What is Foreign Resident Capital Gains Withholding Tax ?

What is Foreign Resident Capital Gains Withholding Tax and who does it effect?

The FRCGW tax is 15% and applies to all vendors.

Going by the name Foreign Resident Capital Gains Withholding (FRCGW), it sounds like only foreign residents need to apply for an online clearance certificate application from the Australian Taxation Office (ATO). However, that’s not the case. ALL vendors must apply for the clearance certificate, regardless of whether they are an Australian citizen or a foreign resident.

How does this affect me?

The vendor is responsible for obtaining the clearance certificate and providing it to the purchaser at or before settlement. To avoid unanticipated delays, and to ensure the certificate is valid when it is given to the purchaser, vendors seeking a clearance certificate should apply as early as practical in the sale process.

Failure to provide the purchaser with a clearance certificate will result in the purchaser having to withhold 15% of the contract price to the ATO.

The time for the vendors to obtain their qualifying clearance certificate can be quite short. However, as the ATO says they could take up to 28 days to produce, you should apply as early as possible in the transaction. In New South Wales, many contracts are signed with a 42 day settlement in mind.

What do I need to do?

You should apply for the clearance certificate before or as soon as possible after you have a contract in place. The certificate is valid for up to 12 months so can be used for any sale during that period.

The vendor can be a person, a company, an executor of an estate and other entities. You need to apply for the certificate in the correct name.

Applications including a tax file number get processed faster. The quickest way to receive the certificate is to have it sent to an email address. You can then provide the certificate to your conveyancer in readiness for settlement.