The foreign resident capital gains withholding tax regime is changing.
With effect from 1 January 2025:
- the withholding rate increases from 12.5% to 15%; and
- the $750,000 threshold is removed.
The foreign resident capital gains withholding regime applies to sales of taxable Australian property, including vacant land, residential property, and commercial property.
Until 1 January 2025, the regime applied only to properties valued at $750,000 or more. From 1 January it applies to all properties.
Buyers must withhold a percentage of the purchase price and pay it to the Australian Taxation Office (ATO) instead of to the seller unless the seller is an Australian resident and provides evidence of that fact by way of a clearance certificate from the ATO. Sellers who are foreign residents can apply to the ATO for a variation notice and potentially reduce the amount required to be withheld.
Without a clearance certificate or a variation notice, all buyers must withhold the required percentage of the purchase price, even if the seller is an Australian resident.
For sales of taxable real property before 1 January 2025, the foreign resident capital gains withholding amount was 12.5%. From 1 January 2025 it is 15%.
The effect of these amendments is that ALL sellers of real property in all states and territories, whether Australian residents or foreign residents, need to apply for a clearance certificate from the ATO and provide it to the buyer before the completion of the sale. If they do not, then the buyer must pay 15% of the purchase price to the Australian Taxation Office on settlement. For those jurisdictions with electronic conveyancing, this may be able to be done via the settlement platform.
All By Lawyers publications that cover foreign resident capital gains withholding have been updated to reflect this change. This includes the Conveyancing and Property and Estates guides in each state and territory, Retirement Villages (NSW), and 1001 Conveyancing Answers (VIC), (NSW), and (QLD).