GST Withholding in Australia: What Buyers and Sellers Need to Know in 2025
Published on April 28, 2025
Buying or selling property in Australia can be stressful, especially with the changes to Goods and Services Tax (GST) withholding and capital gains tax rules in 2025. Many people worry about missing a step in the settlement process, facing unexpected withholding obligations, or not understanding how GST applies to residential premises or potential residential land. This article breaks down what buyers and sellers need to know about GST withholding, the Foreign Resident Capital Gains Withholding (FRCGW) regime, and how these rules affect certain property transactions in 2025.
We’ll cover the key changes, explain how GST withholding works for new residential premises and potential residential land, and outline what you need to do to stay compliant. By the end, you’ll have a clear understanding of your responsibilities, how to avoid penalties, and how to make your next property transaction as smooth as possible.
The Two Main Withholding Rules for Property in 2025
When you’re involved in property transactions in Australia, there are two main withholding rules to keep in mind: GST withholding and the FRCGW regime. Both can affect the contract price, the settlement process, and what happens on the property settlement date.
Before we look at the details, let’s clarify what these rules mean for buyers and sellers of residential property, new residential premises, and potential residential land.
Foreign Resident Capital Gains Withholding (FRCGW)
The FRCGW regime requires purchasers to withhold a portion of the purchase price when buying property from a foreign resident. This helps the Australian Tax Office (ATO) collect tax on capital gains from the sale of taxable supplies, including residential premises and potential residential land. In 2025, the withholding amount has increased, and the rules now apply to all property transactions, regardless of value.
GST Withholding on New Residential Premises and Potential Residential Land
GST withholding applies when you buy new residential premises or potential residential land. The purchaser pays a portion of the contract price directly to the ATO as a GST residential withholding payment at settlement. This ensures that GST payable on the sale is collected, even if the seller is a property developer or a GST registered business.
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What’s Changed in 2025 for Withholding Obligations?
The start of 2025 has brought important updates to the FRCGW regime and reinforced the ongoing GST withholding obligation for certain property transactions. Here’s what’s new and what you need to know.
Higher Withholding Rate and No Threshold for FRCGW
From 1 January 2025, the withholding rate under the FRCGW regime has increased from 12.5% to 15% of the purchase price. The minimum threshold has been removed, so the withholding obligation now applies to all residential property sales, including those previously sold below $750,000.
This means that for every property transaction, whether it’s a new residential property, residential premises, or potential residential land, buyers must check if the seller is a foreign resident and, if so, withhold 15% of the contract price.
GST Withholding Continues for New Residential Premises
GST withholding remains in place for new residential premises and potential residential land. If you’re buying a new residential property or land included in a property subdivision plan, you may need to withhold GST at settlement and pay it to the ATO. The GST withholding amount is usually 1/11th of the contract price (the GST inclusive market value), or 7% if the margin scheme applies.
What Sellers Need to Do in 2025
Sellers of residential property, new residential premises, or potential residential land have specific steps to follow to avoid delays and penalties.
Clearance Certificates for Australian Residents
If you’re an Australian resident selling property, you must obtain a clearance certificate from the ATO for every sale, regardless of the contract price. This certificate proves you’re not a foreign resident and prevents the purchaser from having to withhold 15% of the purchase price. Apply early, as processing can take up to 28 days.
Variation Applications for Foreign Residents
Foreign resident sellers can’t get a clearance certificate but can apply for a variation if the withholding amount would be more than the actual tax payable. This is common if the property is sold at a loss or if the GST exclusive market value is lower than expected.
Seller Notification Requirements
For GST withholding, sellers must provide a written notification to the buyer before settlement. This supplier notification should state whether GST withholding applies, the GST inclusive price, the amount to be withheld, and other details such as the property settlement date and the seller’s ABN. This can be included in the sale contract or as a separate document.
If you don’t provide this notification, you may incur penalties under the Taxation Administration Act.
What Buyers Need to Do in 2025
Buyers of residential premises, new residential property, or potential residential land have important responsibilities at settlement.
Checking for Withholding Obligations
Buyers must check if the seller is a foreign resident (for FRCGW) or if the property is new residential premises or potential residential land (for GST withholding). If so, you have a withholding obligation and must withhold the correct amount at settlement.
Paying the Withheld Amount
For FRCGW, the purchaser pays 15% of the contract price to the ATO on or before the property settlement date. For GST withholding, the purchaser pays the GST withholding amount (usually 1/11th of the GST inclusive market value, or 7% if the margin scheme applies) to the ATO as a GST residential withholding payment.
Using ATO Online Forms
Buyers must complete the GST property settlement withholding notification (Form One) before settlement and the property settlement date confirmation (Form Two) when the settlement date is known. These online forms help the ATO track GST credits and ensure the correct GST amount is paid.
Keeping Records
Buyers should keep records of the payment reference number, the withheld amount, and any signed declaration or written notification from the seller. This helps if there are questions about the settlement process or if you need to show you met your withholding obligation.
GST Withholding: How It Works for Different Property Types
GST withholding doesn’t apply to every property transaction. Here’s how it works for different types of property and supplies.
New Residential Premises
GST withholding applies when you buy new residential premises, such as a newly built house or apartment that hasn’t been previously sold or used for residential purposes. It also applies to residential premises created through substantial renovations.
Potential Residential Land
If you buy potential residential land included in a property subdivision plan, GST withholding may apply. This is common in the property development industry, where developers sell vacant land for residential purposes.
Commercial Residential Premises
GST withholding does not apply to commercial residential premises, such as hotels or motels, or to land used for commercial purposes.
Margin Scheme Supplies
If the margin scheme applies, the GST withholding amount is 7% of the contract price, rather than 1/11th. The margin scheme is often used by property developers to calculate GST on the difference between the sale price and the original purchase price.
Exemptions
GST withholding does not apply if the buyer is a GST registered business acquiring the property for a creditable purpose (such as making fully taxable supplies). In these cases, the buyer can claim a GST credit on their business activity statement.
The Settlement Process: Step-by-Step
Understanding the settlement process helps both buyers and sellers meet their obligations and avoid penalties.
Before Settlement
Sellers provide a written notification to buyers about GST withholding and the buyers shoould check if withholding applies and complete the GST property settlement withholding notification online. Sellers will have to apply for a clearance certificate if required.
At Settlement
Buyers withhold the required amount (for FRCGW or GST) from the contract price and the purchaser pays the withheld amount to the ATO using the payment reference number. For the balance of the purchase, the price is paid to the seller.
After Settlement
Buyers will complete the property settlement date confirmation online and the sellers can claim the GST credit or the withheld amount in their business activity statement or activity statement account. Both parties should keep records for compliance.
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Common Scenarios and Solutions
Let’s look at some common scenarios involving GST withholding and FRCGW in 2025.
Selling a New Residential Property
If you’re selling a new residential property, you must notify the buyer about the GST withholding obligation. The buyer will withhold 1/11th of the GST inclusive market value (or 7% if the margin scheme applies) and pay it to the ATO at settlement.
Buying Potential Residential Land
When buying potential residential land in a property subdivision plan, check if GST withholding applies. If you’re a GST registered business buying for a creditable purpose, you may not need to withhold GST, but you should confirm this with your advisor.
Selling Residential Premises Created Through Substantial Renovations
If you’ve completed substantial renovations and are selling the property as new residential premises, GST withholding applies. The buyer will need to withhold GST at settlement and pay it to the ATO.
Buying Commercial Residential Premises
GST withholding does not apply to commercial residential premises, so buyers and sellers can proceed without this step. However, GST may still be payable as part of the taxable supply, so check your obligations.
Avoiding Penalties and Ensuring Compliance
Missing a withholding obligation or failing to pay the correct GST amount can result in penalties. Here’s how to stay on track:
Apply for clearance certificates early.
Provide and keep all written notifications and signed declarations.
Use the correct online forms for GST property settlement withholding and property settlement date confirmation.
Pay the withheld amount to the ATO on or before the expected settlement date.
Seek advice if you’re unsure about GST credits, the margin scheme, or whether GST withholding applies.
Conclusion
The 2025 changes to GST withholding and FRCGW mean that buyers and sellers of residential property, new residential premises, and potential residential land need to be more vigilant than ever. Understanding your withholding obligations, using the correct forms, and keeping clear records will help you avoid penalties and ensure a smooth settlement process.
If you’re unsure about your responsibilities or need help with GST property credits, our team is here to support you. Staying informed and organised is the best way to protect your interests and make your next property transaction stress-free.
Are you ready to take the next step in your property journey? Reach out to our team for tailored advice and support with GST withholding, property settlement, and all your accounting needs.
Lukasz Klekowski
