Information for foreign residents selling property in Australia and buyers purchasing from them.
If you’re selling property in Australia and you’re a foreign resident, there are important tax rules you need to be aware of.
Recent changes mean that buyers must withhold 15% of the property’s market value and pay it to the ATO unless the seller provides a valid residency clearance certificate.
What’s changed?
From 1 January 2025, all property sellers must prove their Australian tax residency status by obtaining a clearance certificate from the ATO. If they don’t, the buyer is legally required to withhold 15% of the sale price and remit it to the ATO.
This rule ensures that foreign residents don’t avoid their capital gains tax (CGT) withholding obligations. The government now assumes all property sellers are foreign residents unless they provide an ATO-issued clearance certificate proving otherwise.
How does the Withholding Rule work?
If you’re buying property from a foreign resident, you must:
- Withhold 15% of the purchase price (for contracts dated from 1 January 2025
- Register as a withholder with the ATO before settlement
- Pay the withheld amount to the ATO before the sale is finalised
For contracts entered before 1 January 2025, the withholding rate is 12.5%, and only applies to properties worth over $750,000.
If you’re a foreign resident selling property in Australia, you’ll receive a tax credit for the withheld amount when you lodge your Australian tax return.
What if the property was your former home?
Even if the property was your main residence, foreign residents are not eligible for the main residence CGT exemption when selling Australian real estate.
This means any capital gain from the sale is fully taxable in Australia.
In fact, foreign residents are always subject to CGT on any property they own in Australia, regardless of whether they currently live here.
How do you know if the seller is a foreign resident?
As a buyer, you don’t need to investigate the seller’s residency status yourself.
Under standard property contracts, the seller must declare whether they are a foreign resident and provide an ATO clearance certificate if required.
If the seller does not provide a clearance certificate, the buyer must withhold 15% of the purchase price and pay it to the ATO. Your solicitor or conveyancer will usually manage this process on your behalf.
Are there any exemptions?
Yes. In some cases, the ATO may allow a reduced withholding amount, or no withholding at all. This can happen when:
- The seller obtains a variation certificate from the ATO
- The seller is exempt from Australian tax (e.g. a foreign charity)
- A CGT rollover applies, such as in a marriage breakdown property transfer
The property is jointly owned by an Australian and a foreign resident – a situation becoming more common in today’s global market
Other assets affected by these rules
It’s not just real estate. The foreign resident CGT withholding rules also apply to other Australian-connected assets, including:
- Significant interests in private unit trusts
- Shares in private companies
- Other non-real property with a strong Australian connection
More information
Selling or buying property? Contact us for advice.
Whether you’re a buyer or seller, understanding these rules is crucial to avoid unexpected tax obligations.
If you’re unsure how these changes affect your situation, get in touch with us for expert advice.
Based in Noosa, on the Sunshine Coast Queensland, we work with clients throughout Australia.