The Foreign Resident Capital Gains Withholding Tax Regime applies to sellers disposing of Taxable Australian Property and Real Property. This includes assets such as residential and commercial properties, leases over real property, vacant land and rights in relation to minerals, petroleum or quarry materials. The system supports the collection of tax owed by foreign residents, however, requires all Australian residents and citizens to provide a clearance certificate confirming tax does not need to withheld and paid to the ATO. From 1 July 2016, sellers have been required to provide Buyers with a valid ATO Clearance Certificate, where the contract price is over $750,000, evidencing that the Buyer is not required to withhold any amount. The applicable tax rate prior to 1 January 2025 was 12.5%.
On 1 January 2025, the regime was amended so that
- the $750,000 threshold was removed so that the rules now apply to all property sales and leases where a premium is paid; and
- the withholding rate has increased from 12.5% to 15%.
This now means that all sellers, regardless of property price, must obtain an ATO Clearance Certificate.
ATO Clearance Certificates for Australian residents are valid for 12 months from the date of issue and can take up to 28 days to issue. Foreign Residents who are unable to obtain an ATO Clearance Certificate, can apply for an ATO Variation Certificate to lower the tax rate. This can potentially be varied to 0% based on certain factors.
Accordingly, you should apply for or instruct your lawyer or accountant to obtain a clearance certificate or variation as soon as you think about selling.
If you are thinking of buying or selling property, please contact our team who can provide detailed advice.
This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific circumstances. It is intended for information purposes only and should not be regarded as legal advice. Further professional advice should be obtained before taking action on any issue dealt with in this publication.
This article is written by Amelia Goktas, one of our Law Graduates.