Foreign resident capital gains withholding (FRCGW) of 12.5% applies for all property sales of AUD$750,000 or more.
At a minimum, that is AUD$93,750 being withheld from the sale and paid to the Australian Tax Office, unless there is an approved variation.
The most common reasons why a seller may apply for a variation include:
- making a capital loss
- not having an income tax liability
- foreclosure.
In 2023 over 60% of applications for variations were lodged late, affecting settlement. When clients are too late in applying, the conveyancer or solicitor has no choice but to withhold 12.5%.
Tips
- Include the sales contracts with the variation application
- Variations must be lodged online at least 28 days before property settlement to ensure processing time
- The main residence exemption doesn’t apply to foreign residents
- Australian residents for tax purposes must have a clearance certificate before settlement to prove their residency for tax purposes, so no withholding occurs.