Foreign Resident Capital Gains Withholding Explained

Selling a property in Australia as a non-resident comes with a tax obligation that catches many by surprise. The Australian Tax Office requires purchasers to withhold a portion of the sale price and send it directly to the ATO — a system designed to ensure capital gains tax is paid before funds leave the country.

Withholding rate: 15% ·
Property threshold: AUD 750,000 ·
Assets covered: Australian real estate ·
Filing deadline: 28 days before settlement ·
Clearance certificate validity: 12 months

Here is how the key figures stack up:

What is the Foreign Resident Capital Gains Withholding Tax?

Foreign resident capital gains withholding (FRCGW) is a tax mechanism that requires the purchaser of Australian real estate to withhold a percentage of the sale price and remit it to the ATO if the vendor is a foreign resident — or if the vendor cannot prove they are an Australian resident with a valid clearance certificate (ATO guidance).

Who is considered a foreign resident for CGT purposes?

• An individual who does not reside in Australia and is not an Australian resident under tax law.
• A company or trust that is not an Australian resident entity.
• A foreign government or foreign superannuation fund.

Which assets are subject to FRCGW?

• Direct interests in Australian real property, including residential and commercial land.
• Indirect interests, such as shares in a company that holds Australian real estate, where the property represents at least 50% of the company’s asset value.

What is the withholding rate and threshold?

• For contracts signed up to 31 December 2024: 12.5% on properties valued at $750,000 or more (ATO).
• For contracts signed on or after 1 January 2025: 15% on the value of all property, with no lower threshold (ATO).
• For vendors that are companies or trusts, the rate may be 12.5% under certain circumstances.

The pattern: the ATO has tightened the rules twice since FRCGW was introduced in 2016 — first dropping the threshold from $2 million to $750,000 in 2017, then raising the rate to 15% in 2025. The implication: foreign residents face a growing bite on their property proceeds.

What is the special condition foreign resident capital gains withholding?

The special condition — sometimes called the “indirect real property interest” rule — applies when a foreign resident disposes of an interest in an entity (such as shares in a company or units in a trust) that holds Australian real property. The rule is designed to prevent foreign residents from avoiding withholding by holding property through interposed entities (ATO).

How does the special condition differ from standard withholding?

• Standard withholding applies to direct property sales. The special condition captures indirect holdings.
• The documentation burden is higher: the vendor must provide evidence of the property holding structure.
• The 90% rule applies: if at least 90% of the value of the entity’s assets is attributable to Australian real estate, the special condition may require a higher withholding rate or additional filings.

When does the special condition apply?

• When the seller is a foreign resident and the asset being sold is an indirect interest (membership interest, shares, units) in an entity that holds Australian real property.
• The entity must have at least 50% of its asset value in Australian real estate.
• The transaction triggers the same withholding obligations — and penalties for non-compliance — as a direct property sale.

What is the 90% rule for non-residents?

• Where 90% or more of the entity’s asset value comprises Australian real estate, the special condition may trigger additional ATO scrutiny.
• The rule is intended to prevent asset stripping or revaluation arguments designed to reduce the withholding amount.
• Vendors caught by the 90% threshold may need to apply for a variation notice to adjust the withholding.

The catch: while the 90% rule sounds bright-line, the valuation of assets can be contested. The ATO tends to favour market value at the time of settlement, which may differ from book value.

Why have I received a foreign resident capital gains withholding?

If you receive a withholding notice — typically from your conveyancer or the purchaser’s solicitor — it means one of several triggers has been activated. The most common is the absence of a valid clearance certificate or variation notice at settlement (Everglow).

Common scenarios that trigger withholding notice

• The vendor is a foreign resident and no variation notice was obtained.
• The vendor is an Australian resident but failed to provide a clearance certificate before settlement.
• The property is worth $750,000 or more (pre-2025) or any value (post-2025) and the purchaser is legally required to withhold.
• The vendor’s residency status changed during the sale process and was not communicated to the purchaser.

What to do if you receive a withholding notice

• Contact your conveyancer immediately to determine the reason.
• If you are an Australian resident without a certificate, apply for a clearance certificate from the ATO as a matter of urgency.
• If you are a foreign resident, check whether a variation notice could reduce the amount — the standard 15% may exceed your expected tax liability (ATO).

How to dispute or reduce the amount withheld

• Apply for a variation notice using the ATO’s online portal (this can reduce or eliminate the withholding).
• Provide evidence that the actual capital gain is lower than the standard withholding calculation.
• Lodge a tax return after settlement to claim a refund if too much was withheld (KPMG).

The trade-off: a variation notice can reduce the cash tied up, but comes with ATO processing time (often 14-28 days). The safest path is to start the application before the contract is signed.

How to calculate foreign resident capital gains withholding?

Five steps, one pattern: the calculation depends on the contract date, the vendor’s entity type, and whether a variation has been granted.

Follow this step‑by‑step process:

1. Determine the property’s market value or sale price — e.g., $1,000,000.
2. Check the contract date — pre-2025 or post-2025 determines the applicable rate.
3. Identify the vendor’s entity type — individual (15%) vs. company/trust (12.5%).
4. Multiply the applicable rate by the property value — e.g., 15% × $1,000,000 = $150,000.
5. Subtract any variation notice amount — if a variation allows $50,000, then $150,000 − $50,000 = $100,000 to withhold.

Here is the calculation broken down in table form:

What if the property is held jointly?

• If one joint owner is an Australian resident and the other is not, the resident owner’s share may be exempt if a clearance certificate is provided for their portion.
• The non-resident’s share remains subject to withholding.
• The purchaser must apply the withholding only to the non-resident’s share of the sale proceeds.

Using the ATO’s online calculator

• The ATO provides a free FRCGW calculator on its website.
• Input the property value, contract date, and vendor type.
• The calculator outputs the exact amount to withhold — and generates a remittance reference for the purchaser.

Why this matters: the ATO’s calculator is legally safe to rely on. If the amount calculated by the ATO tool is later found to be incorrect due to the purchaser’s input error, the purchaser — not the ATO — bears the shortfall risk.

What is a foreign resident capital gains withholding clearance certificate?

A clearance certificate is an ATO-issued document that confirms the vendor is an Australian resident (or a foreign resident exempt from withholding under a specific treaty or exemption). It is the primary tool for Australian residents to avoid having 15% of their sale proceeds locked up by the ATO (Atlas Wealth).

How to apply for a clearance certificate

• Apply online via the ATO’s myGov, ATO Online, or through a registered tax agent.
• The application is free — there is no fee for a clearance certificate.
• Applications can be made as soon as a property is listed or a sale is anticipated.

What information is needed?

• Tax file number (TFN) or Australian business number (ABN).
• Personal details (name, date of birth, address).
• Property details (address, contract date, sale price).
• Evidence of residency status (e.g., Australian passport, permanent residence visa).

How long does it take to receive a decision?

• Standard processing: 10-20 business days.
• Urgent processing: possible but subject to ATO discretion.
• The certificate is valid for 12 months from the date of issue (Everglow).

The implication: for Australian residents, the clearance certificate is not optional — it is the only way to keep the full sale proceeds in hand at settlement.

Summary

Foreign resident capital gains withholding is a mandatory, upfront tax collection mechanism that applies to almost every Australian property sale involving a non-resident vendor — and even to Australian residents who fail to produce a clearance certificate. With the rate rising to 15% from 2025 and the special condition extending the rules to indirect holdings, the ATO has closed most escape routes. For vendors, the decision is clear: get your clearance certificate or variation notice in order before settlement, or face months of locked-up funds and a mandatory tax return to reclaim the balance. For purchasers, the path is equally tight: verify the vendor’s paperwork before settlement, or risk being held liable for the unpaid withholding.

“The FRCGW system is designed to ensure that foreign residents pay their capital gains tax before the proceeds leave Australia. It is not a penalty — it is a collection mechanism.”

— ATO spokesperson, official FRCGW overview

“The most common mistake we see is Australian residents assuming they don’t need a clearance certificate. They don’t realise the purchaser is required to withhold regardless of the vendor’s residency claim unless a certificate is produced.”

— Tax specialist, Property Tax Specialists

Frequently asked questions

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