Foreign Resident Capital Gains Withholding (FRCGW) is a tax measure introduced by the Australian Government to ensure that foreign residents meet their capital gains tax obligations when they sell certain Australian assets. It places the responsibility on the purchaser to withhold a portion of the purchase price and pay it to the Australian Taxation Office (ATO).
This guide explains how the rules apply to both foreign and Australian residents, including how the law has changed over time.
What Is FRCGW and Why Does It Exist?
The FRCGW regime was introduced to prevent foreign vendors from avoiding capital gains tax (CGT) when selling Australian property. Because it can be difficult for the ATO to collect tax from foreign residents after a property sale, this system ensures that the tax is withheld at the point of transaction.
The law applies a withholding obligation on the purchaser of certain Australian assets when the vendor is a foreign resident, unless an exemption is provided.
The withholding obligation applies when the contract date is on or after 1 July 2016 and the property is classified as “relevant property”, including:
- Australian real property (e.g., vacant land, residential or commercial property
- Indirect Australian real property (IARP) interests, where the holder has a right to occupy land or buildings on land
- Mining, quarrying, or prospecting rights where they are situated in Australia
- A lease over real property in Australia
- Rate of withholding from a property sale
The following FRCGW rates apply to the market value of property contracts signed:
- Between 1 July 2016 and 30 June 2017 the withholding rate was 10% and applied to property contracts values at $2 million or more.
- Up to and including 31 December 2024, a rate of 12.5% applied to property valued at $750,000 or more.
- On and after 1 January 2025, a rate of 15% applies to the value of all property
The foreign resident vendor must lodge a tax return at the end of the financial year, declaring their Australian assessable income, including any capital gain (profit) from the disposal of the asset.
Australian resident vendors can avoid the requirement of the purchaser to withhold the 15% by providing one of the following to the purchaser prior to settlement:
- For Australian real property, a clearance certificate obtained from Australian Taxation Office (ATO).
- For other asset types, a vendor declaration.
Examples
1. Foreign Resident Vendor – After 1 January 2025
- Sells a house in Sydney for $900,000
- Purchaser must withhold 15% = $135,000 and pay it to the ATO
2. Australian Resident Vendor – After 1 January 2025
- Sells a commercial unit for $1.1 million
- Provides ATO Clearance Certificate
- No withholding is required by the purchaser
In summary, FRCGW is a purchaser-based tax withholding obligation. Australian residents can avoid withholding by providing the right documents before settlement. The applicable rules depend on the contract date, not the settlement date.
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