Significant Changes to Australia's Capital Gains Withholding Tax for Foreign Residents: What You Need to Know.
According to the Mid-Year Economic and Fiscal Outlook report released on December 13, 2023, the Australian Federal Government will implement significant adjustments to the Foreign Resident Capital Gains Withholding Tax (FRCGW) starting January 1, 2025. This change will affect all foreign residents engaged in real estate transactions in Australia. Here is a detailed overview of the changes:
Main Changes
Starting January 1, 2025, the withholding tax rate on property transactions will increase from the current 12.5% to 15%. This adjustment means that sellers will have to pay a higher percentage of withholding tax in the transaction, which may impact their net earnings.
The withholding tax threshold will be lowered from AUD 750,000 to AUD 0. This means that all sellers will be required to pay withholding tax regardless of whether the property sale price is below AUD 750,000, unless they can provide a clearance certificate from the Australian Taxation Office (ATO) exempting them from the withholding tax. This policy change will significantly increase the tax liabilities for foreign sellers and may impact their investment decisions in Australia.
About Foreign Resident Capital Gains Withholding (FRCGW)
FRCGW applies to sellers who signed contracts after July 1, 2016, concerning specific taxable properties. These properties include real estate valued at AUD 750,000 or more, as well as other assets related to indirect property interests in Australia. When conducting a property transaction, the buyer is required to withhold the appropriate percentage of withholding tax from the purchase price and remit it to the Australian Taxation Office (ATO). If the seller wishes to avoid paying this withholding tax, they must obtain a clearance certificate from the ATO in advance, prior to completing the property settlement.
The purpose of government policies regarding the Foreign Resident Capital Gains Withholding (FRCGW) :
The implementation of this system aims to ensure that foreign residents fulfill their tax obligations in Australia effectively. By increasing the withholding tax rate and lowering the threshold, the government hopes to enhance tax revenue and ensure a fair tax environment. Additionally, this approach seeks to prevent tax revenue loss and tax evasion practices.
The impact on sellers
For foreign residents planning to sell property in the future, this change will directly impact their financial planning. Sellers will need to reassess their selling strategies to adapt to the new tax environment. Additionally, due to the increased withholding tax and lowered threshold, sellers may need to be more cautious in pricing their homes to avoid making transactions less attractive due to the tax burden.
For further information or any inquiries, please feel free to contact us at any time. We are committed to providing you with professional legal services to help you make informed decisions in your real estate transactions in Australia.