Australia Tightens Foreign Resident Capital Gains Withholding to 15% on $750,000

(AUSTRALIA) — Australia has tightened its Foreign Resident Capital Gains Withholding regime from 1 January 2025, lifting the withholding rate from 12.5% to 15% and removing the previous $750,000 property value threshold so the rules apply to all taxable Australian real property transactions regardless of sale price.

The change means buyers or lessees must now withhold 15% of the contract price, or market value for non-arm’s length sales, and remit it to the Australian Taxation Office at settlement when the transaction falls within the regime.

For contracts signed before 1 January 2025, the earlier settings still apply even if settlement happens later. In those cases, withholding remains 12.5% and applies only if the property value is $750,000 or more and the seller is a foreign resident.

For contracts signed on or after 1 January 2025, the tightened rules cover all real property sales or leases. They also extend to options, with the option fee withheld if the grantor is foreign, and to direct and indirect interests in Australian real estate.

The legislative basis for the changes is Act No. 135, 2024 – Treasury Laws Amendment (2024 Tax and Other Measures No. 1).

Foreign Resident Capital Gains Withholding is collected by the purchaser side of the deal rather than the seller. Buyers, or lessees in lease transactions, must hold back the required amount from the purchase price or lease premium and send it to the ATO at settlement.

That payment is not a final tax. It operates as a credit toward the seller’s potential capital gains tax liability.

Australian tax residents can avoid withholding by giving the buyer a valid ATO clearance certificate before settlement. The certificate confirms the seller is not treated as foreign for withholding purposes.

Foreign residents and non-residents do not have that option. They must have the full rate withheld unless the ATO issues a variation notice approving a reduced amount.

That variation process matters where the withheld amount would exceed the likely tax bill. The example given is a seller expecting a capital gains tax loss.

The latest tightening marks another step in a regime that has expanded over time. Australia introduced the withholding system in July 2016 with a rate of 10%.

Authorities then updated the regime in 2017, raising the rate to 12.5% and setting the $750,000 threshold. The latest change removes that threshold altogether and broadens the net to every taxable Australian real property transaction caught by the rules.

The effect is that lower-value transactions now sit inside the withholding system in a way they did not before. A sale price below $750,000 no longer takes a deal outside the regime if the contract was signed on or after 1 January 2025.

The withholding rules sit within a wider capital gains tax framework that has also tightened for foreign residents over time. Foreign residents lost access to the main residence CGT exemption for properties acquired on or after 7:30pm AEST, 9 May 2017.

For properties acquired before that date, the exemption remained available until 30 June 2019. After that, the earlier concession no longer applied in the same way.

Foreign and temporary residents are taxed on capital gains only in relation to taxable Australian property, including real estate interests. At the same time, the full 50% CGT discount is unavailable for post-8 May 2012 acquisitions if the property is sold after the owner has become foreign.

Residency, which drives whether the withholding rules apply, is not fixed in every case. The ATO assesses tax residency using four tests.

One is the Ordinary Concepts Test, which looks at a person’s lifestyle and ties in Australia. Another is the Domicile Test, which treats a person as resident if their domicile is in Australia unless they have a permanent abode overseas.

A third is the 183-Day Test, which applies where a person spends 183+ days in Australia unless their usual abode is elsewhere. The fourth is the Superannuation Test, which applies to certain public servants and their families.

Those tests matter because a person’s status can change. The example given in the tax material is a person ceasing residency on 15 January 2025, which triggers a deemed disposal at market value.

That shifting status can alter how a sale is handled and whether withholding applies. A seller who was once treated as resident may later fall within the foreign resident rules, changing the paperwork needed at settlement.

For Australian residents, the clearance certificate becomes the central document. Without it, a buyer may still face withholding obligations tied to the seller’s status, which makes advance preparation important in transactions closing near contract deadlines.

For foreign sellers, the variation notice is the main tool available to reduce the upfront amount withheld. If no variation is approved, the buyer must withhold at the full statutory rate and the seller would then address any overpayment through the tax return process.

That structure places compliance pressure on both sides of the transaction, but especially on purchasers because they carry the obligation to withhold and remit. Buyers risk penalties for non-compliance if withholding is not done correctly.

The practical effect of the 15% rate is straightforward. More money now comes out of the transaction price at settlement than under the earlier 12.5% setting, and it does so across all taxable Australian real property deals rather than only those at or above $750,000.

The removal of the threshold also changes how smaller transactions are treated. A property that would previously have fallen outside Foreign Resident Capital Gains Withholding because it sold for less than $750,000 is now inside the regime if the contract date is on or after 1 January 2025.

The same date split remains central to administration. Contract timing, not settlement timing alone, determines whether the earlier 12.5% and $750,000 framework or the newer 15% all-transactions framework applies.

That distinction is especially important for deals negotiated around the turn of the year. A contract signed before 1 January 2025 keeps the earlier settings even if the parties settle later, while a contract signed on or after that date falls under the tougher rules.

The regime also reaches beyond a straightforward house sale. The rules cover leases and options, and they apply to direct and indirect interests in Australian real estate.

In option arrangements, the withholding can attach to the option fee if the grantor is foreign. That broadens the system beyond traditional transfers of title and draws more property-related dealings into the ATO collection process.

By routing the payment through the buyer at settlement, the system secures tax upfront against a possible CGT liability. Australia has used that approach since July 2016, but the latest amendments increase the rate and remove the price screen that once limited the regime’s reach.

Sellers who believe the standard withholding amount does not reflect their likely tax position can seek an ATO variation or tax advice. If too much has been withheld, the amount can be credited or refunded through the tax return process rather than at settlement itself.

For buyers, the message is more rigid. They must determine whether withholding applies, obtain the right certificate or variation notice where relevant, and remit the amount to the ATO when the deal completes.

The tighter settings bring more transactions into the system and raise the amount collected upfront. In practice, that means the combination of a 15% rate, the end of the $750,000 threshold, and close attention to residency status now shapes every taxable Australian real property deal touched by Foreign Resident Capital Gains Withholding.