Tax Planning
Tax Planning for Residential Real-Estate: Foreign Owner CGT Withholding & Incentives
Recent changes to Foreign Resident Capital Gains Withholding and housing build-to-rent incentives offer opportunities and pitfalls for investors—this article explains what’s new and how to plan properly.
By NomadicTax Research Team • 5-8 min read • November 24, 2025
## Recent Legislative Changes for Property Investors
From **1 January 2025**, the Foreign Resident Capital Gains Withholding (FRCGW) rate increased from **12.5% to 15%**, and the **threshold was removed**, meaning all property contracts entered into on or after that date are subject to withholding based on market value unless a clearance certificate is obtained.([ato.gov.au](https://www.ato.gov.au/individuals-and-families/your-tax-return/before-you-prepare-your-tax-return/what-s-new-for-individuals?utm_source=openai))
At the same time, the government announced incentives aimed at increasing supply of housing via **build-to-rent developments**: participants can access an **accelerated deduction of 4% for eligible capital works**, along with a **concessional final withholding tax rate of 15%** on eligible fund payments referring to rental income and capital gains from the development.([ato.gov.au](https://www.ato.gov.au/about-ato/new-legislation/in-detail/businesses/multinational-tax-integrity-package-improved-tax-transparency?utm_source=openai))
## Key Planning Strategies for Investors
- **Obtain clearance certificate**: As a foreign seller, before entering contract, apply for a clearance certificate to avoid withholding; if a resident, ensure eligibility and certificate to avoid unintended withholding.
- **Timing contracts**: Contracts signed before 1 January 2025 are not subject to the new rate or removal of threshold—closing after may still preserve legacy treatment depending on contract date.
- **Structuring via eligible funds**: For build-to-rent projects, using eligible funds can deliver both accelerated deductions and concessional withholding; structure fund payment flows clearly for tax deferred or concessional treatment.
## Compliance Considerations & Recordkeeping
- Track contract signing dates exactly; market value definition should align with ATO guidance.
- Maintain clear records of capital works depreciation, fund distributions, rental income allocation.
- Ensure withholding tax obligations are correctly reported and remitted.
## Example Scenarios
**Scenario 1:** A foreign investor sells property in Sydney for $2 million under contract signed on 15 December 2024. Threshold is removed from 1 January 2025, but contract signed before change—rate still 12.5%, higher rate won’t apply. If contract signed on 5 January 2025, then 15% applies unless clearance certificate is provided.
**Scenario 2:** A developer establishes a build-to-rent fund, takes advantage of the 4% accelerated deduction. Distributions to fund investors that represent eligible rents or capital gains benefit from 15% final withholding. Must ensure fund structure matches eligibility criteria defined by legislation.
## Broader Implications for Planning
- For foreign residents and developers, the elevated risk and increased compliance obligations under FRCGW means risk of unexpected cashflow impacts at settlement.
- Build-to-rent incentives are aimed at large scale housing; small developments may not meet eligibility.
## Action Checklist for Investors
- Verify whether you are a foreign or Australian resident for tax purposes.
- Consult tax advisors before contract signing or investing in large developments.
- Apply in advance for any required certificates, structure for incentives.
- Monitor legislative and ATO guidance updates, as further clarifications and implementation rules may evolve.