Why Do I Need a Foreign Resident Withholding Certificate if I’m Not a Foreigner?

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If you’re selling real estate in Australia and your conveyancer or real estate agent has asked you to obtain a Foreign Resident Capital Gains Withholding (FRCGW) clearance certificate from the Australian Taxation Office (ATO), you might be wondering why. After all, you’re an Australian citizen or long-term resident – what does foreign resident tax have to do with you?

It’s a fair question and one we hear regularly. In this article, we explain what the FRCGW rules are, why they exist, and why Australian residents must still obtain this certificate in many property sales.

What Is Foreign Resident Capital Gains Withholding?

The Foreign Resident Capital Gains Withholding (FRCGW) regime is a tax compliance measure introduced by the Australian Government to ensure that foreign residents pay capital gains tax when they dispose of taxable Australian property.

Under the FRCGW rules, where a vendor disposes of certain Australian property and is deemed a “foreign resident” for tax purposes, the purchaser is required to withhold a portion of the purchase price and remit it to the ATO at settlement.

This amount is not the final tax but acts as a pre-payment toward any capital gains tax owed. If no tax is ultimately payable, the vendor may receive a refund after lodging their tax return.

Why It Affects Australian Residents

You might assume these rules apply only to people who live overseas or who aren’t Australian citizens. However, the withholding obligation applies to all property transactions unless the vendor provides a clearance certificate proving they are not a foreign resident for tax purposes.

So, even if you are an Australian citizen or permanent resident, you must obtain a clearance certificate from the ATO to confirm your tax residency status. If you don’t provide this certificate before settlement, the purchaser is legally required to withhold 15% of the purchase price and pay it directly to the ATO.

This can be a significant amount – for example, on a $900,000 property, that would be $135,000. That’s a large sum to lose access to while you wait to lodge a tax return and apply for a refund.

The Legal Basis

The FRCGW provisions are set out under Subdivision 14-D of Schedule 1 to the Taxation Administration Act 1953 (Cth). These provisions were first introduced on 1 July 2016, with updates in 2017 and again in 2025:

  • From 1 July 2016: A 10% withholding applied to real property disposals of $2 million or more.

  • From 1 July 2017: The threshold was reduced to $750,000, and the rate increased to 12.5%.

  • From 1 January 2025: The threshold was removed entirely, and the withholding rate increased to 15%.
    See ATO reference: Foreign resident capital gains withholding – rates and thresholds

These rules apply to a wide range of Australian property types, including:

  • Residential real estate

  • Commercial real estate

  • Vacant land

  • Mining, quarrying, or prospecting rights

  • Indirect interests in Australian real property (such as shares in land-rich companies)

How Do I Get the Clearance Certificate?

Applying for a clearance certificate is straightforward and free. It can be done online through the ATO website by the vendor, their conveyancer, accountant, or other authorised representative.

To apply, you’ll need to provide:

  • Your full legal name

  • Date of birth

  • Tax File Number (TFN) or other identifying details

  • Property details including address and expected contract date

Clearance certificates are usually issued within a few business days but can take longer if additional information is required. Once issued, the certificate is valid for 12 months and must be provided to the purchaser before settlement.

You can apply here: ATO Clearance Certificate Application

What Happens If I Don’t Get the Certificate?

If you do not provide a valid clearance certificate by the time of settlement, the purchaser is legally obligated to withhold 15% of the purchase price and pay it to the ATO.

While you may be able to recover this money by lodging a tax return later, the process can take months – which can create complications if you were relying on the full sale proceeds to purchase your next property, repay a mortgage, or cover moving costs.

More importantly, the purchaser could face penalties from the ATO if they fail to withhold correctly, so they have every incentive to comply with the law, even if they believe you’re not a foreign resident.

Common Misunderstandings

Many vendors say, “But I was born here!” or “I’ve lived here my whole life!” – and this may all be true. However, the test applied under the FRCGW regime is based on your residency for tax purposes, not your citizenship or visa status.

Tax residency is determined by factors such as:

  • Your usual place of abode

  • The location of your assets

  • The duration and pattern of your physical presence in Australia

Even Australian citizens who have spent significant time overseas can, in some circumstances, be deemed foreign residents for tax purposes.

That’s why the ATO uses the clearance certificate process: to create a simple, uniform way for vendors to confirm their status and avoid unnecessary withholding.

In Summary

If you’re selling property in Australia after 1 January 2025, and you are not a foreign resident for tax purposes, you must still obtain a clearance certificate from the ATO to avoid the mandatory 15% withholding at settlement.

This certificate proves to the purchaser (and the ATO) that you are not a foreign resident for tax purposes. Without it, the withholding will apply regardless of your citizenship, residency, or personal circumstances.

At Victorian Property Settlements, we assist our clients with this process from start to finish to ensure smooth, delay-free settlements. If you have questions or concerns about the FRCGW regime or need help applying for a clearance certificate, don’t hesitate to contact us.