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FRCGW: 15% withholding on non-resident sellers

Foreign Resident Capital Gains Withholding (FRCGW) is a 15% tax withholding applied to sales of taxable Australian property by non-residents (or in cases where the seller cannot prove Australian residency). It is imposed at settlement, by the buyer, on the sale price. The rule catches Australian citizens selling property while temporarily overseas more often than it catches foreign investors.

The current rate and threshold

As of 2025:

  • Rate: 15% of the sale price (up from 12.5% pre-2024)
  • Threshold: applies to sales of property valued $0 and above (there used to be a $750,000 threshold; it was removed from 1 January 2025)

The rate applies to the gross sale price, not just the gain. This is a withholding mechanism, not a tax calculation. The actual CGT liability is calculated later.

How the mechanism works

  • The buyer of any Australian property must ask the seller for an ATO-issued Clearance Certificate
  • If the seller provides a Clearance Certificate, no withholding applies
  • If the seller cannot provide one, the buyer must withhold 15% of the purchase price and remit it to the ATO

The seller later claims the withheld amount as a credit against their actual tax liability (or receives a refund if the withheld amount exceeds the actual CGT).

The Clearance Certificate

A Clearance Certificate confirms the seller’s residency status for Australian tax purposes. It is:

  • Issued free by the ATO
  • Valid for 12 months
  • Obtained via myGov or tax agent
  • Usually processed in 28 days (but can be fast-tracked in urgent settlements)

Every Australian resident seller should obtain one. Without it, the buyer (and their solicitor) must withhold 15%.

The trap for Australian citizens overseas

Australian citizens who have moved overseas for work may become “non-resident for tax purposes” under the 183-day test (not present in Australia more than 183 days in the tax year). Non-residents cannot obtain a Clearance Certificate; instead they must apply for a variation:

  • Variation Application: if the seller’s actual CGT liability is less than 15% of the sale price, they can apply for a reduced withholding rate
  • This requires full disclosure of the capital gain calculation, acquisition cost, holding period, and any eligible concessions
  • Variation applications take 28-42 days; expect complications if the sale is time-pressured

Without a variation, 15% of the full sale price is withheld. On a $1m property, $150,000 is held by the ATO until the following year’s tax return. Meanwhile, the seller has only received $850,000 at settlement.

Why the rate increase hurts expats

The 2024 rate rise from 12.5% to 15% significantly increased cash-flow pressure for non-resident sellers. On a $1.5m property, the withholding jumped from $187,500 to $225,000 - an additional $37,500 held pending the tax return.

The removal of the $750,000 threshold in 2025 means every sale, no matter how small, is affected. A $400k regional property sale by a non-resident now triggers $60,000 of withholding.

Legitimate reduction through variation

The variation application is the key tool for non-resident sellers. If your actual CGT liability is likely to be well under 15% of the sale price - because the property has had limited capital gain, because the 50% discount applies, because losses from other properties offset - the variation lets you retain most of the proceeds.

Example: non-resident seller of a $1m property with a $100k capital gain after 50% discount. Actual CGT at foreign-resident rates: ~$32,500. 15% withholding would be $150,000. With variation, withholding can be set at ~3% ($30,000), releasing $120,000 to the seller.

What the buyer should insist on

From the buyer’s perspective, the risk is purely administrative:

  • You need the Clearance Certificate from the seller, OR
  • You must deduct 15% from the purchase price at settlement

Your conveyancer/solicitor handles this. Most standard NSW and VIC contracts now include automatic clauses directing settlement figures through PEXA with FRCGW logic.

Where it goes wrong

1. Seller assumed they were resident. Australian citizens temporarily overseas often believe they’re still residents for tax purposes. Sometimes they’re not. Confirm residency before selling.

2. Clearance Certificate application forgotten. Sellers must apply for the Certificate before settlement. Last-minute applications can cause settlement delays.

3. Variation application rushed. A poorly-prepared variation application can be rejected, leaving the seller with full 15% withholding.

4. Joint ownership. Where one owner is resident and one is non-resident, withholding applies on the non-resident’s share of the proceeds.

Strategic advice for overseas Australians

  • Obtain tax advice before selling. Don’t assume residency status.
  • If non-resident, start the variation application at least 60 days before settlement.
  • If possible, time the sale after returning to Australia and re-establishing residency.
  • Keep careful records of acquisition cost, improvement costs, and holding period.
  • Understand the interaction with the main residence exemption (which is generally lost if you are non-resident at sale).

For Australian citizens living overseas and considering selling a property at home, FRCGW is one of the most significant and least-anticipated tax mechanisms you will encounter.