Australian Expats must be prepared for new Foreign Resident Capital Gains Withholding (FRCGW) rules

The Foreign Resident Capital Gains Withholding (FRCGW) rules have changed effective 1 January 2025, impacting Australian Expats selling real estate in Australia.

Who do the FRCGW rules apply to?

The FRCGW rules apply to individuals who are foreign residents for tax purposes (i.e. non-residents) of Australia. The rules are tax residency-based and will apply irrespective of your citizenship or visa status. This means that Australian Expats who are no longer a resident for tax purposes in Australia are captured as part of the rules.

What assets do the FRCGW rules apply to?

The FRCGW rules apply to certain Capital Gains Tax (CGT) assets sold by a foreign resident Australian Expat, such as Australian real estate. At the time of sale, a portion of the sale price is withheld by the buyer at settlement and remitted to the ATO on behalf of the seller.

The amount withheld is available to the seller as a tax credit to apply against any income tax liability that arises from the sale upon filing their tax return. The regime is designed to mitigate tax avoidance and incentivises non resident Australian Expats to complete an Australian tax return to receive any relevant tax refund.

What are the changes from 1 January 2025?

Previously, when an Australian Expat, who is non-resident for tax purposes, sold a property in Australia valued at $750,000 or more, 12.5% of the sale price was withheld at settlement and remitted to the ATO as a tax credit.

From 1 January 2025, the withholding rate increased to 15%, and the $750,000 threshold was removed. This means the withholding rules now apply to all property sales by Australian Expats.

It is worth mentioning that all Australian tax residents must now obtain a clearance certificate from the ATO when selling their property if wish to avoid withholding rules. Eligible sellers must apply for a clearance certificate before settlement, or 15% of the sale price will be withheld by the seller and sent to the ATO.

Implications for Australian Expats

Australian Expats disposing of Australian real estate need to be mindful of the reduced sale proceeds they can expect to receive at settlement. Failure to do so may result in an unanticipated reduction in sale proceeds from the sale. This can result in cash flow problems where the funds may have been already committed to other investments or loans payout.

Runway Wealth Management is the trusted Financial Adviser to the Australian Expat community. Our tailored advice is backed by expertise, education and experience, which allows us to be at the forefront of Australian Expat Financial Planning.

If you would like to speak to one of our Expat Financial Advisers about this blog or if you have other queries, we would be more than happy to speak with you. Feel free to send us an enquiry through the ‘Contact Us’ tab provided in the below link:

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General Advice Disclaimer: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.