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Foreign resident capital gains withholding (FRCGW) of 12.5% applies for all property sales of $750,000 or more. At a minimum, that is $93,750 being withheld from the sale and paid to the ATO, unless there is an approved variation.

The most common reasons why a seller may apply for a variation include:

• making a capital loss
• not having an income tax liability
• foreclosure.

In 2023 over 60% of applications for variations were lodged late, affecting settlement. When your clients are too late applying, the conveyancer or solicitor has no choice but to withhold 12.5%.

Tips

• Include the sales contracts with the variation application.
• Variations must be lodged online at least 28 days before property settlement to ensure processing time.
• The main residence exemption doesn't apply to foreign residents.
• Australian residents for tax purposes must have a clearance certificate before settlement to prove their residency for tax purposes, so no withholding occurs.

Find out more about FRCGW variations and clearance certificates needed for Australian residents.

ATO
7 March 2024
ato.gov.au