The Australian Government has passed legislation impacting the foreign resident capital gains withholding regime. This was initially proposed in December 2023 and comes into effect on 1 January 2025.
Under the changes, the withholding rate will increase from 12.5 per cent to 15 per cent, the $750,000 property threshold will be removed, and the withholding rules will apply to all property sales. The regime is designed to support the collection of tax liabilities owed by non-residents selling Australian property.
All Australian residents selling property will require a clearance certificate from the Australian Tax Office (ATO). Otherwise, the withholding process will apply to the transaction. If an Australian resident vendor does not provide a clearance certificate by settlement, 15 per cent of the sale price must be withheld by the purchaser and paid to the ATO. If an amount is withheld from the sale price, the vendor will only receive any refund due after their next income tax return is processed at tax time.
Most clearance certificates will be issued within a few days. However, it is crucial that vendors apply early, as certificates can take up to twenty-eight days to issue. They are valid for twelve months, so the vendor doesn’t need to wait until they have signed a contract. Foreign resident vendors may be able to apply to vary the withholding rate.
Find out more about the changes on the ATO website.