Legal Project Management Plan & Checklist
Purpose of this Guide: Use this fork when the vendor of the business is a foreign resident for Australian tax purposes. From 1 January 2025, the Foreign Resident Capital Gains Withholding threshold was reduced to $0 (previously $750,000) and the withholding rate increased to 15%. A foreign resident vendor cannot obtain an ATO Clearance Certificate - that mechanism is reserved for Australian residents. Instead, a foreign resident must apply to the ATO for a FRCGW Variation to reduce the withholding amount from the headline 15% rate.
Jurisdiction: Australia - Commonwealth tax law. The FRCGW regime is administered by the Australian Taxation Office under Schedule 1 to the Taxation Administration Act 1953 (Cth).
The Process at a Glance: The process begins by confirming the vendor's foreign tax residency status. An Australian-registered tax agent or accountant is engaged to prepare the withholding variation application. The CGT liability on the transaction is calculated, including the cost base, capital proceeds, and any applicable CGT discounts or concessions. The withholding variation application is lodged with the ATO through the ATO's online portal with supporting documentation, including the contract of sale and the CGT calculation. The ATO reviews the application and issues a variation notice specifying the approved withholding amount or rate. That variation notice is provided to the purchaser before settlement. The purchaser is then authorised to withhold only the ATO-approved reduced amount and remit it directly to the ATO at settlement. If the ATO declines to vary the withholding, the purchaser must withhold the full 15% of the purchase price and the vendor recovers any excess through their Australian income tax return after year end.
Key Legislation and Case Law: Taxation Administration Act 1953 (Cth) Schedule 1, s 14-200 (withholding obligation on purchaser where vendor is foreign resident), s 14-220 (withholding rate: 15% of the total purchase price from 1 January 2025 with no minimum threshold), s 14-235 (vendor's right to apply for a variation of the withholding obligation). The FRCGW regime was significantly tightened by amendments effective 1 January 2025 - the threshold reduction from $750,000 to $0 means every business sale involving a foreign resident vendor now triggers the withholding obligation regardless of size. ATO guidance and the variation application portal are available at ato.gov.au - FRCGW. If no variation is obtained, the purchaser faces a personal liability if they fail to withhold the correct amount. The vendor can recover excess withholding by lodging an Australian income tax return or non-resident withholding variation.
* Disclaimer: We're nobody's lawyer, because we aren't lawyers. You are, so you know better than to take legal advice from an app. We also aren't accountants or dog trainers - just digital spirit guides taking zero liability for any of this. This site exists to gather the collective knowledge of practitioners like you. Verify everything and submit your feedback on the Business Sale (Vendor) - Foreign Resident Vendor - FRCGW Variation Application matter plan to improve the playbook. THIS IS NOT LEGAL ADVICE, it's a request for input.
This legal matter plan provides a structured workflow for COMMERCIAL cases, outlining the standard TRANSACTIONAL process. Utilize these tracking templates to manage your legal cases efficiently.
Establish the foreign vendor’s FRCGW obligations and engage specialist tax advice.
Formally request a reduction in the FRCGW withholding rate.
Ensure purchaser withholds only the ATO-approved reduced rate, not the full 15%.
Confirm the vendor's net Australian CGT position and recover any over-withheld amount.
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