As of 1 July 2016, all Purchasers of real estate entering into Contracts of Sale with a market value of $750,000.00 or more must withhold 10% of the purchase price, unless they are provided with a Clearance Certificate (see below) by the Vendor. The new foreign capital gains tax (CGT) withholding is designed to ensure that any capital gains made by foreign residents are assessed and paid to the ATO.

If you are an Australian Resident Vendor who intends to sell real estate with a market value of $750,000.00 million or more, regardless of it being residential or commercial real estate, you must apply for a Clearance Certificate from the ATO as soon as practicable when having the intention to sell your property. This can be done before or during the listing of your property. A Clearance Certificate is valid for 12 months and is only granted to Australian residents for tax purposes.
In the event that a Clearance Certificate is not obtained, a Purchaser must withhold 10% of the purchase price and pay this to the ATO at settlement, unless the Vendor provides the Purchaser with a Variation (see below). Failure to do so will result in significant penalties. Late payments may also be subject to general interest charges.
The Clearance Certificate must contain the name of the Vendor and be valid for the requisite period of the transaction. If the Vendor holds the land as a trustee, the ATO has advised that the Clearance Certificate must be in the name of the trustee, and not the trust.
Am I entitled to a Variation?
If a Vendor is not entitled to a Clearance Certificate, but nevertheless believes a withholding of 10% is inappropriate, a Vendor can apply to the ATO for a Variation. There are several circumstances where a Variation Application may be necessary, including where a foreign resident is not making a capital gain on the transaction, not otherwise having an income tax liability, or a situation where there are multiple Vendors with only one being a foreign resident.

As from 1 July 2016, contracts must include updated Special Conditions in relation to the 10% CGT withholding, to ensure that both the Vendor and Purchaser are legally protected.