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The Treasury Laws Amendment Bill that passed on 28 November 2024 will impact how Australian property is transacted beginning in the new year.
The Real Estate Institute of Western Australia (REIWA) has issued a reminder that legislation making changes to the foreign resident capital gains withholding (FRCGW) tax regime will apply to property contracts entered on or after 1 January 2025.
Currently, the FRCGW tax regime applies to vendors disposing of certain taxable property, with a tax rate of 12.5 per cent applying to contracts for property where the value is $750,000 or more.
Starting 1 January 2025, the FRCGW tax regime will increase to 15 per cent and apply to all property sales, regardless of value.
The FRCGW system is broadly designed to support the collection of tax liabilities owned by non-residents selling Australian properties, with Australian residents and citizens currently exempt from paying withholding costs. To prove their exemption, they must provide a clearance certificate from the Australian Taxation Office (ATO) to purchasers either before or at settlement in order to prevent the 12.5 per cent rate from being withheld by the purchaser and paid to the ATO.
While vendors previously only had to obtain a clearance certificate if the sale was over the threshold of $750,000, now all vendors will need to obtain the document, regardless of the property’s value.
Without a clearance certificate, any funds withheld from the sale price will be refunded after the vendor’s income tax return has been processed at tax time.
While most clearance certificates are issued within a few days, the institute noted that some can take “up to 28 days” to issue, subject to additional delays if a vendor’s tax affairs are not up to date.
For this reason, the institute advised vendors planning to sell a property next year to “act early”, as clearance certificates are valid for 12 months, can be used for multiple transactions, and vendors do not need to wait until a contract is signed to supply for and obtain a certificate.
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