Here’s a scenario we now see almost every week. An Australian family — citizens, lifelong residents — sells their Melbourne investment property for $1.1 million. At settlement, instead of receiving the full proceeds, $165,000 is withheld and sent to the ATO. They did nothing wrong. They simply didn’t apply for one free form in time: a Foreign Resident Capital Gains Withholding (FRCGW) clearance certificate.
Despite the name, this rule now affects every seller of Australian property — Australian residents included. Since 1 January 2025, two changes turned what was a niche rule for foreign sellers into a trap for everyone. This is a practitioner’s plain-English guide to what changed, who’s affected, and the one step that prevents 15% of your sale price disappearing at settlement.
What changed on 1 January 2025
The Foreign Resident Capital Gains Withholding regime was designed to stop overseas sellers leaving Australia without paying capital gains tax. From 1 January 2025, two amendments dramatically widened its reach. First, the withholding rate rose from 12.5% to 15% of the gross sale price. Second — and this is the one that catches people — the $750,000 property-value threshold was removed entirely. Previously, sales under $750,000 were exempt and most family-home sales fell outside the rules. Now every sale of Australian real property is captured, regardless of value. That means a $400,000 unit and a $4 million house are treated the same way: unless the seller hands the buyer a valid ATO clearance certificate by settlement, the buyer is legally required to withhold 15% and remit it to the ATO.
The key point: this is not just for foreigners
The name is genuinely misleading, and it costs Australian residents real money. The mechanism works in reverse from what most people assume. The law presumes every seller is a foreign resident unless they prove otherwise. The proof is the clearance certificate. So an Australian resident who never applies for one is treated, at settlement, exactly like a foreign seller — the buyer must withhold 15%. You don’t get the certificate because you’re foreign; you get it to prove you’re not, and to switch the withholding off. No certificate by settlement, no exemption — even if you’ve lived in Australia your entire life.
How the clearance certificate works
- Who applies: the seller (vendor), for every sale of Australian property.
- Cost: free. The ATO does not charge for a clearance certificate.
- When: you can apply at any time — you do not need a signed contract or even a listed property. Apply early.
- Validity: the certificate is valid for 12 months and can cover multiple sales in that window.
- How long it takes: most issue within a few days, but the ATO advises allowing up to 28 days — longer if your tax lodgements are not up to date.
- What you do with it: give it to the purchaser (or your conveyancer) before settlement. That switches the 15% withholding off.
💡 The single most important sentence in this article: apply for the clearance certificate the moment you decide to sell — before the property is even listed. It’s free, valid for 12 months, and removes all the risk. The disaster cases we see are always about timing, never about eligibility.
What happens if you miss it
If settlement arrives without a valid clearance certificate, the consequences are mechanical and unforgiving. The purchaser must withhold 15% of the gross sale price and pay it to the ATO — they have no discretion, because they become personally liable for the amount if they don’t. On a $1 million sale, that’s $150,000 taken out of your proceeds at the worst possible moment, often when you need those funds for your next purchase. You don’t lose the money permanently: it’s credited against your tax bill when you lodge your return for that year. But you are out of pocket — potentially for many months — and you’ve handed the ATO an interest-free loan of your own money. For anyone relying on sale proceeds to settle a new home, the cash-flow hit can be severe.
Special situations that catch our community
- Deceased estates: selling an inherited property still requires a clearance certificate in the name of the legal personal representative or the estate. This is frequently overlooked during an already stressful time.
- Properties held in a trust or company: the entity that holds the title is the vendor and needs the certificate — not the individuals behind it.
- Multiple owners: each owner on the title needs their own clearance certificate. One missing certificate means withholding on that owner’s share.
- Genuinely foreign or recently-departed sellers: if you can’t get a clearance certificate because you are a foreign resident, you may be able to apply for a variation to reduce the 15% to the actual expected tax — important if your real CGT is far below 15% of the price.
- Cross-border families: if your tax residency is genuinely unclear — common for those who split time between Australia and overseas — get advice before signing, because the answer drives everything.
The 5-step action plan for sellers
- Apply for the clearance certificate as soon as you decide to sell — at ato.gov.au, free, before listing.
- Bring your tax lodgements up to date first. Outstanding returns are the main cause of delays beyond 28 days.
- Make sure the certificate name exactly matches the name on the title — including for trusts, companies and deceased estates.
- Get a separate certificate for every owner on the title.
- Give the certificate to your conveyancer well before settlement — not on the day.
Planning a sale this year? It interacts with the broader changes we’ve covered in our negative gearing reform and investment property EOFY guides. For broader year-end planning, see our EOFY 2026 individual tax guide.
Frequently asked questions
Do Australian residents need a clearance certificate to sell property?
Yes. Since 1 January 2025, every seller of Australian real property — including Australian residents — needs a valid ATO clearance certificate by settlement. Without one, the buyer must withhold 15% of the sale price and pay it to the ATO. The certificate proves you are an Australian resident and switches the withholding off.
How much is withheld without a clearance certificate?
15% of the gross sale price (up from 12.5% before 1 January 2025). On a $1 million property that is $150,000 withheld at settlement. The amount is later credited against your income tax when you lodge, but you are out of pocket in the meantime.
Is there still a $750,000 threshold for FRCGW?
No. The $750,000 threshold was removed from 1 January 2025. The rules now apply to all Australian property sales regardless of value — a $400,000 unit is captured the same as a $4 million house.
How much does a clearance certificate cost and how long is it valid?
It is free from the ATO and valid for 12 months. You can apply at any time, even before listing the property, and one certificate can cover multiple sales within the 12-month period.
How long does it take to get a clearance certificate?
Most are issued within a few days, but the ATO advises allowing up to 28 days. Delays usually occur when the seller has outstanding tax returns, so bring your lodgements up to date before applying.
Sources
- Australian Taxation Office, Foreign resident capital gains withholding and Australian residents and clearance certificates
- Australian Taxation Office, Capital gains withholding clearance certificate — online application
- Treasury Laws Amendment (2024 Tax and Other Measures No. 1) Act — FRCGW changes effective 1 January 2025
About the author
Lily Zhang is the founder of Wiselink Accountants, a Camberwell-based CPA firm serving 500+ Australian individuals, families and SMEs since 2013. She is a CPA Australia member, Registered Tax Agent, ASIC Registered Agent and NTAA Member. Lily and the Wiselink team service Greater Melbourne and Brisbane in English and Mandarin, with deep experience in property and cross-border tax.
Selling a property this year — or unsure whether your residency status creates a withholding risk? Book a free 20-minute call with a Wiselink CPA. We’ll make sure your clearance certificate is sorted long before settlement. Servicing Melbourne and Brisbane.
This article is general information, not personal advice, and is current as at 16 June 2026. Withholding and CGT outcomes depend on your circumstances. Liability limited by a scheme approved under Professional Standards Legislation.
