About foreign resident capital gains withholding
Foreign resident capital gains withholding (FRCGW) applies to all (individual and non-individual) vendors (property sellers) selling or disposing of certain taxable real property (property).
When selling or disposing of property in Australia:
- Australian residents for tax purposes (Australian residents) must have a valid clearance certificate issued by us at, or before settlement. Without a clearance certificate, FRCGW must be withheld from the sale proceeds by the purchaser and paid to us.
- Foreign residents (also known as non-residents) may incur capital gains tax (CGT) on the sale of Australian property. Purchasers withhold FRCGW from the sale price and remit this to us to go toward payment of this liability. FRCGW must be withheld unless the foreign resident vendor has a variation notice specifying a reduced rate of FRCGW.
- Purchasers must pay any amount they withhold to us at, or before settlement.
The most common reasons for disposing of a property include selling and transferring to another person or entity, for more reasons see CGT events.
Rate of withholding from a property sale
The following FRCGW rates apply to the market value of property contracts signed:
- Up to and including 31 December 2024, a rate of 12.5% applies to property valued at $750,000 or more.
- On and after 1 January 2025, a rate of 15% applies to the value of all property.
Example: contract signed before 1 January 2025
Jane is a foreign resident and wants to sell her apartment.
Toni decides to purchase the property, signing the sale contract on 16 December 2024 for $1.2 million (its market value at that time).
Their settlement period is 28 days, with the settlement date 6 January 2025.
As the contract was signed before 1 January 2025, Toni must withhold 12.5% of $1.2 million, that is $150,000 and pay this to us.
Note: If the contract was signed after 1 January 2025, Toni would have to withhold at a rate of 15% of $1.2 million ($180,000) and pay this amount to us.
End of exampleTypes of assets
Taxable Australian real property requiring a clearance certificate include:
- vacant land, buildings, residential and commercial property
- mining, quarrying or prospecting rights where they are situated in Australia
- a lease over real property in Australia
- indirect Australian real property (IARP) interests, where the holder has a right to occupy land or buildings on land.
Other assets
Other types of real property-related assets, such as leases, shares that are indirect real property interests (IARPI) and options in those that aren't listed on an official stock exchange are also subject to FRCGW.
See Vendor declarations for more info about what to do.
Excluded transactions
Some transactions (due to the way they are sold or disposed of) aren't subject to FRCGW, including:
- transactions through an approved stock exchange (such as the Australian Stock Exchange) or those using a broker-operated crossing system
- transactions subject to another withholding obligation, see List of CGT assets and exemptions
- securities lending arrangements, as these don't cause a CGT liability
- transactions when a vendor is in external administration, or transactions from a bankrupt estate, a composition or scheme of arrangement, a debt agreement, a personal insolvency agreement, or same or similar circumstances under a foreign law.
Market value
Usually, the market value of property is the sale price. However, if the sale price has been negotiated between the vendor and the purchaser:
- at arm’s length we accept the sale price as the market value. This is the sale price before adjustments for disbursements at settlement. For example, council rates, water and sewer charges and strata levies.
- at non-arm's length, this is when the market value is different to the sale price. For example, the vendor and purchaser are related (non-arm's length), the purchaser must seek a separate expert evaluation from a professional valuer.
Example: non-arm's length property sale by a foreign resident
Franz is a foreign resident. He inherits a farm in Australia from a relative in February 2025.
The farm has been in drought for the last 10 years and he is happy to sell the property to another relative, at below market value (a non-arm's length transaction) for $500,000.
The purchaser organises a market valuation, which values the farm at $800,000 (the arm's-length value).
As a foreign resident, Franz is subject to FRCGW and a rate of 15% applied to the market value of the property when the contract is signed in March 2025.
Franz is happy with this arrangement as he's not sure how long it would take to sell it at the market rate.
The purchaser must withhold $120,000 from the property sale and pay it to us.
Market value $800,000 × FRCGW rate of 15% = $120,000 withholding
Sale price $500,000 − withholding $120,000 = $380,000 paid to Franz.
Franz applies for a TFN and lodges an income tax return for the year ended 30 June 2025. As Franz didn't make a capital gain on the disposal of the farm, the $120,000 FRCGW credit on his income tax account is refunded to him.
End of exampleAustralian residents selling property
All Australian residents for tax purposes must have a clearance certificate from us when selling property to avoid the requirement of purchasers to withhold an amount from the sale. When selling property, be aware that:
- you don't have wait to sign a contract, apply for a clearance certificate as soon as you are thinking of selling - they are free
- each vendor must give their clearance certificate to the purchaser at, or before, the settlement date
- most clearance certificates issue within a few days, but some can take up to 28 days to process and issue
- if there's no clearance certificate provided by the vendor at, or before the settlement date, the purchaser must withhold an amount of FRCGW and pay it to us
- clearance certificates are valid for 12 months from their date of issue (as long as the vendor's residency status doesn't change during that time)
- if you decide not to sell, but have a clearance certificate, there's no requirement to use it.
Example: the importance of getting a clearance certificate early – 15% withheld from sale
Willow and Stanley are Australian residents for tax purposes. On 1 September 2024 they decide to sell their family home, their main residence. They need the funds from the sale to purchase a new residence.
They are both are listed as owners of the property on the certificate of title, so both must apply for their own clearance certificate.
They find a purchaser on 8 January 2025 and sign the contract of sale, with a settlement 30 days later, on 6 February.
They don’t apply for a clearance certificate until 15 January and don't have both of their clearance certificates at, or before settlement.
The property sold for $600,000, however:
- Willow's clearance certificate issued and was given to the purchaser.
- Stanley was still waiting for his clearance certificate.
The sale goes through with settlement occurring. As Stanley didn't have a clearance certificate at settlement, 15% of his share of the sale ($90,000) must be withheld by the purchaser and paid to us.
Stanley must wait until his 2025 tax return is lodged and processed for a refund.
As the purchaser had received a clearance certificate from Willow, there's no withholding required on her share of the sale.
End of exampleExample: the importance of getting a clearance certificate early – no withholding
Maisie and Max are Australian residents for tax purposes. On 1 September 2024 they decide to sell their family home, their main residence. They need the funds from the sale to purchase a new residence.
They are both are listed as owners of the property, so both must apply for their own clearance certificate.
They apply for their clearance certificates straight away, which are issued to them on 29 September 2024. They note the clearance certificate is valid until 28 September 2025 – 12 months from its date of issue.
A few months later, on 7 January 2025, they put their home on the market and a week later accept an offer of $650,000 and a fast 14-day settlement.
They already had clearance certificates, which they gave to the purchaser prior to settlement. The purchaser doesn't withhold any FRCGW.
Note: If they didn’t have their clearance certificates, 15% of the sale price ($97,500 – $48,750 each) would have to be withheld by the purchaser and paid to us.
They would have to wait until their 2025 tax returns are lodged and processed for a refund, which could delay purchasing their new residence.
End of exampleFor more information, see Australian residents and clearance certificates.
Australian residency
Depending on circumstances, residency can change. We will confirm your residency status for foreign capital gains withholding when you apply for a clearance certificate.
Individuals
The residency test for individuals for tax purposes is different to that for social security and immigration purposes.
Generally, an individual will be an Australian resident for tax purposes if they:
- have always lived in Australia, or came to Australia and live here permanently
- have been in Australia continuously for 6 months or more, and for most of that time, worked in one job and lived at the same place
- have been in Australia for more than 6 months of the year, unless their usual home is overseas and they don't intend to live in Australia
- go overseas temporarily and don't set up a permanent home in another country
- are an overseas student who came to Australia to study and are enrolled in a course that is more than 6 months.
You can work out your tax residency or work out your residency status for tax purposes.
Non-individuals
Different residency tests apply to non-individual entities such as companies, corporate limited partnerships and trusts.
Non-individuals can refer to Working out your residency.
Foreign residents selling property
Foreign resident vendors aren't entitled to a clearance certificate and must not apply for one.
Foreign residents are subject to the full rate of FRCGW to the sale price or market value (if non-arm's length), unless they have a variation notice that reduce this.
To see how residency affects CGT, refer to How your residency affects CGT.
See Foreign residents and variations for more detail.
Purchasing property
Any individual or entity purchasing property in Australia may have to withhold an amount from the sale price a FRCGW amount and pay it to us.
If the vendor:
- provides a clearance certificate, there's no requirement to withhold FRCGW. The entire sale price can be paid to the vendor
- provides a variation notice, the purchaser must withhold an amount from the sale price or market value (if non-arm's length). The variation notice shows a withholding rate (between 0% to 14.99%) to calculate the FRCGW amount. The remainder of the sale price or market value (if non-arm's length) can be paid to the vendor
- doesn't give you a clearance certificate or a variation, the purchaser must withhold an amount from the sale price or market value (if non-arm's length) and pay it to us.
Purchasers failing to withhold when required to do so may be subject to penalties. General interest charges may also apply.
For more details see Paying foreign resident capital gains tax.