If you are selling real estate property in Western Australia, it is crucial that you understand the Foreign Resident Capital Gains Withholding (FRCGW) requirements that may impact your sale. With recent changes in legislation coming into effect, knowing your responsibilities as a Seller is essential to avoid delays and compliance issues with your settlement.

What is Foreign Resident Capital Gains Withholding?

Foreign Resident Capital Gains Withholding (FRCGW) was introduced by the Australian Taxation Office (ATO) as a means of ensuring that foreign residents pay their capital gains tax obligations when selling real estate property in Australia.

Previously, for a sale with a market value of $750,000 or more, the Buyer would be required to withhold 12.5% of the purchase price and direct these funds to the ATO at settlement unless the Seller provided a Clearance Certificate from the ATO.

However, a Bill containing changes to the Foreign Resident Capital Gains Withholding (FRCGW) requirements has recently passed in the Senate introducing significant changes that will take effect for a Contract for Sale from 1 January 2025:

• Increase in the Withholding Rate: The withholding rate will be increased from 12.5% to 15.0%.
• Removal of the $750,000 Threshold: The withholding rules will apply to all property sales, regardless of value.

What Does This Mean for Sellers?

It is now more important than ever for all Sellers — both Australian and foreign residents — to be proactive in meeting their Foreign Resident Capital Gains Withholding (FRCGW) requirements when selling.

1. Obtaining a Clearance Certificate
   Australian residents must apply for a Clearance Certificate from the ATO to avoid the Buyer withholding funds at settlement. Sellers can complete the application directly online through the ATO’s website: https://www.ato.gov.au/single-page-applications/frwt-certificate. The ATO advises that applications can take up to 28 days to be processed, but they are often completed faster if Sellers provide their Tax File Number (TFN) and ensure that the last two years of tax returns have been lodged.
2. Providing the Certificate to the Buyer
   Sellers must provide a copy of the Clearance Certificate to the Buyer before settlement. Failing to do so will result in the Buyer being required to withhold the funds and transfer them to the ATO at settlement.
3. Seek Professional Advice
   It is highly recommended that Sellers first consult with a tax accountant for guidance on Foreign Resident Capital Gains Withholding (FCGW) and other tax obligations when considering the sale of real estate property in Western Australia.

Timing is Critical

ATO Clearance Certificates are valid for 12 months from the date of issuance. Applying early—ideally, as soon as you have listed the property for sale—ensures that you avoid settlement delays.

If you are planning on selling, reach out to your tax accountant and settlement agent early to ensure that you are well-prepared for the settlement process.