The FRCGW Tax Regime was first introduced on 1 July 2016 and applies to sellers disposing of certain taxable property. Currently the FRCGW tax rate is 12.5% and applies to real property disposals, or the grant of a lease (where a lease premium is paid), where the contract price or lease premium is $750,000 or more.
The FRCGW Tax Regime supports the collection of tax owed by foreign residents. However, the regime doesn't just impact foreign residents because Australian residents must provide a clearance certificate to confirm the tax does not need to be withheld. A buyer of property or acquirer of a lease has an obligation to withhold 12.5% of the purchase price or lease premium and pay it to the Australian Taxation Office (ATO), unless it receives a clearance certificate to confirm the seller or lessor of a lease is not a foreign resident for Australian income tax law purposes.
All Australian residents or entities selling property or granting leases can obtain a clearance certificate from the ATO to confirm the FRCGW Tax Regime does not apply. A clearance certificate is required even if the seller or the lessor is an income tax exempt entity and is not required to lodge an Australian income tax return. The clearance certificate is issued by the ATO and confirms that a buyer is not required to withhold any amount.
The Treasury Laws Amendment (2024 Tax and Other Measures No. 1) Bill, which passed both Houses of Parliament on 28 November 2024, will amend the FRCGW Tax Regime for all contracts and leases entered into from 1 January 2025.
The key changes include:
Removing the $750,000 threshold will bring lower value property transactions into the FRCGW Tax Regime.
In practical terms, all sellers of real property and all lessors of leases where a premium is paid need to either:
If a FRCGW obligation arises and the seller doesn’t provide a clearance certificate, buyers will need to withhold 15% of the purchase price of the from the seller and pay the withheld amount to the ATO.
Entities can continue to apply for clearance certificates from the ATO to inform buyers of land or proposed retirement village residents that the seller is not a foreign resident in relation to an Australian real property transaction. Clearances certificates are valid for 12 months and can be used for multiple transactions. See more information at this link.
If you have any enquiries about how the proposed changes to the FRCGW Tax Regime may impact you, please contact Bianca McGoldrick, Fabrice Lincoln, Lance Hilton-Barber in our Property Team.
This article was written by Jo Vermeluen and Bianca McGoldrick, Partner Jackson McDonald