Foreign Resident Capital Gains Withholding: What You Must Know About the 2025 Changes
Major Changes to Foreign Resident Capital Gains Withholding in 2025
Key Takeaways
Withholding rate increases: From 12.5% to 15% of the sale price.
No more $750,000 threshold: Capital gains withholding now applies to all property sales.
If you’re involved in property transactions in Australia, you need to be across the significant changes to the Foreign Resident Capital Gains Withholding (FRCGW) regime coming into effect from 1 January 2025. Whether you’re a seller (vendor) or buyer (purchaser), these changes will impact you.
As a specialist business, commercial, and property lawyer at Optimum Lawyers, I’ve already seen plenty of confusion around these updates. In this article, I’ll break it down in plain English so you know exactly what’s happening and how it affects your property transactions.
What’s Changing in 2025?
1. Higher Withholding Rate
Until now, if a foreign resident sold property in Australia, the buyer was required to withhold 12.5% of the sale price and pay it to the Australian Taxation Office (ATO). From 1 January 2025, this withholding rate increases to 15%.
2. No More $750,000 Threshold
Previously, foreign resident capital gains withholding only applied if the property’s sale price was $750,000 or more. From 2025 onwards, this threshold is completely removed. This means every property transaction—whether worth $500,000 or $5 million—will be subject to capital gains withholding unless the vendor obtains a clearance certificate.
How These Changes Affect Property Transactions
Vendors (Sellers): What You Need to Do
If you are selling property, you must now apply for a Foreign Resident Capital Gains Withholding Clearance Certificate, regardless of the property’s value. Without this certificate:
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The purchaser must withhold 15% of the sale price and pay it to the ATO.
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You may experience cash flow issues if this withholding applies unnecessarily.
👉 “It’s now critical for vendors to apply for a capital gains withholding clearance certificate as early as possible in the sales process to avoid unnecessary complications at settlement.” – Wisam Assi, Principal Lawyer, Optimum Lawyers
Purchasers (Buyers): What You Need to Know
If you’re buying property in Australia, these changes mean:
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You must withhold 15% of the purchase price at settlement if the seller fails to provide a clearance certificate.
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This applies no matter the value of the property.
Failing to comply with these rules can result in serious penalties from the ATO.
For more guidance, visit our property law case studies page.
How to Apply for a Foreign Resident Capital Gains Withholding Clearance Certificate
Applying for a clearance certificate is straightforward but should be done as early as possible to avoid delays. The steps are:
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Complete the Capital Gains Withholding Clearance Certificate Application
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This can be done via the ATO’s online portal.
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You’ll need your Tax File Number (TFN) or Australian Business Number (ABN).
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Submit the Application
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Most clearance certificates are processed within 28 days.
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Provide the Certificate to the Buyer Before Settlement
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If the certificate is valid, the buyer does not have to withhold any tax.
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For detailed assistance with this process, contact our property lawyers in Parramatta.
What Happens If You Don’t Get a Clearance Certificate?
If a vendor doesn’t obtain a foreign resident capital gains withholding clearance certificate before settlement:
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The buyer must withhold 15% of the property price.
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The vendor will need to apply for a refund from the ATO if they are eligible.
👉 “If a seller doesn’t provide a clearance certificate in time, they risk having a large portion of their proceeds withheld by the ATO. It’s crucial to start the application process early to avoid unnecessary stress.” – Wisam Assi, Principal Lawyer, Optimum Lawyers
To learn more about capital gains withholding obligations, check out our stamp duty savings guide.
Frequently Asked Questions
1. What is Foreign Resident Capital Gains Withholding?
Foreign Resident Capital Gains Withholding (FRCGW) is a tax measure designed to ensure foreign property owners pay their capital gains tax obligations in Australia. If the vendor fails to provide a clearance certificate, the purchaser must withhold 15% of the sale price and remit it to the ATO.
2. How Do I Get a Capital Gains Withholding Clearance Certificate?
To obtain a capital gains withholding clearance certificate, you need to:
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Complete an application through the ATO website.
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Provide your Tax File Number (TFN) or Australian Business Number (ABN).
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Submit your application at least 28 days before settlement.
For further help, contact us via our contact page.
3. Who Needs to Apply for a Foreign Resident Capital Gains Withholding Certificate?
Any vendor selling Australian property must apply for a foreign resident capital gains withholding clearance certificate, even if they are an Australian resident.
4. What Happens if a Vendor Doesn’t Provide a Clearance Certificate?
If the vendor doesn’t provide a clearance certificate before settlement, the buyer must withhold 15% of the purchase price and send it to the ATO.
Explore more on this topic in our commercial law case studies.
5. How Do I Avoid Withholding Capital Gains Tax on My Property Sale?
To avoid capital gains withholding tax, sellers should:
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Apply for a foreign resident capital gains withholding clearance certificate as soon as they list their property.
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Ensure the certificate is valid and provided to the buyer before settlement.
6. Can I Get a Refund If the Tax Was Withheld?
Yes. If you overpay capital gains withholding tax, you can claim a refund from the ATO when you lodge your tax return.
For more insights, see our litigation case studies.
My Final Thoughts
The 2025 changes to Foreign Resident Capital Gains Withholding are significant and impact all property transactions. Whether you’re a buyer or seller, these changes make it crucial to understand your legal obligations and take proactive steps to avoid unnecessary tax withholdings.
At Optimum Lawyers, we assist clients with: ✔ Applying for foreign resident capital gains withholding clearance certificates ✔ Navigating ATO capital gains withholding regulations ✔ Ensuring smooth property transactions with minimal tax complications
If you have any questions about foreign resident capital gains withholding or need assistance with property law, feel free to contact us.
👉 “These new rules mean every property transaction now has an extra compliance step. Working with an experienced lawyer can ensure you don’t run into unexpected tax issues.” – Wisam Assi, Principal Lawyer, Optimum Lawyers
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