Most Australians living overseas have heard the $750,000 rule: if you sell Australian property for less than that threshold, the buyer does not need to withhold tax. This threshold applies for the 2024-2025 and 2025-2026 financial years and is subject to legislative change. This is broadly correct for Australian residents. For foreign residents and Australian expats classified as non-residents for tax purposes, however, the rule works very differently. The $750,000 threshold (for the 2024-2025 and 2025-2026 financial years) does not protect you from foreign resident CGT withholding (FRCGW); it only determines the default obligation on the buyer. If the ATO has separately identified you as a foreign resident seller, withholding can still apply regardless of price. Understanding exactly where that boundary sits can determine whether settlement proceeds reach your account intact or arrive well short.
TL;DR
- The $750,000 threshold (2024-2025 and 2025-2026 financial years; subject to legislative change) exempts buyers from the default duty to withhold; it does not guarantee sellers receive full proceeds if the ATO has flagged them as a foreign resident.
- Since 1 January 2025, the foreign resident withholding tax rate increased from 12.5% to 15% of the contract price for the 2024-2025 financial year onwards (subject to legislative change), not of the gain [6].
- Foreign resident sellers can request an FRCGW variation application to reduce or eliminate the withheld amount if their actual CGT liability is lower [1].
- An FRCGW clearance certificate, available only to Australian residents, removes the withholding obligation entirely; non-residents cannot obtain one [3].
- Lodging an Australian tax return as a non-resident remains the mechanism through which any over-withheld tax is ultimately refunded by the ATO.
What Is Foreign Resident CGT Withholding and Why Does It Exist?
Foreign resident CGT withholding (FRCGW) is an ATO mechanism that places the responsibility for collecting non-resident capital gains tax on the buyer at settlement, rather than waiting for the seller to lodge a return. The ATO introduced it because overseas sellers were historically difficult to pursue for unpaid tax after the transaction was complete. By embedding the collection into the conveyancing process, the ATO ensures it captures revenue even when the seller has left the country.
- FRCGW applies to taxable Australian real property, indirect Australian real property interests, and options or rights to acquire these assets.
- The withholding obligation falls on the buyer, not the seller, but the financial impact lands entirely on the seller at settlement [3].
- Effective from 1 January 2025, the withholding rate is 15% of the contract price for the 2024-2025 financial year onwards (subject to legislative change), not of the profit [6]. On a $700,000 sale, that is $105,000 held back at settlement.
Does the $750,000 Threshold Actually Protect Non-Resident Sellers?
This is the critical misconception that costs expat sellers tens of thousands of dollars. The $750,000 threshold (applying for the 2024-2025 and 2025-2026 financial years; subject to legislative change) is a buyer-side default rule: buyers transacting below this price are not automatically required to withhold. However, the protection only flows to sellers who can demonstrate Australian tax residency. Here is where the distinction matters in practice [1]:
| Seller Type | Property Below $750,000 (2024-2025 and 2025-2026 financial years; subject to legislative change) | Property Above $750,000 (2024-2025 and 2025-2026 financial years; subject to legislative change) |
|---|---|---|
| Australian tax resident | No withholding; obtain clearance certificate to confirm | Must obtain FRCGW clearance certificate; otherwise withholding applies at the current rate for the relevant financial year |
| Foreign resident / non-resident expat | Buyer has no default obligation, but variation or ATO direction can trigger withholding | Withholding applies at the current rate for the relevant financial year by default [6] |
| Foreign resident with variation in place | Withheld amount reduced to match actual CGT liability [1] | Withheld amount reduced to match actual CGT liability [1] |
The practical risk for non-resident sellers of sub-$750,000 properties is subtler: while the buyer has no automatic duty to withhold, a buyer’s solicitor who suspects the seller is a foreign resident may still seek a clearance certificate or variation before releasing full proceeds. If none is provided, they may withhold conservatively to protect their client from ATO penalties [2].
What Is an FRCGW Clearance Certificate and Can Non-Residents Get One?
An FRCGW clearance certificate is an ATO-issued document confirming that a seller is an Australian tax resident, thereby removing the buyer’s obligation to withhold entirely [3]. It is specifically designed for Australian residents selling property where withholding would otherwise apply automatically under the threshold rules for the relevant financial year.
Non-residents cannot obtain a clearance certificate because it is, by definition, a declaration of Australian tax residency. Attempting to apply for one while being a non-resident would constitute a false declaration to the ATO. This is one of the most common errors expats make when relying on advice from generalist accountants who do not work in this space daily.
- Clearance certificates are valid for 12 months from the date of issue and cover transactions settled within that period, regardless of price threshold.
- They must be provided to the buyer before or at settlement; a certificate provided after settlement does not retroactively remove withholding [3].
- If your tax residency status changed during property ownership, the certificate application triggers an ATO residency review.
What Is an FRCGW Variation Application and When Should You Use It?
Building on the clearance certificate discussion, the correct instrument for foreign resident sellers is not a clearance certificate but an FRCGW variation application. This allows a non-resident seller to request that the ATO reduce the withholding amount to reflect the actual tax that will be owed, rather than the default withholding rate applied to the gross contract price for the relevant financial year [1].
A variation makes sense when:
- The property was purchased at a price close to the sale price, meaning the actual capital gain (and resulting tax) is far less than the default withholding applied to the sale proceeds.
- The property carries significant capital improvements that increase the cost base.
- The seller has carried-forward capital losses that reduce net CGT liability.
- The property was formerly a principal place of residence, which may affect how the gain is calculated (noting that the main residence exemption is substantially restricted for foreign residents).
The variation must be lodged with the ATO before settlement. It cannot be applied retrospectively. Processing times vary, so engaging a Registered Australian Tax Agent well ahead of your settlement date is essential.
How Is Non-Resident Capital Gains Tax Actually Calculated?
A separate but directly related issue is understanding what your actual non-resident capital gains tax liability looks like, separate from the withholding mechanism. Non-resident capital gains tax operates differently from resident CGT in two significant ways [5].
General information only. This does not constitute personal tax advice. Consult a Registered Australian Tax Agent for advice specific to your situation.
- No 50% CGT discount: Under the rules applying to the 2024-2025 financial year (subject to legislative change), Australian residents who hold an asset for more than 12 months access a 50% discount on the capital gain. Foreign residents do not. The full nominal gain is included in assessable income.
- Non-resident tax rates apply: Non-residents are taxed on Australian-sourced income at marginal rates but without the tax-free threshold (currently $18,200 for the 2024-2025 financial year; subject to legislative change) or low-income offsets that apply to Australian residents, meaning all income is taxable from the first dollar.
- Cost base still applies: The gain is calculated on the difference between your cost base (purchase price plus eligible costs) and the sale proceeds, so comprehensive records matter.
This distinction between the withholding amount (the current rate for the relevant financial year applied to the contract price) and the actual tax liability (marginal rates applied to the real gain) is where over-withholding most commonly occurs. Many expats who sell property with modest gains end up having far more withheld than their actual tax bill warrants, with the difference recovered only after lodging an Australian tax return as a non-resident.
How Do You Recover Over-Withheld Tax?
The recovery mechanism is the Australian tax return for non-residents. After settlement, the withheld amount is paid to the ATO on your behalf [1]. When you subsequently lodge your Australian tax return as a non-resident, the ATO reconciles the withholding against your actual CGT liability. If the withholding exceeded the tax owed, the surplus is refunded.
Key steps in this process:
- Ensure the buyer lodges the withheld amount with the ATO promptly after settlement.
- Obtain a PAYG payment summary or confirmation of the withheld amount from the buyer or their solicitor.
- Lodge your Australian tax return for non-residents for the relevant financial year, including the capital gain calculation and withholding credit.
- The ATO issues any refund after processing the return, typically within a few weeks for electronically lodged returns.
Delays in lodging your return mean delays in recovering your money. For expats who have not lodged returns in multiple years, overdue lodgments must be brought up to date before the current-year return can be processed cleanly.
About ODIN TaxODIN Tax is Australia’s specialist tax agent practice for Australian expats and non-residents, and part of the ODIN Group alongside ODIN Mortgage. Led by Tax Director Pau Lam with over a decade of specialist expat tax experience, the team has served 10,000+ Australian expats across 40+ countries and holds a 4.9/5 Google rating from more than 330 verified client reviews. For clients navigating FRCGW, non-resident CGT, and overdue Australian tax return lodgment, ODIN Tax provides coordinated advice across tax, mortgage, and property settlement. ODIN Tax is a Registered Australian Tax Agent.
Frequently Asked Questions
If my property sells under the current withholding threshold, do I still need to do anything before settlement?
Yes, if you are a foreign resident or non-resident expat. While the buyer has no automatic obligation to withhold below the current threshold for the relevant financial year (currently $750,000 for the 2024-2025 and 2025-2026 financial years; subject to legislative change), many buyers’ solicitors will still request confirmation of your residency status. If you cannot provide an appropriate document, they may withhold conservatively. A variation application or a proactive ATO residency review is advisable before settlement regardless of price [1].
What is the current FRCGW rate?
As of 1 January 2025, the foreign resident withholding tax rate is 15% of the contract price for the 2024-2025 financial year onwards. This applies to all contracts entered into on or after that date and is subject to legislative change [6].
Can I get a clearance certificate if I have been living overseas for several years?
Only if you are determined to be an Australian tax resident despite living overseas. Tax residency is determined by the ATO’s residency tests, not simply by where you live. If you are classified as a foreign resident, you cannot obtain a clearance certificate. If there is genuine uncertainty about your residency status, you should obtain a formal assessment of your residency position from a Registered Australian Tax Agent before making any settlement decisions [5].
What happens if the buyer withholds and never remits it to the ATO?
The buyer bears the legal obligation to remit the withheld amount to the ATO. If they fail to do so, they are liable for penalties. As the seller, you should confirm with your conveyancer that the remittance has been lodged. You will need a receipt or confirmation from the buyer’s side to claim the withholding credit in your Australian tax return for non-residents.
How long does an FRCGW variation application take to process?
Processing times vary and the ATO does not publish a fixed timeline. Practically, sellers should allow at least several weeks and ideally lodge well before the scheduled settlement date. Last-minute applications risk settlement delays. Engaging a Registered Australian Tax Agent early gives your application the best chance of being resolved before settlement.
Do I need to lodge an Australian tax return even if I had no other Australian income in that year?
In most cases, yes. This is general information only and not personal tax advice; your specific circumstances may differ. A capital gain from Australian real property is Australian-sourced income and generally creates a lodgment obligation for the financial year in which the sale settled. This is also the mechanism through which any over-withheld foreign resident withholding tax is recovered [1]. Consult a Registered Australian Tax Agent for advice specific to your situation.
Can foreign currency conversion affect my CGT calculation if I own overseas property?
Yes. For Australian expats who own property in another country, all proceeds, gains, and foreign taxes paid must be converted to Australian dollars (AUD) for the purposes of the Australian tax return. Exchange rate fluctuations can materially affect the reported gain, and overseas taxes paid may be creditable through a Foreign Income Tax Offset application [4].
Selling Australian property from overseas?
Whether you are approaching settlement or still planning your sale, getting the FRCGW and non-resident CGT approach right before contracts are signed saves real money. The ODIN Tax team works with Australian expats across 40+ countries and handles variation applications, non-resident tax returns, and residency assessments every day.
References
- Selling an Australian Property as an Australian Expat (www.runwaywealth.com)
- A Guide for Overseas Investors Selling Australian Property (www.emlawyers.com.au)
- Foreign residents selling property in Australia | Witholding tax (stratogen.com.au)
- Sell Overseas Property From Australia – Esales Overseas Property (esalesinternational.com)
- A Guide to Capital Gains Tax for Australian Expats (titanwealthinternational.com)
- What Happens If I Decide To Sell My Australian Property In The Future? – Australian Property (www.areproperty.com.au)
