New Law in 2025: FRCGW Withhold Rate and NSW Surcharges

In 2025, significant changes in tax regulations will take effect in Australia, impacting both foreign investors and property owners in New South Wales (NSW). The new law will see an increase in the Foreign Resident Capital Gains Withholding (FRCGW) rate from 12.5% to 15% nationally. Additionally, the surcharge purchase duty for NSW will be increased to 9%, and the surcharge land tax will be increased to 5%, marking a considerable rise from previous rates.

Overview of the FRCGW Rate Increase

The Foreign Resident Capital Gains Withholding (FRCGW) regime was introduced as a measure to ensure the collection of capital gains tax (CGT) from foreign residents selling taxable Australian property. From 1 January 2025, the FRCGW withholding rate will rise from 12.5% to 15%. This adjustment aims to better secure tax compliance and revenue from foreign investors.

The FRCGW applies to the disposal of certain taxable Australian property, including real estate and indirect interests in Australian real property. The increase in the withholding rate means that foreign investors will need to account for a higher percentage of their sale proceeds being withheld at settlement.

Surcharge Purchase Duty Increase in NSW

Effective from 1 January 2025, the surcharge purchase duty rate in NSW will be increased from its current rate to 9%. This surcharge is applicable to foreign purchasers of residential property in NSW. The adjustment is intended to balance the housing market and provide more opportunities for local residents to purchase property.

• The surcharge purchase duty is an additional cost on top of the standard purchase duty rates payable on property transactions.
• This increase will significantly impact the overall cost for foreign buyers, making it crucial for potential investors to factor in this added expense when considering property purchases in NSW.

Surcharge Land Tax Increase in NSW

In addition to the surcharge purchase duty, the surcharge land tax for NSW will also see an increase. Starting 1 January 2025, the surcharge will rise from the current rate to 5%. This surcharge is levied on foreign owners of residential land in NSW and is calculated annually based on the taxable value of the land.

The purpose of this increase is to ensure that foreign property owners contribute fairly to the funding of state infrastructure and services. The rise in the surcharge land tax is expected to have a notable impact on ongoing costs for foreign investors holding residential land in NSW.

Implications for Foreign Investors

The combined effect of these changes will result in higher initial and ongoing costs for foreign investors in the Australian property market. The increase in the FRCGW withholding rate, along with the higher surcharge purchase duty and surcharge land tax in NSW, will necessitate careful financial planning and consideration for foreign buyers and owners.

Nonetheless, these measures are part of broader efforts to stabilize the property market, ensure fair competition, and secure tax revenues. Foreign investors are encouraged to seek professional advice to navigate these changes effectively and make informed decisions.

Conclusion

The new tax regulations coming into effect on 1 January 2025 mark a significant shift in Australia's approach to taxing foreign investors in the property market. With the FRCGW withholding rate increasing to 15% nationally, and the surcharge purchase duty and surcharge land tax in NSW rising to 9% and 5% respectively, foreign investors will need to adjust their strategies accordingly. Staying informed and planning ahead will be key to managing these new financial obligations.