Foreign Residents and Capital Gains Tax in Australia

Australia remains an attractive destination for foreign real-estate and investment. But tax rules have recently changed, especially around capital gains tax (CGT) and withholding obligations. If you're a foreign resident selling Australian assets in 2025 or later, understanding these rules is crucial to avoid surprises at settlement.

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CGT for Foreign Residents

Scope: Unlike Australian residents (who pay CGT on both domestic and overseas assets), foreign residents only face CGT on “Taxable Australian Property” — generally Australian real property or certain indirect interests tied to Australian land.

No CGT Discount: Foreign residents cannot apply the 50% CGT discount that Australian residents might get for holding assets more than 12 months.

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Key Changes from 1 January 2025

• Withholding rate increased → from 12.5% to 15%
• Threshold removed → the AUD 750,000 minimum threshold no longer applies; all property sales are subject to withholding
• Contract date rule → the new rules apply to contracts signed on or after 1 January 2025, regardless of the settlement date
• Clearance certificates and variation notices → still available to reduce or avoid withholding, but must be applied for and approved in advance

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If a foreign resident vendor sells a property under a contract signed on 5 February 2025 for AUD 1,000,000, and no clearance certificate is provided, the buyer must withhold 15%, i.e. AUD 150,000, at settlement and remit that to the ATO.

If the vendor obtains a variation notice reducing the rate (say to 5%), the buyer would only withhold that lower rate — provided the variation is valid and approved.

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Exemptions and Exceptions

Not every transaction attracts withholding. For example:

• Clearance certificate provided → If the vendor is actually an Australian resident and can prove it, no withholding is required.
• Approved stock exchange trades → Certain sales of listed shares may be exempt.
• Variation notice granted → If the estimated CGT is lower than the withholding, the ATO can allow a reduced rate.

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For foreign residents, selling property in Australia has become stricter under the 2025 rules. With the higher 15% withholding rate and the removal of the AUD 750,000 threshold, every sale is impacted. The lack of CGT discounts also means a higher effective tax burden compared to residents.

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