It is a fair question. It is also one of the most common questions vendors ask us.
The short answer is this: under the current foreign resident capital gains withholding (FRCGW) regime, the law effectively assumes withholding may be required unless the vendor proves otherwise.
The good news is that this is usually straightforward. However, it must be dealt with every time you sell real estate in Victoria.
What Is This All About?
The requirement comes from the Commonwealth foreign resident capital gains withholding (FRCGW) regime under Subdivision 14-D of Schedule 1 to the Taxation Administration Act 1953 (Cth).
This is Federal tax law, not Victorian conveyancing legislation. Nevertheless, it has become part of virtually every Victorian property transaction.
Victorian contracts commonly require the vendor to confirm they are not a foreign resident for tax purposes and to provide an ATO Clearance Certificate before settlement.
In simple terms, if you provide the certificate, the purchaser does not withhold part of your sale proceeds.
What Does the Clearance Certificate Actually Do?
A Clearance Certificate confirms that, for FRCGW purposes, the Australian Taxation Office has no reason to believe the vendor is, or will become, a foreign resident during the certificate period.
It is not:
- A citizenship certificate.
- Proof of where you were born.
- A character reference.
It simply tells the purchaser they do not need to withhold part of the sale price.
Practical effect:
- Certificate provided before settlement: No withholding applies.
- No certificate provided: The purchaser must withhold the required amount and remit it to the ATO, even if you are an Australian citizen.
This is where many people are caught out. The law does not ask whether you are Australian, it asks whether the purchaser has received the required certificate.
Why Is Everyone Suddenly Talking About This?
The rules changed on 1 January 2025.
Two significant changes were introduced:
- The withholding rate increased to 15%.
- The previous $750,000 threshold was removed.
As a result, the regime now applies to virtually every sale of Australian real property, including:
- Residential property
- Commercial property
- Vacant land
- Other Australian real property interests
Properties that previously fell below the threshold are now also subject to the requirement.
Tax Residency Is Not the Same as Nationality
This is one of the biggest misconceptions.
The relevant question is not:
- Whether you are an Australian citizen.
- Whether you hold an Australian passport.
- Where you were born.
The only relevant question is your tax residency.
Tax residency is different from:
- Citizenship
- Immigration residency
- Permanent residency
- Social security residency
An Australian citizen living overseas for an extended period may still be treated as a foreign resident for tax purposes.
Why Does the Law Make Vendors “Prove” It?
The FRCGW regime exists to ensure foreign resident vendors meet their Australian capital gains tax obligations.
Rather than requiring purchasers to investigate every vendor’s tax status, the law creates a simple process:
- Clearance Certificate provided → No withholding.
- No Clearance Certificate → Withholding applies.
- Foreign resident vendor → Apply for a variation notice where appropriate.
While many Australians feel they are being asked to prove a negative, that is effectively how the legislation operates.
When Should You Apply?
The certificate must be provided at or before settlement.
The ATO recommends applying as soon as you are considering selling because processing can take up to 28 days.
The good news:
- Applications are free.
- Certificates are generally valid for 12 months, provided your residency status does not change.
Applying early helps avoid unnecessary delays at settlement.
Who Has to Apply?
Every legal owner listed on title must obtain their own Clearance Certificate.
For example:
- Each registered proprietor needs their own certificate.
- There is no joint application.
- Husband and wife owners each require separate certificates.
- Companies apply in the company name.
- Trustees and executors must apply in the correct legal capacity.
If only one owner fails to provide a certificate, withholding may still apply to that owner’s share of the proceeds.
The Cost of Getting It Wrong
Consider an $800,000 property sale.
Without a Clearance Certificate:
$800,000 × 15% = $120,000
The purchaser must withhold $120,000 and pay it to the ATO.
The withholding is calculated before normal settlement adjustments such as:
- Council rates
- Water rates
- Owners corporation levies
- Other settlement adjustments
Australian residents can usually recover the money later through their tax return, but this can significantly affect cash flow during settlement.
Why the Purchaser Will Not Usually Take the Risk
The legal obligation rests with the purchaser.
If they fail to withhold when required, they may face penalties and interest from the ATO.
For this reason, purchasers and their lawyers almost always insist on receiving a valid Clearance Certificate before settlement.
What If the Vendor Really Is a Foreign Resident?
Foreign residents cannot obtain a Clearance Certificate.
Instead, they may apply for a Variation Notice, asking the ATO to reduce the withholding amount where the standard 15% exceeds the expected Australian tax liability.
This should be arranged well before settlement.
The Takeaway
Since 1 January 2025, Clearance Certificates have become a routine requirement for virtually every Victorian property sale.
Remember to:
- Apply early.
- Ensure every registered owner has their own certificate.
- Provide the certificate before settlement.
- Do not assume Australian citizenship alone is sufficient.
Once the certificate is obtained, the issue is usually resolved without complication.
How Burns & Tinney Can Assist
Burns & Tinney assists Victorian vendors with obtaining the appropriate FRCGW Clearance Certificates before settlement.
We ensure certificates are obtained in the correct names and legal capacities, allowing settlements to proceed without unnecessary withholding.
If you are planning to sell, or your property is already on the market, contact our office to discuss your circumstances.
