Non-Resident Withholding Tax, CGT Exemptions, and Land Tax Surcharges: The Complete Australian Property Tax Guide for Expats in 2026
TL;DR
- Non-resident withholding tax australia rules require buyers to withhold 15% of the purchase price when buying property from a foreign resident vendor (for contracts on properties valued at $750,000 or more, subject to current ATO thresholds).
- The main residence exemption non-resident rules changed significantly in 2020. Most foreign residents are no longer eligible for the full CGT exemption on their Australian home.
- Land tax surcharges apply in most Australian states on top of standard land tax, and rates vary significantly by jurisdiction.
- Australian expat property tax obligations span federal CGT rules, state-level land tax, and foreign resident withholding regimes — all running simultaneously.
- Individual circumstances, residency status, and timing all affect tax outcomes. Always seek professional tax advice specific to your situation.
What Is Non-Resident Withholding Tax in Australia?
Foreign resident capital gains withholding (FRCGW) is a federal tax mechanism where the buyer of an Australian property withholds a percentage of the purchase price and remits it directly to the ATO when the vendor is a foreign resident.
Key facts for 2025-2026:
- The withholding rate is 15% of the purchase price (not the gain — the full contract price)
- Applies to residential and commercial properties above the relevant ATO threshold
- The vendor can apply for a variation if the 15% rate overstates their actual tax liability
- Australian resident vendors avoid this by providing a clearance certificate from the ATO before settlement
The mechanism exists because collecting CGT from foreign residents after they have left Australia is difficult. As noted in academic analysis published through the University of British Columbia, different countries have grappled with exactly this challenge: how to effectively administer capital gains tax when the vendor is non-resident at the time of sale.
Practical implication for expats selling: If you are an Australian citizen living overseas and you sell your Australian property, the buyer’s solicitor will likely withhold 15% of the purchase price at settlement unless you obtain an ATO clearance certificate in advance. This is not a penalty. It is a collection mechanism. But without advance planning, it creates a significant cash flow gap at settlement.
Has the Main Residence Exemption Changed for Non-Residents?
Yes. This is one of the most consequential and least understood changes in recent Australian expat property tax law.
The main residence exemption non-resident rules were amended with effect from 9 May 2017 (with a transitional period ending 30 June 2020). As analysed in research from the University of Western Australia, Australia shifted to limiting income tax liability for non-residents on capital gains to land-related assets, tightening the availability of exemptions for foreign residents.
What the current rules mean in practice:
| Scenario | CGT Exemption Available? |
|---|---|
| Australian resident selling their main home | Yes, full exemption typically available |
| Foreign resident selling a property they once lived in | Generally no (post-2020 rules) |
| Foreign resident with “life events” exception (terminal illness, death, divorce) | Limited exemption may apply under specific conditions |
| Foreign resident selling an investment property | No main residence exemption |
The “life events” exception is narrow. It applies in very specific circumstances and is subject to strict time limits. It is not a general fallback.
Why this matters for expats planning to return: Many Australians who moved overseas kept their family home with the intention of moving back in. Under the old rules, the main residence exemption could apply across the full ownership period. Under current rules, if you are a foreign resident at the time of sale, your exemption eligibility is significantly curtailed regardless of how long you previously lived in the property.
Parliamentary committee analysis from the Australian Parliament’s Senate Economics Committee confirmed the significant policy shift these measures represent, with submissions debating the impact on Australians living temporarily overseas.
How Do Land Tax Surcharges Work for Foreign Owners?
Land tax in Australia is a state and territory tax applied annually on the unimproved value of land you own. Foreign owners face a surcharge on top of the standard land tax rate in most jurisdictions.
Approximate surcharge rates by state (subject to change and individual assessment):
- New South Wales: 4% surcharge land tax for foreign persons (confirm current rate with Revenue NSW)
- Victoria: 4% absentee owner surcharge (confirm with State Revenue Office VIC)
- Queensland: 3% foreign surcharge (confirm with Queensland Revenue Office)
- South Australia: 0.5% surcharge on foreign owners (confirm with RevenueSA)
These rates are indicative only. They are subject to legislative change and individual assessment. Always verify current rates with the relevant state revenue authority or a registered tax agent.
Critical point: You can be an Australian citizen and still be classified as a “foreign person” for land tax surcharge purposes in some states if you are not ordinarily resident in Australia. The definitions vary by state. Assuming citizenship exempts you from surcharges is a common and costly mistake.
What Are the Federal CGT Rules for Foreign Residents Selling Australian Property?
Under Australian federal law, foreign residents are only subject to CGT on assets classified as taxable Australian property. This primarily means:
- Direct interests in Australian real property
- Indirect interests in land-rich companies or trusts
- Business assets of an Australian permanent establishment
Foreign residents do not pay Australian CGT on shares in ordinary Australian companies or other non-land assets (unless those assets meet the land-rich test). This is consistent with the principle noted in IMF analysis of capital gains taxation in developing and developed economies: most countries limit non-resident CGT liability to land and related assets.
For the 2025-2026 financial year, the applicable CGT discount for foreign residents on Australian real property is 0% (the 50% general discount available to Australian resident individuals does not apply to foreign residents). This applies to gains accrued on or after 8 May 2012.
Frequently Asked Questions
Do I need a clearance certificate if I am an Australian citizen living overseas?
If you are selling Australian property and you are a foreign resident for tax purposes at the time of sale, you are subject to the withholding regime. Citizenship does not determine tax residency. Apply for a clearance certificate or variation through the ATO to avoid 15% being withheld at settlement.
Can I still claim the main residence exemption if I move back to Australia before selling?
If you re-establish Australian tax residency before the sale and meet the relevant conditions, your eligibility may be affected by the period you were a foreign resident. This is a highly fact-specific question requiring professional advice.
What is the difference between foreign resident withholding tax and CGT?
The withholding is a payment mechanism — an advance collection of anticipated CGT. Your actual CGT liability is calculated when you lodge your tax return. If the withholding exceeds your actual tax, you receive a refund.
Are there any exemptions to the land tax surcharge?
Some states provide exemptions for principal places of residence, certain trust structures, or bilateral tax treaty arrangements. These are jurisdiction-specific and change over time. Confirm with the relevant state revenue office.
Does FIRB approval affect my tax obligations?
FIRB approval and tax obligations are separate frameworks. Being approved by FIRB does not reduce your land tax surcharge liability or CGT obligations.
If I own property jointly with an Australian resident spouse, do surcharges apply?
In some states, surcharges can apply to the foreign person’s ownership interest even in a joint ownership arrangement. The rules vary by jurisdiction.
Where do I start if I am unsure of my residency status for tax purposes?
Your tax residency status is determined by the ATO’s residency tests, not your visa or citizenship. The ATO publishes guidance, but residency determination can be complex for expats. Engaging a registered tax agent with non-resident experience is the recommended starting point.
About ODIN Mortgage
ODIN Mortgage is Australia’s specialist mortgage brokerage for Australian citizens, permanent residents, and foreign investors living overseas. Regulated under ASIC and the National Consumer Credit Protection Act (NCCP), ODIN Mortgage provides expat clients with access to 40+ Australian lenders, proprietary foreign income lender data, and end-to-end remote settlement support. As part of ODIN (alongside Odin Tax), ODIN Mortgage coordinates mortgage structuring with tax planning from day one — so clients are not left managing two firms that never talk to each other. ODIN Mortgage has served 2,300+ Australian expats across 40+ countries and holds a 4.9/5 Google rating from 400+ verified reviews. Winner, Best Boutique Non-Franchise Office, Better Business Awards 2024.
Disclaimer: This article contains general information only. It does not constitute personal tax, legal, or credit advice. Tax rules, rates, and thresholds are subject to change. Your individual circumstances, residency status, and lender policy will affect outcomes. Always consult a registered tax agent and a licensed mortgage broker before making financial decisions.
Ready to understand how your tax position interacts with your borrowing strategy? The ODIN team combines mortgage and tax expertise specifically for Australians overseas. Visit www.odinmortgage.com to book a assessment with a specialist who understands your situation from both sides of the transaction.
References
- Commons Allard UBC. Taxation of Non-Residents’ Capital Gains. https://commons.allard.ubc.ca/cgi/viewcontent.cgi?article=1740&context=fac_pubs
- IMF eLibrary. Taxation of Capital Gains in Developing Countries. https://www.elibrary.imf.org/downloadpdf/journals/024/1968/002/article-A006-en.pdf
- UWA Research Repository. Non-residents and capital gains tax in Australia. https://research-repository.uwa.edu.au/en/publications/non-residents-and-capital-gains-tax-in-australia/
- Parliament of Australia. Chapter 2 — Senate Economics Committee: Housing and Foreign CGT. https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/HousingandforeignCGT/Report/c02
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