Australian Property Conveyancing: Australian tax residents can be exempt from withholding tax with a Foreign Resident Capital Gains Withholding Clearance Certificate, so what should non-tax residents do? 

1. What is Foreign Resident Capital Gains Withholding Clearance Certificate？ 

Capital Gains Tax (CGT) is a tax on profits made on the sale of an asset, such as a property. If you make a gain on the sale of an asset, this will count towards your overall tax liability. It is important to note that CGT does not only apply in the case of a profit, but in some cases you may need to declare a capital loss even if there is a loss. 

A Foreign Resident Capital Gains Withholding Clearance Certificate is a Capital Gains Withholding Clearance Certificate, issued by the Australian Taxation Office (ATO). This certificate is submitted by the seller of a property and is primarily intended to confirm whether the buyer will be required to pay withholding capital gains tax on the property conveyancing at the time of payment. If the seller fails to provide a Clearance Certificate, any person or entity purchasing a property in Australia will be required to retain 15% of the withholding tax from the price payable and submit it to the ATO, which means that the seller will not be able to receive the full payment for the property sale immediately, and will only be able to obtain the withheld amount later when filing for a tax return. For example, if you, as the seller, sell a property valued at $1,000,000 without submitting a tax clearance certificate, you will only receive $850,000 at that time and the remaining $150,000 will be withheld for ATO. 

2. How to apply for the Foreign Resident Capital Gains Withholding Clearance Certificate?

The seller can either complete and submit the form themselves or appoint a third party to do the application, but it is important to note whether the third party has the qualification. It is advisable to seek the help of a professional tax accountant or a registered tax agent who can provide you with accurate advice. 

Application Eligibility: 

• For Australian Tax Residents Only: As the Foreign Persons Capital Gains Withholding Tax (FRCGW) is a rule for foreign residents, the main purpose of the Clearance Certificate is to prove that the seller is not a foreign resident and thus exempt from withholding on his/her capital gains tax. 
  • The ATO’s definition of a foreign person differs from that of the Australian Department of Home Affairs in that it usually refers to a person who is not permanently resident in Australia and who does not intend to migrate to Australia, and is not directly related to whether or not they hold Australian permanent residency/citizenship. 
  • The following tests provided by the ATO can help to self-test whether an individual is an Australian tax resident; also, you can use the online tool (Work Out Your Residency Status for Tax Purposes) provided on the ATO’s website to help determine your tax residency status. *In the upcoming Conveyancing Transaction Series, we will provide a comprehensive analysis of tax residency status under the Foreign Resident Capital Gains Withholding (FRCGW) rules. Stay tuned for in-depth insights.   
    • Resides Test
    • Domicile Test
    • 183-Day Test 
    • Commonwealth Superannuation Test

• To be provided only by the seller in a property conveyancing; the buyer does not need to submit an application   

• Applications need to be submitted through the ATO’s online system 
  • Visit the ATO website and fill out the Foreign resident capital gains withholding clearance certificate application form with the required personal details.  
  • Make sure you submit it in one session as progress cannot be saved and it is recommended that you gather all the information before you start. 
  • Applications usually take up to 28 days to process after submission. 
  • Certificates are valid for 12 months from the date of issue (provided the seller’s residency status has not changed after the withholding clearance certificate is issued). 

Important Notes:

• The Clearance Certificate needs to be submitted to the purchaser before or on the settlement day, and it is advisable to submit the application as early as possible to avoid affecting the settlement date. 
• If the property is not eventually sold, possession of the certificate will have no effect. 
• * Each party to the sale should submit a Clearance Certificate: If the property is owned by a married couple, they will both need to provide their own Clearance Certificate in order to be exempt from withholding tax; if either of them fails to do so, the individual portion of the withholding tax will still be deducted. 

3. How to apply for the Variation Notice?

The seller can either complete and submit the form themselves or appoint a third party to do the application, but it is important to note whether the third party has the qualification. It is advisable to seek the help of a professional tax accountant or a registered tax agent who can provide you with accurate advice. 

Application Eligibility: 

• For foreign residents only: Only Australian tax residents can apply for a withholding tax exemption, and foreign residents can only apply for a tax rate adjustment in certain circumstances. 
  • The reasons for the change include: 
    • There is no capital gain on the transaction (e.g., if the property is sold for less than the purchase price (i.e., a loss), then there is no capital gain and, naturally, no capital gains tax) 
    • Income tax liabilities are reduced or there is a tax loss (e.g., other tax losses can be used to offset the capital gain on the property transaction) 
    • The seller’s creditors have a mortgage or other security interest in the property, and the proceeds of the sale at settlement are insufficient to both pay the withholding tax and the debt 
    • The creditor acquires title to the property through foreclosure or by enforcing debt collection procedures 

• To be provided only by the seller in a property conveyancing; the buyer does not need to submit an application   

• Applications need to be submitted through the ATO’s online system 
  • Visit the ATO website and fill out the Foreign Resident Capital Gains Withholding Application form with the required personal information. 
  • Processing time is the same as the Foreign Resident Capital Gains Withholding Clearance Certificate, which takes up to 28 days. 

     Important Notes:

• Submit the application as soon as possible after the contract is signed to avoid disruption to the conveyancing due to application processing time 
• Provide the buyer with a Variation Notice on or before the settlement day to ensure that a reduced withholding tax rate applies. 
• *Similarly, when multiple sellers co-own a property, each seller will need to file his or her own variation notice. 

Conclusion

The Foreign Resident Capital Gains Withholding Clearance Certificate plays a vital role in Australian property transactions, especially with the implementation of the new 2025 tax regime, which expands its scope and importance. Whether you’re an Australian tax resident or foreign person, understanding the process and role of the Clearance Certificate and the Variation Notice can help you avoid unnecessary tax risks in your property transactions. 

If you encounter legal issues during the process, Sunfield Chambers Solicitors & Associates is willing to assist you with tax related legal matters, but it is recommended that the critical tax issues are dealt with by a professional tax accountant. The cooperation between lawyers and accountants will help you to ensure the smooth completion and compliance of the conveyancing. 

*For more information, please visit the Australian Taxation Office (ATO) website or consult a professional tax advisor. 

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Writer: Xueying(Grace) Yang Content Planner: Yan Zhou Yan Zhou; Xueying(Grace) Yang Proofreading: Gang(Abraham) Sun

This article is based on publicly available information and the author’s understanding, and does not constitute any form of professional legal advice or business decision. Readers should refer to this article in light of their own actual situation and consult relevant professionals for specific guidance. The author and the publishing platform assume no legal responsibility for any consequences arising from the use of the information in this article.