Withholding Tax Rate for Foreign Property Sellers Has Increased: Here’s What You Need to Know

If you're a foreign resident selling property in Australia, there's a new change you need to be aware of, the Foreign Resident Capital Gains Withholding (FRCGW) tax rate has increased from 12.5% to 15%, effective from 1 January 2025.

This update could significantly impact your sale proceeds. Whether you're planning to sell soon or already have a contract in motion, here's what the new rate means for you and what you should do next.

Who Does This Affect?

This change applies to:

• Foreign residents for tax purposes selling Australian real property (residential, commercial, or vacant land)

• Property sales with a contract date on or after 1 January 2025

• Transactions valued at $750,000 or more

If you're a foreign resident and signed your contract before this date, the old 12.5% rate still applies.

Why the Increase?

The government introduced the higher rate to:

• Improve tax compliance

• Prevent capital gains tax from slipping through the cracks

• Ensure more tax is collected at the point of sale

This withholding system is designed to catch tax obligations early — before funds leave the country or are overlooked.

So, How Much Tax Will Be Withheld?

The amount that gets withheld depends on two main things:

1. The date the contract of sale was signed

2. The sale price (or market value) of the property

For contracts signed on or after 1 January 2025:

• 15% of the property’s sale price will be withheld.

For contracts signed before 1 January 2025:

• The older rate of 12.5% applies.

Example:

• You’re a foreign resident selling your investment property in Sydney.

• The contract is signed on 15 February 2025 for $1 million.

• Because it’s after 1 January 2025, 15% of the sale price must be withheld.

So the buyer will withhold $150,000 and pay it directly to the ATO. You receive $850,000 at settlement (not counting fees, of course).

Do You Lose That 15%?

Not necessarily. That withheld amount acts as a prepayment toward your capital gains tax. When you lodge your tax return:

• If the withheld amount is more than what you owe, you’ll get a refund

• If it’s less, you’ll just pay the remaining balance

So while the money is taken upfront, it isn’t lost, it’s just held until you reconcile your tax obligations.

Can You Reduce the Withholding?

In some cases, yes. You can apply to the ATO for a variation if:

• You expect to make a loss or very small gain on the property

• The default 15% is too high based on your situation

If approved, the ATO will issue a notice for the buyer to withhold a reduced amount (or none at all).

Don’t Let the New Rate Catch You Off Guard

The withholding increase may feel like a sudden hit to your sale proceeds but with the right planning, you can stay in control. At Precent, we help foreign sellers:

• Estimate how much tax will be withheld

• Apply for variations when eligible

• Lodge tax returns to claim refunds fast

Selling your property in 2025? Talk to our expert team and stay a step ahead of the new tax changes.