Foreign resident capital gains withholding: what a buyer has to do

What the withholding is

FRCGW is a tax collection mechanism. The ATO says it must be applied on all real property sales unless the vendor (seller) is an Australian resident with a clearance certificate, or a foreign resident who holds a variation notice. The buyer takes the amount out of what they pay the seller and sends it to the ATO. The seller later claims the amount as a credit in their own tax return.

It applies to homes, vacant land, buildings, residential and commercial property, and certain other interests the ATO lists, such as leases over Australian real property. The ATO also lists a few excluded transactions, such as sales through an approved stock exchange and sales by a vendor in external administration.

The rate and the threshold

For contracts signed from 1 January 2025 there is no value threshold as at October 2026. A $400,000 apartment and a $4 million house are both covered.

The contract date matters, not the settlement date. The ATO's example is a $1.2 million apartment bought from a foreign resident under a contract signed on 16 December 2024. The 12.5% rate applies, even though settlement fell after 1 January 2025. A long off-the-plan contract signed before 2025 can therefore still settle at the earlier rate, so ask your conveyancer which row of the table covers your contract.

When you do not have to withhold

You do not withhold if, at or before settlement, the seller gives you either:

• A clearance certificate. This is for Australian residents. The ATO says that when you receive one, you do not need to withhold. It is valid for 12 months from the date of issue. See the guide on why your conveyancer asks for one.
• A variation notice. This is for foreign residents. It sets a reduced rate and, where one is received, you withhold at the rate it specifies. The ATO says variations take up to 28 days to process, and the vendor must give the notice to the purchaser at or before settlement for the lower rate to apply.

If neither document is valid at or before settlement, the ATO says the purchaser must withhold at the full rate.

How it works at settlement

1. The seller provides a clearance certificate or variation notice, and it is checked. The ATO says the first and last names on it must match the property's certificate of title.
2. If there is no valid document, you lodge a purchaser payment notification with the ATO. This gives you a payment reference number. See how to lodge.
3. At settlement you pay the withholding amount to the ATO, using the reference number.
4. You give the seller a copy of the payment confirmation so they can claim the credit.

The ATO says the withholding amount is calculated on the sale price (or market value) before any adjustments for disbursements. Where there is more than one purchaser, each withholds according to their percentage of ownership.

A worked example

You agree to buy a townhouse for $850,000 from a seller who is a foreign resident and has no variation notice.

• Withholding at 15%: $850,000 x 15% = $127,500.
• Paid to the ATO at settlement: $127,500.
• Remaining sale price, before the other settlement adjustments: $850,000 - $127,500 = $722,500.

Your total outlay for the property does not rise. The $127,500 is part of the $850,000 you were already paying. The seller recovers it as a credit when they lodge their tax return, and needs your payment confirmation to do so.

What happens if you do not withhold

The ATO says a purchaser who fails to withhold and pay at or before settlement may face a penalty equal to 10 penalty units or the amount they failed to withhold. If you withhold but do not pay when you become the owner, the general interest charge applies from the date of settlement.

The ATO also states that where a purchaser relies on a clearance certificate or variation that is not valid, for example because the names do not match, the purchaser must still withhold at the applicable rate. It is worth having the document checked before settlement, so ask your legal representative to confirm that is being done. For a longer off-the-plan contract, the ATO notes that a certificate may expire before settlement and sets conditions for relying on it, covered in the clearance certificate guide.

Frequently asked questions

firbapproval.com.au is an independent guide. It is not affiliated with, endorsed by or connected to the Foreign Investment Review Board, the Australian Treasury or the Australian Taxation Office. We do not lodge or process applications. Applications are made to the ATO. General information only, not legal, tax, migration or financial advice.