Foreign Resident Capital Gains Withholding (FRCGW)

When a foreign investor sells Australian real estate, a mandatory withholding tax applies at settlement. This rule is known as the Foreign Resident Capital Gains Withholding (FRCGW) regime and is designed to ensure that capital gains tax (CGT) liabilities are collected upfront from non-residents before they leave Australia’s tax net.

It applies to all sellers of taxable Australian real property valued over $750,000, unless the seller obtains an exemption (called a Clearance Certificate) before settlement.

Key Withholding Rates

Period	Withholding Rate	Applies to
Until 31 December 2024	12.5%	Contracts entered before this date
From 1 January 2025	15%	Applies to contracts signed on or after this date

This withholding is not an additional tax – it is a prepayment of your capital gains tax liability, and you can claim it back (or part of it) when you lodge your Australian tax return.

If no action is taken, the buyer must withhold this percentage and pay it directly to the ATO at settlement.

When Must the Buyer Withhold?

The purchaser is responsible for withholding and remitting the tax to the ATO if:

• The property is sold for $750,000 or more, and

• The seller is a foreign resident for Australian tax purposes, or

• The seller fails to provide a valid Clearance Certificate before settlement

Applies to:

• Residential and commercial property

• Leasehold interests in land

• Mining, quarrying or prospecting rights

• Indirect interests via company title (in some cases)

Exceptions:

• Sale price under $750,000

• Seller provides a valid Clearance Certificate

• Seller applies for a variation certificate and receives ATO approval for reduced/no withholding

Note for sellers: If you don’t provide documentation, the buyer must assume you are a foreign resident and withhold.

How to Apply for a Clearance Certificate

A Clearance Certificate confirms to the buyer that you are an Australian tax resident and therefore exempt from withholding.

Who Can Apply:

• Only Australian residents for tax purposes can apply for a clearance certificate.

• Non-residents cannot apply – instead, they may seek a variation of the withholding amount.

  
  

Application Process:

• Lodge online via the ATO portal (no cost)

• Provide:

  • TFN or ABN

  • Property address

  • Sale contract details

  • Identification details (passport, visa, etc.)

• Processing time: Up to 28 days (but often faster if straightforward)

Validity:

• Valid for 12 months

• Must be valid at the time of settlement, not just application date

Ensure the certificate is issued in the name of the legal owner(s) — multiple owners must each apply separately

What If You're a Foreign Seller? Apply for a Variation

If you’re a foreign resident but the actual CGT payable is likely to be less than the withholding amount (or nil), you can apply to the ATO for a Variation Certificate to reduce or remove the withholding.

Common reasons to apply:

• Selling at a loss or minimal gain

• 50% CGT discount applies (for pre-2012 gains)

• Cost base nearly equal to sale price

• CGT rollover relief (e.g., divorce settlement)

Variation Application Requirements:

• Estimated sale price and cost base details

• Documentation of legal ownership, purchase date

• Calculation of estimated capital gain/loss

• TFN and contact information

The ATO will assess and, if approved, issue a revised withholding rate for the buyer to apply (e.g. 5%, 0%).

How to Claim the Withheld Amount via Tax Return

Even if you are a non-resident, the amount withheld by the purchaser is treated as a credit against your CGT liability when you lodge your Australian tax return.

Example:

• Sale price: $1.5M

• Buyer withholds 15% = $225,000 and pays it to the ATO

• You lodge a tax return and calculate CGT of $90,000

• You receive a refund of $135,000 from the ATO

Steps to Claim:

1. Obtain your ATO Payment Summary showing the withheld amount

2. Lodge an individual non-resident tax return

3. Declare:

   • Date of acquisition & disposal

   • Sale proceeds and cost base

   • Calculated capital gain

   • Tax withheld

4. ATO will process and refund the difference (if applicable)

Timing:

• Lodge in the financial year of the settlement (e.g., settle in March 2025 → lodge July 2025 onward)

• Processing time: 2–6 weeks once lodged (can be longer during tax season)