Important Updates to Australia's Property Withholding Rules

The Australian Taxation Office (ATO) is implementing significant changes to the Foreign Resident Capital Gains Withholding (FRCGW) regime. These amendments, effective 1 January 2025, drastically impact all property transactions, regardless of the vendor's residency status or the property's value.

This guide breaks down the critical updates, ensuring Australian business owners, investors, and property professionals are ready for the new era of compliance.

1. Key Changes to the FRCGW Rules (Effective 1 January 2025)

The two most crucial updates to the FRCGW rules fundamentally alter the landscape of Australian property sales:

Rule Component	Previous Rule (Pre-2025)	New Rule (From 1 January 2025)	Impact
Withholding Rate	12.5%	15%	Higher financial risk for non-compliant vendors.
Price Threshold	Applied only to properties valued at $750,000 or more	Threshold REMOVED. Applies to ALL property sales regardless of value.	Vastly increases the number of transactions affected.

This means that for contracts signed on or after 1 January 2025, the FRCGW rules now cover every single Australian property transaction.

2. Compliance for Australian Resident Vendors

If you are an Australian resident selling property, your obligation remains focused on avoiding the compulsory 15% withholding.

Obtaining a Clearance Certificate

To ensure the full sale proceeds are paid to you at settlement, you must obtain and provide a Clearance Certificate from the ATO to the purchaser.

• The Mandate: If you fail to provide a valid certificate to the purchaser by the date of settlement, the purchaser is legally obliged to withhold 15% of the gross sale price and remit it to the ATO.

• Application Timing: Apply for your certificate as soon as you list the property. While most certificates are issued quickly (often within days), complex cases can take up to 28 days to process.

• Validity: Certificates are valid for 12 months from the date of issue.

• Rectifying Withholding: If the 15% is withheld due to a delay, the vendor must lodge a tax return for the relevant income year to claim the amount as a credit.

3. Compliance for Foreign Resident Vendors

Foreign resident vendors are subject to the 15% withholding unless they take proactive steps to apply for a variation.

Applying for a Variation Notice

A foreign resident can apply to the ATO for a Variation Notice to reduce the withholding rate (potentially down to 0%). This is typically sought if:

1. They expect their capital gain tax liability to be less than 15% of the sale price.

2. They have tax losses or offsets that will reduce the final tax payable.

The application must be submitted promptly after signing the contract, along with supporting documentation, as the ATO may also require up to 28 days to process and issue the variation.

4. Crucial Obligations for Purchasers (Buyers)

The regulatory changes place a significant compliance burden on the purchaser, who is ultimately responsible for ensuring the correct withholding amount (if any) is remitted to the ATO.

The purchaser's obligations are determined by the documentation provided by the vendor at or before settlement:

Vendor Provided Document	Purchaser's Action Required
Valid Clearance Certificate	No amount is withheld. The full sale proceeds are paid to the vendor.
Valid Variation Notice	Withhold the amount specified on the notice (a rate between 0% and 14.99%).
NO Document Provided	Withhold the full 15% of the contract price.

Purchaser Payment Compliance Steps (MANDATORY)

If the purchaser is required to withhold any amount (15% or the varied amount), they must follow these mandatory steps:

1. Lodge Notification: Complete and lodge the Foreign resident capital gains withholding purchaser payment notification form with the ATO.

2. Obtain PRN: Receive the Payment Reference Number (PRN) issued by the ATO upon lodgement.

3. Make Payment: Remit the withheld amount to the ATO on or before the day of settlement, using the specific PRN.

4. Provide Confirmation: Provide a copy of the payment confirmation to the vendor at settlement.

Compliance Warning: Purchasers who fail to withhold the required amount, or fail to remit it to the ATO by the settlement date, may be subject to substantial ATO penalties.

5. Next Steps for Compliance

The removal of the $750,000 threshold means FRCGW is now a mandatory due diligence step for every single property transaction in Australia from 2025.

• Vendors: Ensure the Clearance Certificate application is lodged early.

• Purchasers: Verify the vendor's residency and documentation before settlement, and be prepared to execute the payment compliance steps if no certificate is provided.

Don't leave FRCGW compliance to chance. Contact your registered tax agent or conveyancer today to integrate these new rules into your property transaction checklist and avoid unexpected withholding at settlement.