Foreign Resident Capital Gains Withholding: The 15% Rule and the End of the Property Threshold

For contracts entered into on or after 1 January 2025, the foreign resident capital gains withholding rate is 15% and the former property-value threshold no longer applies. Every Australian real property sale can therefore engage the regime unless the vendor provides an effective clearance certificate or another permitted exception applies.

The withholding is a collection mechanism, not the calculation of the vendor’s final capital gain. Fifteen per cent of gross value can be withheld even where the taxable gain is much smaller, the property is sold at a loss or a main residence exemption is available.

Australian resident vendors need clearance

An Australian resident vendor generally applies to the ATO for a clearance certificate and gives it to the purchaser before settlement. Without it, the purchaser must withhold and pay the prescribed amount. Residency for this purpose is tax residency, not citizenship or passport status.

Applications should be made early enough to resolve identity mismatches, name changes, trust or estate ownership, multiple vendors and title complexities.

Foreign resident vendors and variations

A foreign resident vendor cannot obtain an Australian resident clearance certificate merely because the property is in Australia. Where 15% of gross proceeds materially exceeds the expected Australian tax, the vendor may apply for a variation. Examples can include a low gain, capital loss, carried-forward losses or mortgagee sale.

A draft or hoped-for variation does not alter the purchaser’s obligation. The ATO must issue the notice and the purchaser must receive it in time.

The withheld amount is a credit

The vendor generally claims the amount withheld as a credit by lodging the relevant Australian tax return and declaring the disposal. The final CGT calculation still requires proceeds, cost base, ownership, residency history, main residence analysis, capital losses and any available discount.

A refund does not arise automatically at settlement. Processing occurs through the return or another permitted claim, which can create material cash-flow pressure.

Practical takeaway

Address withholding as soon as a sale is contemplated. Confirm every vendor’s residency and ownership, lodge clearance or variation applications early, and retain settlement evidence so the credit can be reconciled.

Official sources and further reading

• Australian Taxation Office: Foreign resident capital gains withholding overview
• Australian Taxation Office: Australian residents and clearance certificates
• Australian Taxation Office: Foreign residents capital gains withholding variations

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