Foreign resident capital gain withholding and the tax return
The foreign resident vendor must lodge a tax return at the end of the financial year declaring:
- their Australian assessable income, including any capital gain from the disposal of the asset
- whether the vendor will claim a credit for any withholding amount taken from their sale proceeds (for example, because they didn’t provide the purchaser with a clearance certificate).
“If an amount has been withheld under FRCGW, the vendor — foreign or Australian resident — must lodge an Australian tax return to claim the withheld amount as a credit, even if no other income is earned.”
A credit may be refunded in the relevant tax return if they don’t have to pay capital gains tax on the sale of the property (for example, because it was their main residence).
A foreign resident will need to apply for a TFN before they lodge an Australian tax return to ensure they can claim a credit for the amount withheld and paid to the ATO by the purchaser.
In certain circumstances, an early tax return may be submitted. If a foreign resident vendor is not eligible to submit an early tax return, they must wait until the end of the financial year to submit it and receive a tax credit for the withholding paid by the purchaser.
“From 1 January 2025, the withholding rate on taxable Australian property sold under FRCGW has increased to 15%, and applies regardless of the sale price.”
Applying the credit
We will only apply the credit to the vendor when the:
- purchaser has paid the withholding to us
- vendor has lodged an Australian income tax return claiming the credit.
Before the tax refund or payable is finalised on the tax return the credit is evaluated by the Foreign investment Review Board (FIRB) as well as the ATO once the return has been lodged.
We’ll give vendors confirmation that a withholding payment has been paid on their behalf.
In situations where the contract is signed in one financial year but the purchaser pays the withholding in the next financial year, we will apply the Commissioner’s Remedial Power to allow the vendor to claim the credit in the same tax return in which they need to declare the capital gain.
When the purchaser withholds but doesn't pay it to us
The vendor cannot claim a credit for the withholding until the purchaser pays the withholding to us.
We will promptly take action to collect from the purchaser any withholding amount not paid by the due date.
If the vendor is concerned the purchaser may not pay the withholding, the vendor should seek legal advice.
If you have questions on any of the above issues raised, please do not hesitate to contact us.
Kim Edwards
Chartered Tax Adviser
Chartered Accountant
T: 02 9984 7774
E: kime@northadvisory.com.au
About the author
Cayle Petritsch - Director & Wealth Advisor
Cayle Petritsch, Director and Wealth Advisor, works with our existing clients who have recognised the importance of business owners making strategic financial choices not only for their company, but for their personal finances too.
Cayle saw a great opportunity to expand North Advisory’s services into SMSF/superannuation, personal wealth management, asset protection services and other crucial personal finance facets that business owners need to consider.
His approach to wealth management allows you to receive highly personalised wealth advice. Working closely with Marius, Cayle understands the unique needs of every client, from their lifestyle and business goals to their retirement plans.
Key Takeaways
The withholding rate is now set at 15% for all taxable Australian property sales.
From 1 January 2025, any sale of taxable Australian real property is subject to FRCGW at 15%, regardless of the sale price — meaning more sellers are now subject to withholding.
Withholding applies unless a valid clearance certificate or variation notice is provided.
Even Australian residents must supply a clearance certificate before settlement; otherwise, the purchaser is obliged to withhold. Foreign-resident vendors must rely on a valid variation notice to reduce withholding.
Sellers must lodge a tax return to claim any excess withholding as a credit.
If the withheld amount exceeds the actual tax liability (or there is no taxable gain), vendors — foreign or domestic — can claim a credit by lodging a tax return.
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Frequently Asked Questions
What is Foreign Resident Capital Gains Withholding (FRCGW)?
FRCGW is a mechanism that requires withholding of a portion of the sale price when someone disposes of taxable Australian real property (residential, commercial, land, etc.), unless certain conditions (like a clearance certificate or rate variation) are met.
Who does FRCGW apply to?
It applies when the vendor is a foreign resident (for tax purposes), or when any vendor — even an Australian resident — fails to provide a valid clearance certificate before settlement. In those cases, the purchaser must withhold the mandated amount and pay it to the ATO.
What is the current withholding rate and does it matter how expensive the property is?
From 1 January 2025, the withholding rate is 15% of the sale price. The previous threshold that exempted lower-value sales has been removed, so withholding applies regardless of the property’s value.
What if I expect my capital gains tax liability to be lower than the withheld amount?
You (the vendor) should still lodge an Australian tax return. Any excess withholding over your actual CGT or overall tax liability can typically be claimed as a credit — and refunded if you have no other tax debts.
How can a vendor avoid withholding at settlement?
An Australian tax resident vendor can apply for a clearance certificate from the ATO and provide it to the purchaser before or at settlement. If granted, no withholding is required. Foreign vendors may apply for a variation notice to reduce the withholding rate where appropriate.
Do I have to pay Foreign Resident Capital Gains Withholding (FRCGW) when selling Australian property, and how does it affect my tax return?
If I sell taxable Australian property (like real estate) and I’m a foreign resident for tax purposes, I may need to withhold 12.5% of the sale price and pay it to the ATO under the Foreign Resident Capital Gains Withholding (FRCGW) rules — unless I get a variation certificate that reduces or removes the amount. This amount then needs to be reported in my Australian tax return, and the withholding is credited against any actual capital gains tax I owe.
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