What Is Foreign Resident Capital Gains Withholding? A Simple Guide for Property Sellers

Selling property in Australia as a foreign resident? Then you need to know about Foreign Resident Capital Gains Withholding (FRCGW). It’s a tax the Australian government collects upfront when foreign residents sell real estate, ensuring that capital gains tax is paid on the sale.

In this simple guide, we’ll explain what FRCGW is, who it applies to, and how it works;  so you’re not caught off guard when it’s time to settle your property sale.

What is Foreign Resident Capital Gains Withholding (FRCGW)?

FRCGW is a rule that requires a portion of the sale price to be withheld (or held back) when a foreign resident sells certain types of Australian property. The idea is to make sure the government collects tax on any profit (capital gain) the seller makes from the sale.

Instead of waiting until the seller lodges their tax return, the government collects this withholding amount upfront, at the time of settlement.

Who Does FRCGW Apply To?

FRCGW mainly applies to foreign residents who sell real property in Australia. This includes:

• Houses, apartments, land

• Commercial properties like shops or offices

• Mining or prospecting rights

• Leases over Australian property

If you’re an Australian resident for tax purposes, you might not need to worry about this withholding, especially if you have a clearance certificate from the ATO.

Some transactions are also exempt, like sales through approved stock exchanges or certain other special cases.

How Does the Withholding Work?

When a foreign resident sells property, the buyer is responsible for withholding a percentage of the sale price and paying it to the Australian Taxation Office (ATO) at settlement.

• Starting January 1, 2025, the withholding rate increased from 12.5% to 15% of the contract price.

• For contracts signed before that date, the old 12.5% rate still applies.

For example, if the sale price is $1 million and the contract is signed after January 1, 2025, the buyer must withhold $150,000 and pay this to the ATO.

This withheld money goes towards the seller’s capital gains tax liability. When the seller lodges their tax return, the withholding amount is credited against their overall tax bill. If the seller ends up owing less tax, they can claim a refund for the difference.

Why Is It Important to Understand FRCGW?

If you’re a foreign resident selling property in Australia, knowing about FRCGW helps you:

• Avoid unexpected surprises or delays at settlement

• Ensure you meet your legal obligations correctly

• Plan your finances better, knowing some money will be withheld upfront

• Prevent penalties from not complying with withholding requirements

Buyers also need to understand their role in withholding the correct amount to avoid penalties.

Need Help With Foreign Resident Capital Gains Withholding?

Understanding and managing FRCGW can be complex, especially if you’re not familiar with Australian tax laws. That’s where Precent comes in. Our expert team helps foreign residents and buyers navigate these rules smoothly, ensuring your property sale goes as planned without any tax hiccups.

Contact Precent today to get professional help with your tax obligations and foreign resident capital gains withholding.