What Changes Have Been Made to the FRCGW Scheme?

From 1 January 2025, new rules will apply to Australia’s Foreign Resident Capital Gains Withholding (FRCGW) scheme. The changes will affect both foreign property owners and Australians living overseas. The key updates include a higher withholding rate and the removal of the existing price threshold.

Anyone involved in property sales with foreign links needs to understand what these changes mean. For a detailed explanation of the new rules, see Bates Cosgrave’s guide on changes to foreign CGT withholding.

What Is the FRCGW Scheme?

The FRCGW scheme started in July 2016. It was created to stop foreign residents from avoiding tax when selling Australian property. Under this scheme, the buyer must withhold a part of the sale price and send it to the ATO if the seller is a foreign resident. For more context on how these rules affect foreign sellers, check Bates Cosgrave’s foreign CGT withholding guide.

From 1 January 2025, the rules will change. These changes come under the Treasury Laws Amendment (2024 Tax and Other Measures No. 1) Act 2024.

What Are the Main Changes?

There are two major changes to know:

The withholding rate will increase from 12.5% to 15%. This rate applies to the total price in the contract, not just the gain made on the sale.
The $750,000 threshold will be removed. Right now, if the sale price is below $750,000, there is no withholding. From 2025, every property sale will be covered by the rule, no matter the price.

If a buyer and seller signed an option contract before 2025 but the buyer exercises it after that date, the new rate still applies.

What Should Australian Residents Know?

The scheme focuses on foreign sellers. Still, it affects Australian residents if they do not get a Clearance Certificate.
You must prove to the ATO that you are a resident. You do this by applying for a Clearance Certificate. The ATO will give one if it agrees you are a resident for tax purposes.

Each seller must apply. Joint owners cannot share one certificate.
A certificate stays valid for 12 months.
You should apply early. The ATO may take time to process your request.

If you do not have a certificate at settlement, the buyer must hold back 15% of the price and pay it to the ATO. You can later claim that amount back when you do your tax return. But this may affect your short-term cash flow.

What If You’re a Foreign Seller?

Foreign sellers will face the full effects of the rule. This includes Australian citizens who are non-residents for tax purposes.

From 1 January 2025:

15% of the sale price will be withheld at settlement.
Buyers must send this amount directly to the ATO.
There is no minimum price for this to apply.
You can ask the ATO to reduce the withholding amount. This might apply if your gain is small or if you made no gain at all. You’ll need to apply for a variation and show evidence. A tax adviser can help with this.

Who Counts as a Foreign Resident?

Many people wrongly assume that spending less than 183 days in Australia makes them a non-resident. That test is only one of four used by the ATO.

Here are the four tests:

Ordinary concepts test. Do you live in Australia in a usual or settled way?
Domicile test. Is your permanent home in Australia?
183-day test. Were you physically in Australia for 183 days or more in the tax year?
Commonwealth superannuation test. Are you a federal employee working overseas who is part of a specific super scheme?

You only need to pass one test to be considered a resident. The ATO looks at your behaviour, your ties to Australia, and your plans.

How Does the Withholding Work?

The process is simple:

If the seller is a foreign resident, the buyer must withhold 15% of the price.
The buyer pays this money to the ATO.
The seller can later claim it when filing an Australian tax return.

This rule also applies when a buyer pays a lease premium. If the contract is dated before 1 January 2025, the old rules (12.5% and a $750,000 threshold) still apply.

Why Should Australian Residents Still Take Action?

Australian residents are not exempt unless they prove their status. The ATO does not guess or assume.

You must show a valid Clearance Certificate to the buyer. Without it, the buyer must withhold money.
Apply early. Late certificates may cause problems at settlement.
A missing certificate can delay access to funds.
In urgent cases, a tax professional may be able to speed up the process.

What Should Sellers Do Now?

If you plan to sell property in 2025 or later, act early.

Check your tax residency. This decides which rules apply to you.
If you are a resident, apply for a Clearance Certificate. Don’t wait until the last minute.
If you are not a resident, speak to a tax adviser. You may be able to reduce the withheld amount.

What Else Should You Consider?

These changes could bring extra costs and delays. Foreign buyers may lose interest in lower-value properties now that all sales are affected. Sellers may not receive full payment at settlement, which could affect their ability to pay off loans or make new purchases. Clearance Certificate applications may take weeks to process. And many sellers do not understand how the ATO decides residency, which leads to mistakes.

Clear and early action can help reduce risks. For a full breakdown of these updates and expert guidance, see Bates Cosgrave’s changes to foreign CGT withholding.

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