Foreign Resident CGT Withholding: 15% Rate From 1 January 2025

General information only. This is not tax or financial advice. Consult a registered tax agent for advice specific to your situation.

The foreign resident capital gains withholding (FRCGW) system requires buyers of Australian property to withhold a portion of the purchase price and remit it to the ATO — unless the vendor provides a valid clearance certificate or variation notice. Changes that took effect from 1 January 2025 significantly expanded the scope of this regime.

What changed on 1 January 2025

Two key parameters changed for contracts signed on or after 1 January 2025:

Parameter	Before 1 Jan 2025	From 1 Jan 2025
Withholding rate	12.5%	15%
Threshold	$750,000	No threshold — applies to all property

Previously, withholding only applied to property transacting at $750,000 or more. The 2025 change removed that threshold entirely. Any sale of Australian real property — regardless of value — can now trigger the withholding obligation unless a clearance certificate is in place.

The rate also increased from 12.5% to 15%, meaning a larger portion of the sale price is held back when no certificate is produced.

Who the withholding obligation falls on

The withholding obligation sits with the buyer (purchaser), not the seller. If a vendor does not provide a valid clearance certificate or variation notice before settlement, the buyer must:

1. Withhold 15% of the purchase price
2. Pay that amount to the ATO by the day after settlement

This is not optional. If a buyer fails to withhold and the vendor was a foreign resident, the buyer becomes personally liable for the amount that should have been withheld. This is a significant risk for buyers — and it explains why clearance certificates are now standard practice in property transactions across all price points.

Clearance certificates for Australian resident vendors

If the vendor is an Australian tax resident, they should apply for a clearance certificate from the ATO before settlement. The certificate confirms to the buyer that withholding is not required.

Key points:

• Applications are free and completed online through the ATO portal
• Processing typically takes 1 to 14 business days for straightforward cases
• The certificate is valid for 12 months from the date of issue
• It must be provided to the buyer at or before settlement — not after
• The ATO recommends applying at least 28 days before the settlement date

If the vendor is an Australian resident but cannot obtain the certificate in time, the buyer must withhold unless a variation is in place.

What happens if no certificate is presented

Worked example: a vendor sells a property for $1,000,000. No clearance certificate is provided to the buyer.

• Buyer must withhold 15% = $150,000
• Buyer pays $150,000 to the ATO the day after settlement
• Vendor receives $850,000 at settlement instead of $1,000,000
• Vendor claims the $150,000 back against their actual tax liability when they lodge their tax return — which may be months later

If the vendor’s actual CGT liability is less than $150,000 (which it typically would be for an Australian resident with a cost base close to the sale price), the ATO issues a refund at return time. But the vendor has effectively given the ATO an interest-free loan of the difference until that refund is processed.

For a vendor who is genuinely a foreign resident, the $150,000 is a payment toward their CGT liability. Their actual liability is calculated in their tax return; any overpayment is refunded.

With a clearance certificate

Same example: vendor provides a valid ATO clearance certificate to the buyer before settlement.

• Buyer is not required to withhold anything
• Vendor receives the full $1,000,000 at settlement
• Vendor lodges their tax return and pays whatever CGT they owe (if any) through normal assessment

The clearance certificate does not exempt the vendor from CGT — it simply means the payment mechanism is the normal tax return process rather than upfront withholding.

Variation notices for foreign resident vendors

A foreign resident vendor can apply for a variation if the standard 15% withholding would exceed their estimated actual tax liability. This can occur when:

• The property has been held for many years with a high cost base
• The vendor has tax treaty entitlements that reduce the CGT rate
• The vendor has capital losses that will offset the gain

A variation notice specifies a lower withholding rate that the buyer must apply. The ATO assesses variation applications based on the vendor’s estimated net CGT position. Processing times can be longer than clearance certificates, so early application is important.

Contracts where withholding still applies

Some situations do not fall under FRCGW:

• Transfers that are not sales (e.g., deceased estate transfers, certain court orders)
• Margin scheme transactions under GST law in limited circumstances

However, for standard arm’s-length property sales, FRCGW now applies at all price points unless a certificate or variation is in place.

Impact on buyers

FRCGW is now routinely built into standard property contracts. Buyers should:

• Require the vendor to provide a clearance certificate as a condition of settlement
• Confirm the certificate is valid (not expired and matching the vendor’s details)
• Understand the fallback: if the certificate is not provided on time, you must withhold — or face personal liability for the amount

Buyers who proceed to settlement without a certificate and do not withhold are taking on the vendor’s unpaid tax risk. This applies even if the vendor later turns out to be an Australian resident — the obligation is based on the absence of a certificate, not the vendor’s actual residency.

Timeline summary

Step	Who	When
Apply for clearance certificate	Vendor	At least 28 days before settlement
Provide certificate to buyer	Vendor	At or before settlement
Withhold 15% if no certificate	Buyer	At settlement
Pay withheld amount to ATO	Buyer	Day after settlement
Lodge tax return, claim credit	Vendor	Normal lodgement cycle

Sources

• Foreign resident capital gains withholding overview (ATO)
• Australian residents and clearance certificates (ATO)
• Foreign residents and variations (ATO)