Property purchasers are now put on notice with changes to foreign resident withholding rules.

Withholding requirements were first introduced in 2016 to strengthen compliance with tax obligations by foreign residents disposing of property in Australia.

From 1 January 2025, buyers of all real property assets in Australia now must withhold 15% of the market value on sale and remit the amount to the Australian Taxation Office (ATO). This is unless an exemption applies or the vendor provides details of an approved variation. Significant penalties apply for non-compliance with these requirements by purchasers.

These recent changes increased the withholding rate from 12.5% to 15% and remove the minimum property value threshold for all property contracts signed after 31 December 2024. This means effectively all property transactions in Australia now require the withholding rules (or an exemption/variation) to be applied prior to settlement.

Relevant Property Assets

The assets which may be subject to the withholding include any of the types of assets which may be subject to Capital Gains Tax (CGT) in Australia. This can include:

1. Your home
2. Vacant land, buildings, residential and commercial property
3. Mining, quarrying or prospecting rights (where they are situated in Australia)
4. A lease over real property in Australia
5. Indirect Australian real property interests (broadly being an interest of 10% of more in a company or trust that has more than 50% of its market value attributable real Australian property assets)

Exemptions

There are a number of exemptions that may apply to reduce or remove the withholding requirements, the key ones being:

1. The vendor provides a clearance certificate, stating that they are an Australian tax resident and therefore exempt from the requirements.
2. The transaction is undertaken on an approved stock exchange (such as the Australian Stock Exchange).
3. Transactions where the vendor is in external administration, or those involving bankrupt estates or similar types of arrangements.

Importantly, withholding is required for acquisitions of all Australian real property assets, unless a clearance certificate is provided by the vendor (regardless of whether the purchaser believes or knows that the vendor is an Australian resident).

The ATO has an online application process for clearance certificates. In straightforward cases, the clearance certificate will issue within a few days. However, processing may take up to 28 days, generally where the ATO is unable to verify the vendor’s residency status using information held from other sources.

As clearance certificates are valid for 12 months from the date of issue, applying as soon as the sale process starts is generally recommended to avoid any delays to settlement (particularly for short settlement periods). The application can be completed by the vendor or their representative (such as a real estate agent, lawyer or registered tax agent)

Variations

It is possible to apply to the ATO for a variation to the amount withheld (below the standard rate of 15%) where:

1. The foreign resident will not make a capital gain (e.g. a loss will be made)
2. The foreign resident will not have an income tax liability in Australia (for example, due to utilisation of capital losses, tax losses or a CGT exemption is available).
3. The seller holds a mortgage or other security over the property and there is likely to be insufficient proceeds to cover the withholding and outstanding debt.
4. If a creditor acquires legal title to the property (i.e. becomes the purchaser) due to foreclosure and its security would be reduced by the withholding amount.

We have also been successful in applying for variations in complex property transactions with other unique circumstances (e.g. strata title sales with a portion of foreign ownership) at the discretion of the ATO.

Similar to the clearance certificate, the variation application can be completed online and can take up to 28 days to process. This application can also  be completed either by the vendor or their authorised representative.

Payment

Payment of any amounts withheld must be made to the ATO by the day of settlement.

The purchaser should provide a copy of the payment confirmation to the vendor to assist them in meeting their tax obligations.

Nature of the Withholding

The amount withheld is a non-final withholding tax. The vendor will be required to lodge an Australian income tax return for the year of sale (even if they would not be required to lodge otherwise).

Any withheld amounts will reduce the tax payable on the sale or will be refunded where the credit exceeds the tax liability.

Learn more

If you are considering buying or selling an interest in Australian property, please contact Murray Howlett, Josh Meggs or our Taxation Advisory team on (07) 3023 1300 to determine the application of this regime to your circumstances.