a new tax. When you sell property as an Australian non-resident, the buyer has to hold back a certain percentage of the sale price and send it to the Australian Taxation Office.
If you end up paying more than you owe, you can get the extra amount back when you lodge your next income tax return. Essentially, you’re just settling up a chunk of your CGT earlier than usual, and the ATO will refund any excess.
What Was the FRCGW Rule Previously?
Previously, if a non-resident sold Australian property worth $750,000 or more, the purchaser had to withhold 12.5% of the sale price and pay it to the ATO—unless you, as the vendor, provided a clearance certificate proving you’re an Australian resident for tax purposes.
Essentially, any property sale at or above the $750,000 mark required you to produce this certificate before settlement to avoid having 12.5% held back.
What’s the New FRCGW Rule from 1 January 2025?
From 1 January 2025, two key things have changed:
- Higher Withholding Rate: The withholding rate is up from 12.5% to 15%.
- No Value Threshold: The $750,000 threshold is removed. In other words, the new rules now apply to all property sales, no matter the value.
Here’s an example to clarify.
| Contract of Sale Signing Date | $500,000 Property | $750,000 Property | $1,000,000 Property |
|---|---|---|---|
Before 1 January 2025 | $0 (Nil) | $93,750 withheld | $125,000 withheld |
On or After 1 January 2025 | $75,000 withheld | $112,500 withheld | $150,000 withheld |
Why Does This Matter?
Australian tax non-residents don’t qualify for ATO Clearance Certificates because these are specifically designed to confirm that the seller is a tax resident of Australia.
Without this certificate, the buyer must withhold 15% of the property price and remit it to the ATO.
If you’re a non-resident, you simply cannot get that clearance certificate. As a result, the withholding applies to you by default.
Withholding Variation Application
Although you can’t obtain a clearance certificate as a non-resident, you can apply for a withholding variation to the ATO. Here’s how that works.
- Purpose of Variation: A variation request essentially asks the ATO to reduce the standard withholding rate on the sale. If, for example, you believe 15% is more than your likely final tax liability, you can seek a lower withholding amount.
- ATO Approval Depends on Your Tax Standing: To be successful, the ATO now wants you to be up to date on your tax returns before considering your application. This means you’ve lodged the required tax returns and don’t have outstanding tax debts. The ATO will assess your situation—your past compliance, estimated capital gain, and overall tax position—and may approve a reduced withholding rate.
- Why Apply for a Variation: If you are confident that your actual CGT bill will be less than the standard withholding amount, a variation helps free up your cash flow by reducing how much gets held back. Instead of waiting until you lodge your next tax return to claim a refund of any excess withheld, a lower amount can be remitted to the ATO upfront.
- After the Sale: Even if you get a reduced rate, you will still need to lodge an Australian tax return to calculate the final amount of CGT payable. The withheld portion (whatever rate you end up paying) counts as a credit against your final tax liability.
How to Apply for Withholding Variation As a Tax Non-Resident
Below is a simple, step-by-step outline of how to apply for a Withholding Variation as a non-resident for tax purposes in Australia.
- Gather Information: Collect property details (address, purchase date, estimated sale price) and personal/entity info (name, TFN/ABN).
- Estimate Capital Gain: Consider the purchase price, improvements, and any allowable costs. Seek professional advice for accuracy.
- Check Tax Compliance: Ensure all tax returns are lodged and any outstanding debts resolved to boost approval chances.
- Complete Variation Application: Use the ATO’s “Variation Application for Foreign Resident Capital Gains Withholding Payments,” stating why the withholding rate should be lower and attaching supporting evidence (e.g., sale contract, cost records).
- Lodge the Form: Submit online or via paper. Wait for the ATO’s decision, which could approve, adjust, or deny your request.
- Provide Variation to Buyer: If approved, give the ATO-issued notice to the buyer so they can withhold the reduced amount at settlement.
- Lodge Final Tax Return: After the financial year ends, submit a tax return to reconcile your final CGT liability—claim any refund or pay any outstanding amount.
Following these steps should help you streamline the process of applying for a FRCGW Withholding Variation as an Australian tax non-resident. If in doubt, always seek advice from a registered tax agent, conveyancer, or solicitor familiar with Australian taxation and property laws.
We’re offering a personalised ATO tax health check to help Australians and foreign residents ensure their taxes are updated. Get yours today if you want to sell property down the line!
Your Options After the FRCGW Rate Update
Here’s a snapshot of what could happen with your property sale after the recent FRCGW rate update.
| Scenario | Condition | Withholding Example | Final Outcome |
|---|---|---|---|
A: Do Nothing | – Not up to date on tax returns – No variation application | – Rate: 15% – For a $500,000 Sale: $75,000 | ATO holds the $75,000 until you file your next tax return. |
B: Variation Granted | – Up to date on tax returns – Variation request approved | – Rate: Lower—for example, 10% – For a $500,000 Sale: $50,000 | You keep more cash upfront, which in this example is $15,000. |
Scenario A: Do Nothing
If you’re behind on your tax returns or don’t apply for a variation, the purchaser must withhold the full 15%. You won’t see that money until you lodge your next tax return or get a refund back from the ATO.
You can submit the tax return by the end of the financial year and complete the CGT for the refund or pay additional tax.
Scenario B: Withholding Variation
You can apply for a withholding variation, contingent on you being up to date on your tax affairs. This way, you’ll pay less than 15%. It means more money in your pocket upfront, and you’ll only settle the difference at tax time.
When you lodge your tax return, your final tax (Capital Gains Tax or otherwise) may be less than the withheld amount. If so, the ATO will refund you the difference. If your tax bill is more, you’ll owe extra.
How to Stay Ahead of the FRCGW Changes
Don’t let these changes catch you off guard. If you’re selling property in Australia, first make sure you’re up to date on your Australian tax obligations. Then, you can apply for a withholding variation. You’ll save yourself a lot of stress and keep more of your cash where it belongs: in your pocket.
We’re offering a focused ATO tax health check to review your tax history with the ATO!
Whether you earn Australian income or not, staying up to date is key to qualifying for a variation if you’re a foreign resident. Once we’ve completed your health check, you’ll get a personalised action plan.
It’s the first step to managing your taxes, stress-free, so get your tax health check today.
Get a free Australian mortgage assessment today.
FAQs on Foreign Resident Capital Gains Withholding (FRCGW) Updates
What is the new withholding rate for property sales?
From 1 January 2025, the withholding rate increases from 12.5% to 15% for all Australian property sales, regardless of value.
Can foreign residents reduce the 15% withholding?
Yes. Foreign residents can apply for a withholding variation. However, the ATO now requires all tax returns to be up to date before granting a variation.
How long does the withholding variation application process take?
It generally takes the ATO around 28 days to process a withholding variation application, although it can sometimes take longer if the ATO requests more information or if your tax affairs are complex.
When should I start preparing for the FRCGW?
Ideally, you should start preparing as soon as you decide to sell the property, especially if you’re a foreign resident. This allows enough time to gather documentation, confirm your residency status, apply for any necessary certificates or variations, and avoid delays at settlement.
Best to start talking with us before you sign the contract of sale to confirm your Australian taxes are in order and that you can proceed without unnecessary delays and hassles.
What if I’m an Australian tax resident?
If you’re an Australian resident, you can apply for a clearance certificate from the ATO before selling your property.
A clearance certificate proves you’re an Australian resident for tax purposes. If you’re selling property, you can apply online through the ATO’s website. Most certificates are issued within a few days, but it can take up to 28 days if the ATO needs more information.
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