CGT discount now limited for non-residents
If you are a foreign or temporary resident or the trustee of a foreign trust, you are subject to CGT if a CGT event happens to a CGT asset that is taxable Australian property (TAP). Under the Income Tax Assessment Act 1997 (Cth) (ITAA97) CGT assets that are taxable Australian property are:
1. taxable Australian real property;
2. indirect Australian real property interests;
3. an asset used in carrying on a business through a permanent establishment in Australia;
4. options and rights to acquire assets covered by items (1) to (3); and
5. a CGT asset that is covered by CGT event I1 (where a person chooses to disregard a gain or loss on ceasing to be an Australian resident).
Previously, individuals were eligible for the 50% CGT discount when they derived a taxable capital gain on disposal of an asset held for more than 12 months, regardless of residency. In the 2012–13 Budget, the government announced changes to the application of the CGT discount. From 8 May 2012 the full 50% discount for foreign and temporary residents is reduced. Consequently, for CGT events occurring after 8 May 2012, the application of a CGT discount percentage will depend on:
o whether the CGT asset was held before or after 8 May 2012, and
o the residency status of the individual who has the capital gain.
Thus, foreign and temporary residents are still entitled to the 50% CGT discount on capital gains accrued prior to 8 May 2012 provided that they choose to get a valuation by a registered real estate valuer for the CGT asset as at this date and use a market value calculation. They will be ineligible for the 50% CGT discount on pre-amended gains if they fail to obtain a market valuation.
Where a CGT asset acquired after 8 May 2012 by a foreign or temporary resident the discount percentage is zero provided that an individual does not change the residency status during the entire period the CGT asset was held.
If you are an Australian resident and have a period of foreign or temporary residency after 8 May 2012 the CGT discount is reduced on pro-rate basis. It is vital to consider the tax consequences under CGT event I1. Where an individual chooses to disregard a gain or loss on ceasing to be an Australian resident, all non-taxable Australian property become taxable Australian property. Disposal of these CGT assets in the future may result in lower CGT discount being available in addition to higher non-resident tax rates.
The new provisions increased the compliance burden for trustees who are required to obtain market valuation as at 8 May 2012 of all CGT assets and provide detailed distribution statements to beneficiaries.
In summary, individuals and trustees should carefully consider residency status and time of disposal of CGT assets in regard to the CGT discount eligibility. If you require assistance in this area, please contact The Quinn Group on 02 9223 9166 or submit an online enquiry.