Updated 10 October 2026
Foreign resident capital gains withholding requires the buyer of Australian property to hold back 15 per cent of the price at settlement and pay it to the ATO, unless the seller hands over a clearance certificate or a variation first. Since 1 January 2025 it applies to every sale, at any price. The withholding is a prepayment of the seller's tax, not the tax itself, and where the parties are related it is worked out on market value rather than the price.
At a glance
- The purchaser must withhold 15 per cent of the price on any contract entered into from 1 January 2025, with no minimum property value
- An Australian resident vendor avoids it with an ATO clearance certificate, valid for 12 months, given to the purchaser at or before settlement
- A foreign resident vendor can reduce it with a variation, which the ATO can take up to 28 days to issue
- Where vendor and purchaser are not at arm's length, the 15 per cent is applied to the market value, not the price
- The amount withheld is credited against the vendor's tax when they lodge a return; any excess is refunded
In this guide
What foreign resident capital gains withholding is
The rule sits in Subdivision 14-D of Schedule 1 to the Taxation Administration Act 1953. It exists because a foreign resident who sells Australian property and leaves with the proceeds is hard to tax after the event. So the tax office collects up front, from the one party who is still in the country and holding the money: the purchaser.
At settlement the purchaser keeps back 15 per cent of the price and pays it to the ATO. The vendor gets the other 85 per cent. When the vendor later lodges an Australian tax return, the amount withheld is treated as tax already paid. If the real capital gains tax bill is smaller, the difference comes back as a refund. If it is larger, the vendor pays the balance.
The purchaser is the one with the legal obligation. A buyer who settles without withholding, and without a clearance certificate or variation in hand, is liable to the ATO for the amount that should have been withheld.
Who it applies to, and the 2025 change
The obligation attaches to the sale of taxable Australian real property: houses, units, vacant land, commercial buildings, leases over Australian land, and shares or units in an entity whose value is mainly Australian land. It does not matter whether the vendor is actually a foreign resident. Every vendor is treated as one until they prove otherwise with a clearance certificate.
| Contract date | Rate | Applies to |
|---|---|---|
| 1 July 2017 to 31 December 2024 | 12.5 per cent | Property worth $750,000 or more |
| From 1 January 2025 | 15 per cent | All property, no threshold |
The threshold is what changed in practice. Until the end of 2024 most suburban sales fell under the $750,000 line and the rule was a non-event for ordinary owners. From 1 January 2025 a $400,000 unit and a $4 million house are treated the same way, which is why conveyancers now ask every vendor for a clearance certificate as a matter of routine.
The trigger is the contract date, not settlement. A contract signed in December 2024 that settled in March 2025 stays under the old rule.
The clearance certificate for Australian residents
An Australian resident for tax purposes applies to the ATO online for a clearance certificate. The certificate confirms residency, and once the purchaser has a copy at or before settlement, no withholding applies.
Three details trip people up:
- Each owner needs their own. A couple selling a jointly owned home need two certificates. If one is missing, the purchaser withholds on that owner's share.
- It can take up to 28 days. Most are issued within days, but the ATO's own guidance is to allow 28. Apply when you list, not when you exchange.
- It lasts 12 months. A certificate obtained for a sale that fell through can be reused for the next one, provided your residency has not changed.
If settlement arrives and the certificate has not, the purchaser must withhold. The resident vendor then recovers the money by lodging a tax return, which can mean waiting the better part of a year for 15 per cent of the price.
Warning
Residency at settlement is what countsThe certificate is only good while the vendor stays an Australian resident. An owner who moves overseas between exchange and settlement has a certificate that no longer describes them. The purchaser is entitled to rely on it, but the vendor's tax position has changed, and the rules covered in our guide to CGT for expats and foreign residents apply to the gain.
The variation for foreign residents
A foreign resident vendor cannot get a clearance certificate, but can ask the ATO to vary the rate down, to anything from 14 per cent to nil. The grounds are practical ones: the vendor is not making a capital gain, has capital losses that absorb it, is entitled to a rollover, or can show that the tax on the actual gain is less than 15 per cent of the price would collect.
The application goes in before settlement, and the ATO can take up to 28 days. The resulting variation notice has to be given to the purchaser at or before settlement. A notice that arrives the day after is too late; the purchaser will have withheld the full amount and the vendor is back to claiming it through a return.
A variation on the ground of no gain, or a smaller gain, needs the gain worked out. That means the cost base and the sale price are not enough on their own where the property has been through a market value event: a former home first rented out, an inheritance, or a transfer from a relative. Each of those fixes the cost base at a market value on a past date, and the ATO will want that value evidenced. Our expat and foreign resident valuation service exists for exactly that file.
Need a market value for a variation or a related-party settlement?
Independent valuation reports for capital gains tax purposes, prepared by a Certified Property Valuer and supported by documented comparable sales evidence for the date. Residential $297 and commercial $595, AUD inc. GST, delivered in 24 to 48 hours, current or retrospective.
Start your orderHow it worksWhere market value is relied on
For an ordinary sale the 15 per cent is applied to the contract price. The ATO's guidance changes that in one situation: where the price has been negotiated between parties who are not dealing at arm's length. A parent selling to a child, a transfer between a company and its director, or a sale between family trusts is treated as a price the market did not set. The purchaser must then withhold 15 per cent of the market value, and the ATO expects that figure to come from a professional valuer, not from the parties.
The reason is the same one behind the market value substitution rule on the CGT side. If withholding followed the family's price, a foreign resident parent could transfer a $950,000 property to a resident child for $100,000 and the ATO would collect $15,000 against a gain measured on $950,000.
Note
Worked exampleA foreign resident vendor transfers a Sydney unit to her daughter, who lives in Australia, for $500,000. The unit's market value on the contract date is $950,000. Because they are not at arm's length, the daughter must withhold 15 per cent of $950,000, which is $142,500, not 15 per cent of $500,000, which would be $75,000. The mother's capital proceeds for CGT are also $950,000 under the substitution rule, so the withholding and the tax are measured on the same figure. One valuation dated to the contract date supports both.
Market value also matters where the foreign vendor's cost base was itself set by a market value event. The gain that supports a variation application is the difference between that earlier value and the price today, so a date-of-death value or a first-rented-out value from years ago becomes part of the settlement paperwork. Our guide to CGT on inherited property covers the overseas beneficiary case, where withholding applies on the beneficiary's eventual sale even though the inheritance itself was not a taxing event for Australian real estate.
Note
From our valuation filesAn offshore vendor sold a Sydney apartment to a relative in 2025 for $700,000 when comparable sales supported $960,000. Withholding had to be calculated on market value, not on the contract price, so the purchaser withheld on $960,000 rather than $700,000. Getting the valuation before settlement meant the correct amount went to the ATO on time and the purchaser did not end up personally liable for the shortfall.
Details are changed. This is a composite of typical files rather than one client.
What happens at settlement and after
The purchaser, or their conveyancer, notifies the ATO of the purchase before settlement, withholds the amount at settlement, and pays it to the ATO on or before the settlement date. The vendor receives a payment confirmation showing the amount credited to them.
The vendor then lodges an Australian income tax return for the year of the contract. The capital gain is calculated the normal way, the withheld amount is claimed as a credit, and the ATO refunds or bills the difference. A foreign resident vendor who has no other Australian income still has to lodge to get the money back.
For the gain itself, the foreign resident rules apply: no main residence exemption, no 50 per cent discount for the days of foreign residency since 8 May 2012, and from 1 July 2027 the post-reset slice of any gain falls under the capital gains tax changes. Our CGT calculator shows how a gain on a property held across that date is split.
A settlement timeline that works
| When | Australian resident vendor | Foreign resident vendor |
|---|---|---|
| At listing | Apply for a clearance certificate; one per owner | Gather cost base evidence, including any market value at a past date |
| At exchange | Give the certificate to your conveyancer | Lodge the variation application if the gain, or the tax on it, is below 15 per cent of the price |
| 28 days before settlement | Chase the ATO if the certificate has not issued | Chase the ATO if the variation has not issued |
| At settlement | Purchaser holds the certificate; no withholding | Purchaser holds the variation notice and withholds at the varied rate, or 15 per cent without one |
| After settlement | Nothing further | Lodge an Australian return; claim the credit; refund or top-up follows |
Where the buyer and seller are related, add one step before exchange: a valuation dated to the contract date, so the withholding, the duty and the CGT all run from the same market value.
Common questions
What is the foreign resident capital gains withholding rate in 2026?
15 per cent of the sale price, with no minimum value, for any contract entered into on or after 1 January 2025. Contracts signed between 1 July 2017 and 31 December 2024 used 12.5 per cent and only applied to property worth $750,000 or more.
Does foreign resident capital gains withholding apply to Australian residents?
The obligation applies to every sale of Australian real property. An Australian resident avoids it by giving the purchaser a valid ATO clearance certificate at or before settlement. Without one, the purchaser must withhold 15 per cent even though the vendor is a resident.
How long does a clearance certificate last?
Twelve months from the date of issue, as long as the vendor's residency status does not change. The ATO can take up to 28 days to issue one, so apply when you decide to sell, not when you find a buyer.
Can a foreign resident reduce the 15 per cent withholding?
Yes, by applying to the ATO for a variation before settlement. The main grounds are that there is no capital gain on the sale, that capital losses reduce the gain, or that the tax on the actual gain is less than 15 per cent of the price. The variation notice must reach the purchaser at or before settlement.
Is the withholding worked out on the price or the market value?
On the price, unless the vendor and purchaser are not dealing at arm's length. Then the purchaser must withhold 15 per cent of the market value, and the ATO expects that value to come from a professional valuer rather than the parties' own figure.
Is the withholding the final tax?
No. It is a prepayment. The vendor lodges an Australian tax return, works out the actual capital gain, and is credited with the amount withheld. Any excess is refunded once the return is processed.
Sources
- ATO, Foreign resident capital gains withholding overview
- ATO, Australian residents and clearance certificates
- ATO, Foreign residents capital gains withholding variations
- ATO, Capital proceeds from disposing of assets (market value substitution)
- Taxation Administration Act 1953, Schedule 1, Subdivision 14-D
