What is a foreign resident capital gains withholding clearance certificate?

If you purchase a home from an overseas property investor, you could be required to keep back a proportion of the sale price, known as the foreign resident capital gains withholding (FRCGW), and pay it directly to the Australian Taxation Office (ATO).

However, exceptions can apply. And if the vendor is an Australian resident for tax purposes, they can apply for an FRCGW clearance certificate, which exempts the purchaser from withholding the extra duty.

Below, we cover the basics of what you need to know about the FRCGW clearance certificate.

What is foreign resident capital gains withholding?

The FRCGW is an Australian Government initiative that collects tax from non-residents selling investment properties in Australia.

When the FRCGW was first implemented, in 2016, the tax rate was 10%. A year later, the rate was increased to 12.5%. At the beginning of 2025, the rate was increased to 15%.

Previously, the tax was payable on all property sales of over $750,000. However, this year the scope of the tax was broadened to include all property sales by non-residents.

The FRCGW tax scheme obliges purchasers to hold back 15% of the sale price of a property (if bought from an overseas tax resident) and to pay it to the ATO.

It’s then up to the foreign resident vendor to claim any possible tax credits in their end-of-financial-year tax return.

What is a foreign resident capital gains withholding clearance certificate?

If a vendor of an investment property is an Australian resident for tax purposes, they, or their tax agent, can apply for an FRCGW clearance certificate via the ATO website. The certificate must be presented to the property buyer before settlement and exempts the purchaser from paying the FRCGW to the ATO.

It usually takes up to 28 days from application to receive the certificate, which is valid for 12 months from time of issue and covers multiple property sales.

If a vendor is an Australian tax resident and fails to obtain a clearance certificate, the purchaser is obliged to withhold the required 15% and pay it to the ATO. It’s then up to the vendor to claim back the FRCGW in their tax return, which can be a lengthy process.

Are there exemptions to requiring a clearance certificate?

The straightforward sale of an investment property by an overseas resident usually requires a withholding certificate. However there are exceptions, depending on the tax status of the vendor and the type of asset being sold:

Vendor declaration: a vendor can supply a vendor declaration, which is a legal document available from the ATO website. There are two types of declaration. One states that the vendor is an Australian tax resident, the other is based on the type of asset being sold and how tax is charged on any capital gains related to its sale.

Variation: the vendor can also apply to the ATO for a variation. Rules around applying for a variation are linked to a vendor’s tax status and income/capital gains tax liabilities.

However as it’s the vendor who is potentially forfeiting the tax from the sale price of their property, the responsibility lies with them to arrange any exceptions to the FRCGW.

What do I need to do if I’m buying a property from a foreign resident for tax purposes?

If you are purchasing a property from someone you suspect to be a foreign resident for tax purposes, at the very start of the property transaction, you could simply ask them to provide you with an FRCGW clearance certificate.

If they can’t provide you with a certificate, then it’s a good idea to consult a tax agent, as you could be responsible for paying the FRCGW to the ATO.

As with all property transactions, it’s always advisable to consult legal and financial experts early in the process, to ensure that you comply with the legal requirements of the sale.