Foreign Resident Capital Gains Withholding for Developers

Since 1 January 2025, foreign resident capital gains withholding (FRCGW) applies to effectively every sale of Australian real property, at 15% of the price, with no minimum value. The old $750,000 threshold is gone. A rule that most developers filed under “foreign-investor problem” now touches almost every settlement, including sales between two Australian residents.

For a developer, the real issue is usually not the tax. It is cashflow and paperwork. On any sale of taxable Australian real property, the purchaser must withhold 15% of the gross price and pay it to the Australian Taxation Office (ATO), unless you, the vendor, give them a valid clearance certificate at or before settlement. Hand over the certificate and nothing is withheld. Miss it, and 15% of your proceeds is held by the Australian Taxation Office (ATO) until your next income tax return is lodged and processed, which can be many months after the cash was meant to fund the next stage or the next deal.

This guide is written for the developer selling completed stock, selling a site, or buying one, who needs to know when the withholding bites, how the clearance certificate works, what the 15% is calculated on, and where it lands in a feasibility. It covers the position for Australian-resident and foreign-resident vendors, the separate Goods and Services Tax (GST) withholding that hits the same settlement, the state picture, and the New Zealand equivalent. None of it is tax advice. The treatment turns on your facts and your structure, so use it to frame the questions you take to your accountant or conveyancer.

What is foreign resident capital gains withholding, and why does it now touch every deal?

Foreign resident capital gains withholding (FRCGW) is a non-final withholding tax collected at settlement when Australian real property changes hands. The purchaser withholds a set percentage of the price and pays it to the Australian Taxation Office (ATO) as a prepayment against the vendor’s tax on the sale. The vendor later claims it back as a credit in their tax return. It is not an extra tax on the deal, and for most developers it is not an extra cost. It is a timing mechanism the government uses to make sure tax on Australian property gains is collected before the money can leave the country.

The reason it now touches every deal is the 1 January 2025 change. According to the Australian Taxation Office (ATO) guidance on how the withholding works, the rate rose to 15% and the value threshold was removed for contracts signed on or after that date. Before then, the withholding only applied to property valued at $750,000 or more, which quietly exempted a lot of smaller lots and units. Now there is no floor.

The rate that applies is fixed by the date the contract is signed, not the settlement date:

The mechanism is the important part. Because the withholding falls on every sale by default, the system works in reverse from what most people expect: the purchaser is required to withhold unless the vendor proves they do not have to. An Australian-resident vendor proves it with a clearance certificate. A foreign-resident vendor reduces or removes it with a variation notice. No document, full 15% withheld. The 15% increase came through the Treasury Laws Amendment (2024 Tax and Other Measures No. 1) Act, and the operative rules sit in Schedule 1 to the Taxation Administration Act 1953.

Does the withholding apply to me if I’m an Australian developer?

Yes, the withholding regime applies to your sale, but as an Australian resident with a clearance certificate you have nothing withheld. The certificate is what tells the purchaser to pay you the full price. So in practice, for an Australian-resident developer, this is an administrative step rather than a cost, provided the certificate is in hand before settlement.

Two points catch developers out. The first is that the withholding applies regardless of how your profit is taxed. Most developers sell on revenue account, so their profit is ordinary income taxed as trading stock rather than a capital gain, a distinction worked through in the guide to income tax on development profit and the guide to capital gains tax on property development. The name of the withholding says “capital gains”, but it does not care whether your gain is capital or revenue. It attaches to the disposal of taxable Australian real property, full stop. A developer selling finished apartments as trading stock still needs a clearance certificate, the same as a mum-and-dad vendor selling the family home.

The second is residency of the selling entity. The test is tax residency, not who owns the entity. A company incorporated in Australia is generally an Australian resident for tax purposes, so an Australian-incorporated special purpose vehicle (SPV) can usually obtain a clearance certificate even where its shareholders sit offshore. The Australian Taxation Office (ATO) residency tests for companies, trusts and partnerships set out how this is worked out. It is worth confirming early in a foreign-backed structure, because the entity on the certificate of title is the entity that must clear the withholding, and a genuinely foreign-resident vendor cannot get a clearance certificate at all.

How does the clearance certificate work, and when should I apply?

Apply for a clearance certificate the day you start thinking about selling, not the week of settlement. It is free, you do not need a signed contract to apply, and the Australian Taxation Office (ATO) guidance for Australian residents and clearance certificates confirms a certificate is valid for 12 months from the date of issue and can cover more than one sale in that window. For a developer settling a staged project across a year, a single certificate can generally carry every lot that settles inside its validity period.

The timing risk is the processing queue. Most certificates issue within a few days, but some take up to 28 days, and the Australian Taxation Office (ATO) recommends lodging at least 28 days before settlement. Processing tends to take longer where recent income tax returns are outstanding, where residency is not clear cut, or where the ownership sits in a complex structure. For an active developer with several entities, that is exactly the profile that can slow an application down, which is another reason to lodge early rather than treat it as a settlement-week task.

A few mechanics matter for the way developers hold property:

• The first and last names (or the entity name) on the certificate must match the certificate of title. A mismatch is one of the most common reasons a purchaser rejects a certificate at settlement.
• The certificate is issued to whoever holds legal title. For a trust, the trustee applies in its own capacity as a company or individual, using its Tax File Number (TFN) or Australian Business Number (ABN). For a consolidated group, the Australian Taxation Office (ATO) issues the certificate to the head company with members listed as an attachment.
• Off-the-plan sales can outrun a 12-month certificate. Where a contract period runs longer than the certificate, the purchaser can generally rely on it as long as it was valid at the point it was given to them and its period overlaps the transaction. Even so, aligning certificate timing with a long settlement is worth a conversation with your conveyancer.

What happens if I don’t have the certificate at settlement?

If an Australian-resident vendor does not give a valid clearance certificate at or before settlement, the purchaser must withhold 15% of the sale price and pay it to the Australian Taxation Office (ATO), even though you were fully entitled to a certificate and simply did not get one in time. There is no discretion at the settlement table. The money goes to the Australian Taxation Office (ATO), and you recover it later.

To adapt the Australian Taxation Office (ATO) worked example: a vendor sells for $600,000 with a 30-day settlement, applies late, and the certificate has not issued by settlement day. The purchaser withholds 15%, which is $90,000, and pays it to the Australian Taxation Office (ATO). The vendor cannot touch that $90,000 until they lodge the tax return for the year the contract was signed and it is processed, and any refund is only paid after the return is assessed. If settlement is in July, that wait can stretch most of a year. The withholding is fully creditable, so it is not lost, but the cash is stuck at precisely the moment a developer usually needs it to reduce debt or roll into the next site.

Who applies when the vendor is a company or trust?

The entity that holds legal title to the property is the entity that applies, using its own Tax File Number (TFN) or Australian Business Number (ABN). Where a corporate trustee holds the land, the trustee applies in its own name and attaches the trust details if it has no Tax File Number (TFN) of its own. Where a development sits inside a tax-consolidated group, the head company obtains one certificate covering the listed members, so it pays to make sure group membership on the Australian Taxation Office (ATO) record is current before you apply. Getting the applicant entity right the first time avoids a name-mismatch rejection at settlement, which is the failure mode most likely to trap your proceeds.

What is the 15% actually calculated on?

The withholding is calculated on the sale price stated in the contract, or on market value where the sale is not at arm’s length, and it is worked out before any settlement adjustments. The Australian Taxation Office (ATO) guidance on paying the withholding is explicit that the purchaser withholds on the gross price before adjustments for council rates, water and sewerage charges, or strata levies. So the 15% is a percentage of the headline number in the contract, not the net figure that changes hands after adjustments.

Where a sale is between related parties or otherwise not at arm’s length, the withholding is calculated on market value rather than the stated price, and the purchaser may need an independent valuation. The Australian Taxation Office (ATO) guidance on market valuation sets out when a professional valuation is expected. For a developer selling to a related entity, for example moving stock between group companies, this is worth pricing in early, because a defensible valuation takes time and cost.

There is a Goods and Services Tax (GST) wrinkle that matters for commercial and new residential stock. Where the sale is a taxable supply and the purchaser is registered for GST and entitled to an input tax credit, the withholding can generally be worked out on the GST-exclusive amount rather than the GST-inclusive price. Where the sale is input taxed, as an established residential sale is, there is no such reduction and the gross price is used. The interaction is fiddly, and it sits alongside a completely separate withholding, covered next, so it is one to confirm with your adviser on any GST-registered sale.

Foreign resident capital gains withholding (FRCGW) is not GST at settlement

These are two different withholdings, and both can hit the same developer settlement. Confusing them is the most common mistake on new residential stock. Foreign resident capital gains withholding (FRCGW) is about the vendor’s income tax and is removed by a clearance certificate. GST at settlement is about the Goods and Services Tax (GST) on the supply and has nothing to do with residency.

Under the Australian Taxation Office (ATO) rules for GST at settlement, a purchaser of new residential premises or potential residential land must withhold the Goods and Services Tax (GST) component and pay it to the Australian Taxation Office (ATO) at settlement. That amount is generally 1/11th of the contract price, or 7% of the contract price where the margin scheme applies. The developer as vendor still accounts for the Goods and Services Tax (GST) in the usual way and credits the amount already withheld. How the margin scheme changes the sum is worked through in the complete guide to GST on property development.

So on a single sale of a new apartment to an owner-occupier, a developer can face both regimes at once: the purchaser withholds the Goods and Services Tax (GST) at settlement, and separately must withhold 15% for foreign resident capital gains withholding (FRCGW) unless the developer produces a clearance certificate. The two are notified and paid separately. Keeping them distinct in your settlement statements, and in your feasibility, avoids double-counting one or missing the other.

What if the vendor is a foreign resident? Variations and the real tax

A genuinely foreign-resident vendor cannot get a clearance certificate and faces the full 15%, but can apply for a variation notice to reduce the rate where 15% of the gross price is more than the actual Australian tax on the sale. The Australian Taxation Office (ATO) guidance on foreign residents and variations sets a rate anywhere from 0% to 14.99%, depending on the numbers in the application.

For a developer, the variation is where the real money sits, because 15% of gross proceeds can dwarf the tax on a thin development margin. Consider a foreign-resident entity selling completed stock for $5,000,000 on a project where the actual taxable profit is $600,000. The default withholding is 15% of $5,000,000, which is $750,000. The tax on the profit, even at a company rate, is a fraction of that. Without a variation, the developer hands over $750,000 at settlement and waits until the tax return is assessed to recover the difference. With a variation notice granted before settlement, the withholding can be brought down close to the real liability. Grounds for a variation include a capital loss or rollover, a reduced income tax liability, or a mortgage over the property where the sale proceeds will not cover both the withholding and the secured debt.

Three practical constraints apply. A variation takes up to 28 days to process, so it has to be lodged as soon as the contract is signed. Each vendor on a jointly owned property applies for their own certificate or variation according to their own residency. And a variation is capped at a maximum sale price: if the final price comes in above the figure stated in the variation, the notice does not apply and the purchaser must withhold the full 15%. One more point that catches expatriate developers selling former homes: foreign residents generally cannot claim the main residence exemption, subject to a narrow life-events test, per the Australian Taxation Office (ATO) guidance on the main residence exemption for foreign residents.

Where does the withholding actually land in a feasibility?

The withholding is not a cost to the project, it is a cash-timing event, so it belongs in your cashflow, not your profit and loss. Because the amount is fully creditable against the vendor’s tax, it never reduces the project’s profit. What it can do is trap up to 15% of gross proceeds from the moment of settlement until a tax return is lodged and processed, and that gap is where it bites. On a project funded to a tight peak, cash that is meant to arrive at settlement and pay down the facility instead sits with the Australian Taxation Office (ATO) for months.

For an Australian-resident developer with a clearance certificate in hand, this is a non-event: nothing is withheld and the modelled proceeds equal the banked proceeds. The risk case is the missed certificate or the foreign-resident vendor without a variation, where a chunk of the settlement cash disappears from the timeline. A feasibility model that schedules each lot’s revenue at its settlement month, which is how development cashflow modelling is built, will only match the cash you actually receive if the certificate or variation is sorted before settlement. Feasly schedules revenue at each lot’s settlement month and shows the resulting funding position, so you can see the month a trapped 15% would land, though like stamp duty the platform does not calculate the withholding itself; that figure comes from your adviser and sits outside the model. If a delayed refund would push your peak funding exposure past your facility limit, that is a financing problem worth catching before settlement, not after.

Options are also caught, which surprises developers who use them to control a site. The grant and exercise of options over land, where they are not listed on a stock exchange, fall within taxable Australian real property for these purposes, so a put and call option transaction with a foreign-resident counterparty can trigger the withholding. Leases over real property, and mining, quarrying or prospecting rights, are caught too. If your deal structure touches any of these with an offshore party, flag the withholding early.

Who pays it to the Australian Taxation Office (ATO), and what happens if the purchaser gets it wrong?

The purchaser withholds and remits the money, and the purchaser wears the penalty if they fail to. If you are buying a development site, the obligation is yours, not the vendor’s. The Australian Taxation Office (ATO) guidance on paying the withholding sets out the process: the purchaser completes an online Purchaser Payment Notification (PPN) form, receives a payment reference number (PRN), and pays the withheld amount to the Australian Taxation Office (ATO) at or before settlement.

The consequences for getting it wrong sit with the buyer. A purchaser who fails to withhold when required can face a penalty equal to the amount they failed to withhold, or 10 penalty units, and a general interest charge (GIC) can accrue from the settlement date on amounts withheld but not paid. There is one protection: a purchaser who relies in good faith on a clearance certificate that the Australian Taxation Office (ATO) later withdraws is not penalised for not withholding. That is precisely why buyers insist on seeing a valid certificate, and why a vendor who cannot produce one should expect the buyer to withhold rather than take the risk.

What should I do when I’m buying a site from a foreign resident?

Withhold the 15%, remit it, and deal with the certificate or variation in the contract, because as the purchaser you carry the obligation and the penalty. When you acquire a development site from a foreign-resident vendor, plan on the assumption that 15% of the price goes to the Australian Taxation Office (ATO) at settlement unless the vendor gives you a valid variation notice reducing the rate. Build that into the settlement statement and your acquisition funding, so you are not caught short on the day.

A few contract-stage habits reduce the risk:

• Make the vendor’s clearance certificate or variation notice a condition of settlement, so a missing document is the vendor’s problem to solve, not yours to absorb.
• Lodge the Purchaser Payment Notification (PPN) form early to get your payment reference number (PRN) before settlement, rather than scrambling on the day.
• Check the certificate or variation is valid: names match the title, it has not expired, and, for a variation, the sale price does not exceed the maximum stated on the notice.
• Remember the withholding is on the gross price before adjustments, so calculate it on the contract figure, not the net settlement figure.

Getting this right protects you from a penalty and from the awkward position of having paid the full price to a vendor and still owing the Australian Taxation Office (ATO) the withholding.

How does this work across states and territories?

It does not vary by state. Foreign resident capital gains withholding (FRCGW) is a Commonwealth regime administered by the Australian Taxation Office (ATO), so the 15% rate, the clearance certificate process, and the variation rules are identical in New South Wales, Victoria, Queensland, South Australia, Western Australia, Tasmania, the Australian Capital Territory and the Northern Territory. There is no state-based version of this withholding to track.

What does vary by state is a separate set of foreign-owner imposts that are easy to confuse with it. Surcharge purchaser duty and surcharge land tax are state taxes on foreign persons acquiring or holding residential land, and they differ markedly between states in rate, scope and available exemptions. Those are genuine costs to a foreign-backed project, unlike the withholding, which is a creditable prepayment. They are a distinct topic and are levied by each state revenue office rather than the Australian Taxation Office (ATO), so treat them separately in your feasibility and do not net one against the other.

What about New Zealand? Residential land withholding tax

New Zealand’s equivalent is residential land withholding tax (RLWT), and it works on a similar logic: a withholding at the point of sale to capture tax from offshore vendors before the money leaves the country. It applies where an offshore person sells residential land inside the bright-line period, which the guide to the New Zealand bright-line test covers in full. The bright-line period reset to two years from 1 July 2024, so residential land sold within two years of acquisition is the main trigger.

Under Inland Revenue guidance on residential land withholding tax, the vendor’s conveyancer or solicitor generally deducts the tax at settlement, at the lower of 10% of the total purchase price or a gain-based rate, which is generally 39% for most individual and trustee vendors and 28% for companies. Who counts as an offshore person is set out in the Inland Revenue guidance on offshore people who pay residential land withholding tax: for a company, more than 25% of directors or shareholder decision-making rights held by offshore persons is enough, with similar 25% tests for trusts, look-through companies and limited partnerships. A New Zealand development entity with meaningful offshore ownership can therefore be caught, so it is worth checking the ownership tests before a sale settles.

Are there changes on the horizon developers should watch?

Yes, a broader package has been proposed, though as of mid-2026 the main measures are not yet law. The government’s consultation on strengthening the foreign resident capital gains tax regime proposed clarifying and broadening the assets a foreign resident is taxed on, changing the principal asset test from a point-in-time test to a 365-day testing period, and adding a requirement for foreign residents to notify the Australian Taxation Office (ATO) before disposing of certain high-value indirect interests. These measures were proposed to start from 1 July 2025 but have been deferred, and the start date should be confirmed against the current position before you rely on them.

For most developers, this package matters less than the 15% withholding already in force, because it is aimed largely at disposals of interests in land-rich entities rather than straightforward sales of land. If your structure involves selling shares or units in an entity whose value comes mainly from Australian property, it is worth watching, because the notification requirement and the wider asset net could change how a future exit is taxed and reported. For a developer simply selling lots or a completed building, the clearance certificate remains the thing to get right.

A practical pre-settlement checklist

The whole regime comes down to having the right document in the right hand before settlement. For a developer selling, that means the clearance certificate or variation. For a developer buying, it means confirming that document exists and withholding if it does not.

If you are the vendor:

• Apply for a clearance certificate as soon as you decide to sell, using the entity that holds legal title, and confirm the name matches the certificate of title.
• Check whether one 12-month certificate can cover a staged settlement program, and diarise the expiry against your longest settlement.
• If the selling entity is a foreign resident, model whether 15% of the gross price exceeds the real tax, and lodge a variation the day the contract is signed if it does.

If you are the purchaser:

• Make the vendor’s clearance certificate or variation a condition of settlement.
• Lodge the Purchaser Payment Notification (PPN) form early and hold the payment reference number (PRN) ready for settlement day.
• Withhold on the gross contract price before adjustments, and keep the foreign resident capital gains withholding (FRCGW) separate from any Goods and Services Tax (GST) withheld at settlement.

Sort the paperwork early, model the settlement timing rather than the profit, and the withholding stays what it is meant to be: a formality, not a hole in your cashflow. Because the position turns on your residency, your structure and your contract, confirm the detail with your accountant or conveyancer before you sign. This guide is general information, not tax or legal advice.