Australia: Foreign resident capital gains withholding regime

In brief - Foreign resident vendors, purchasers and advisers should consider impact on affected property transactions

Following the passing of the Tax and Superannuation Laws Amendment (2015 Measures No. 6) Act 2016, a new capital gains withholding tax regime came into effect on 1 July 2016. Under the new regime, purchasers of certain Australian assets from a "foreign resident" will be required to withhold and remit 10% of the total consideration to the Australian Taxation Office (ATO).

New capital gains withholding regime applies under certain conditions

The new regime aims to address the currently low tax compliance of foreign residents who dispose of real property, and interests in real property.

While protecting the integrity of the foreign resident capital gains tax (CGT) regime, the new withholding regime also applies where the disposal of such taxable Australian property by a foreign resident generates gains on revenue account and, as a result, is taxable as ordinary income, rather than as a capital gain.

In order for the new regime to apply, the following conditions must exist:

  • the asset acquired must be a relevant asset
  • the vendor of the property must be a "foreign resident", and
  • the acquisition must not be an excluded transaction

Relevant assets are taxable Australian real property, indirect Australian real property interests, and options or rights to acquire either

The new withholding regime applies to acquisitions of the following assets that are currently subject to Australian CGT on disposal by non-resident owners:

  • taxable Australian real property (TARP) which includes:
    • land, buildings and residential and commercial property in Australia
    • lease premiums paid for the grant of a lease over real property in Australia, and
    • mining, quarrying or prospecting rights (if the minerals, petroleum or quarry materials are situated in Australia)
  • an indirect Australian real property interest (IRPI), which is, broadly, an interest of 10% or more in an entity whose assets comprise more than 50% Australian real property by market value
  • an option or right to acquire TARP or an IRPI

Foreign resident status determined differently for relevant assets

In relation to TARP, any vendor will be treated as a "foreign resident" unless it provides an issued clearance certificate confirming that it is a resident. This is irrespective of whether or not the vendor is in fact a resident for tax purposes.

In the case of an IRPI and options or rights over TARP or an IRPI, a vendor is only a foreign resident:

  • if the purchaser knows or reasonably believes that the vendor is a foreign resident, or
  • if the vendor has an overseas address or provides a place for payment that is overseas

However, if the vendor provides a declaration that it is an Australian resident or that the relevant asset is not an IRPI, the new regime does not apply (provided that the purchaser does not know that declaration to be false).

In the case of joint owners, the withholding regime will apply if one owner is a foreign resident, irrespective of how many owners there might be.

Exclusions from withholding regime may apply

A transaction that results in the acquisition of an asset is excluded from the withholding regime under the Act if any of the following apply:

  • the TARP has a market value under $2 million
  • the IRPI is a company title interest and the value of company title interest is under $2 million
  • the transaction is conducted on an "approved stock exchange" or using a "crossing system"
  • the transaction is a securities lending arrangement
  • the transaction is subject to another withholding obligation
  • the foreign resident is under external administration or bankruptcy

Note that the monetary exclusions do not apply to an IRPI that is not a company title interest with the result that withholding may be required irrespective of the value of the IRPI.

Clearance certificates provide exclusion from withholding tax

The legislation contains a clearance certificate exclusion. The effect of a clearance certificate is that withholding tax is not required to be withheld from the transaction.

The vendor may apply for a clearance certificate at any time it is considering the disposal of real property. This can be before the property is listed for sale. The clearance certificate will be valid for 12 months and must be valid at the time the certificate is given to the purchaser prior to settlement.

The ATO has implemented an automated process for issuing clearance certificates. It involves:

  • the vendor (or its agent) completing an online "Foreign resident capital gains withholding clearance certificate application" form
  • the information on the application being automatically checked against the information held by the ATO to assess if the vendor should be treated as an Australian tax resident for the purposes of the transaction
  • where there are no data irregularities or exceptions that require manual processing, a clearance certificate being automatically issued. (If manual processing is required it may take 14-28 days before the certificate is issued or longer in higher risk and unusual cases)

If the vendor is unable to provide the purchaser with a clearance certificate, the purchaser must withhold 10% of the first element of the asset's cost base and pay this to the ATO. The asset's cost base will generally be the amount paid less any entitlement of the purchaser to input tax credits, but market value may be used in circumstances where:

  • no consideration was given
  • where the consideration cannot be valued, or
  • where the parties are not dealing with each other at arm's length

Variation application may be possible if vendor not entitled to clearance certificate

Where the vendor is not entitled to a clearance certificate, but a withholding of 10% is inappropriate, the vendor or other party can apply for a variation. The vendor or other party will need to complete an online "Foreign resident capital gains withholding rate variation application" form requesting a lesser withholding rate be determined by the ATO.

A variation may be sought where:

  • the transaction attracts a rollover relief or an exemption under the capital gains tax regime
  • there is no capital gain
  • the transaction is tax sheltered
  • there are multiple vendors of which only some are foreign residents, or
  • the withholding gives the ATO priority over a secured creditor (for example, where all the sale proceeds are required to extinguish the vendor's liability)

Purchaser obligations for paying and reporting withholding amounts

Where a withholding obligation exists, the purchaser must withhold the relevant amount and complete an online "Foreign resident capital gains withholding purchaser payment notification" form that provides details of the vendor, purchaser and the asset being acquired.

Once the form is received by the ATO, the purchaser will receive a payment reference number and payment slip for the withheld amount. The purchaser must pay the withheld amount on or before settlement.

If the purchaser fails to pay the withheld amount, the purchaser will be liable for that amount. Penalties may also be imposed.

Vendors, purchasers and their advisers should consider withholding regime for every affected property transaction

The introduction of the foreign resident capital gains withholding regime has widespread implications. It appears somewhat unclear why the government has decided to introduce such a broad regime that will, in many cases, not result in additional tax collections but instead simply add a layer of complexity for transactions which involve Australian real property, or shares or units in entities which hold Australian real property.

While withholding in essence may not be required in many transactions, parties and their advisers will need to consider the regime in every transaction involving affected property.

Andrew Komesaroff Carlos Gouveia
Property acquisition, development and sale Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.