What the Proposed Changes to Foreign Resident Capital Gains Withholding Mean for Perth's Property Market in 2025

Big changes are on the horizon for foreign property sellers in Australia, and Perth’s real estate market won’t be immune. Starting 1 January 2025, pending the passage of legislation in Federal Parliament, significant updates to the Foreign Resident Capital Gains Withholding (FRCGW) rules are set to take effect.

Here’s what these changes mean for sellers and the Perth property market:

Firstly, What is Foreign Resident Capital Gains Withholding (FRCGW)?

Foreign Resident Capital Gains Withholding (FRCGW) is a tax that applies when a foreign resident sells certain Australian properties. It requires the buyer to hold back a portion of the sale price (currently 12.5%, increasing to 15% in 2025) and pay it to the Australian Taxation Office (ATO). This ensures that any capital gains tax owed by the foreign seller is collected.

If the seller proves they’re an Australian resident or qualifies for an exemption, FRCGW doesn’t apply.

Key Changes to FRCGW

1. Removal of the $750,000 Threshold

   • Currently, FRCGW applies only to property sales exceeding $750,000. From 2025, the threshold will be removed, meaning all property sales by foreign residents—regardless of value—will be subject to withholding.

2. Increase in Withholding Rate

   • The withholding rate will rise from 12.5% to 15%, increasing the amount deducted at settlement and potentially impacting sellers’ cash flow.

3. When FRCGW Applies

   • The withholding rules apply when:

     • A foreign resident disposes of taxable Australian property.

     • The buyer pays $750,000 or more for the property (current rule).

     • No Clearance Certificate is provided by the seller to prove Australian residency.

What Does This Mean for Foreign Sellers?

• Increased Financial Burden

  • With the removal of the $750,000 threshold, sellers of lower-value properties will now face withholding obligations for the first time. The increased rate further adds to the financial burden.

• Deadline for Current Rules

  • If you plan to sell a foreign-owned property, settling by 31 December 2024 ensures the current 12.5% withholding rate and $750,000 threshold still apply.

What About Australian Residents?

Australian citizens and residents are generally exempt from FRCGW, but sellers must obtain a Clearance Certificate from the Australian Taxation Office (ATO) to prove their residency status.

• Why It’s Important: Without a Clearance Certificate, buyers are required to withhold 15% of the purchase price.

• How to Apply:

  • Clearance Certificates are valid for 12 months.

  • Apply early in the sales process to avoid settlement delays.

  • Start your application here.

How the Changes Could Impact Perth's Market

With Perth’s property market still considered relatively affordable compared to other Australian cities, the updated FRCGW rules could have mixed effects:

• Impact on Supply: Increased costs for foreign sellers may discourage them from listing properties, potentially tightening supply in certain segments.

• Foreign Investment: The changes may deter new foreign investors, altering demand in Perth’s property market.

Need Guidance?

Navigating the updated FRCGW rules can be complex. At Adaptive Settlements, we’re here to make the process smooth and hassle-free, whether you’re a local or foreign seller. Contact us for expert advice, or get started on your Clearance Certificate application directly with the ATO here.

Plan ahead, stay informed, and take action to ensure your property transactions in 2025 proceed seamlessly!

The information provided in this blog is accurate to the best of our knowledge at the time of publication. However, laws, regulations, and policies can change, and the applicability of the information may vary depending on your specific circumstances.

We strongly recommend that readers verify the details presented here and seek professional advice tailored to their situation. Adaptive Settlements disclaims any liability for decisions made based on this content. Always consult with a qualified legal, tax, or property professional before proceeding with any property transactions.