What is the foreign resident capital gains withholding tax in Australia?
Foreign resident capital gains withholding tax (FRCGW) is a 12.5% tax withheld by purchasers from payments made to foreign residents for the disposal of certain Australian assets, typically property, exceeding a $750,000 threshold. It counts towards the foreign resident's final tax liability.
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How it works in practice
Understanding Foreign Resident Capital Gains Withholding (FRCGW) Tax
The Foreign Resident Capital Gains Withholding (FRCGW) tax is a mechanism designed to ensure that foreign residents pay their capital gains tax obligations on the sale of certain Australian assets. Instead of the seller paying the tax directly, the purchaser is legally obligated to withhold a portion of the purchase price and remit it to the Australian Taxation Office (ATO).
When and What it Applies To
This withholding tax generally applies to the disposal of Australian real property (land and buildings), indirect Australian real property interests (such as shares in a company that primarily owns Australian real property), and certain mining, quarrying, or prospecting rights. The current withholding rate is 12.5% of the gross sale proceeds. For real property, the FRCGW generally applies to assets with a market value of $750,000 or more.
Purchaser's Role and Seller's Credit
The purchaser must withhold the 12.5% and pay it to the ATO on or before the day they acquire the asset. This amount is not an additional tax but acts as an upfront payment towards the foreign resident seller's eventual Australian income tax liability. The foreign resident can then claim a credit for this withheld amount when they lodge their Australian income tax return for that financial year.
Important exceptions
The FRCGW tax does not apply if the market value of the Australian real property is less than $750,000. It also generally doesn't apply to certain types of assets like Australian shares or managed investment trust units, unless they derive their value principally from Australian real property. Additionally, foreign residents can obtain a "clearance certificate" from the ATO confirming they are not subject to the withholding, or a "variation notice" to reduce the amount withheld, if they have a valid reason such as a lower capital gain.
What you should do now
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Determine if the asset you are selling falls under the FRCGW provisions (e.g., Australian real property over $750,000).
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If you are a foreign resident seller, apply to the ATO for a clearance certificate if you believe no withholding should apply.
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If a clearance certificate is not obtained, ensure the purchaser withholds 12.5% of the gross proceeds and remits it to the ATO.
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Retain all documentation, including the clearance certificate or payment confirmation from the purchaser, for your tax records.
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Lodge an Australian tax return to declare the capital gain or loss and claim a credit for any FRCGW amounts withheld.
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