As a foreign resident for tax purposes in Australia, it is important to understand the implications and application of capital gains tax (CGT) when disposing of assets.
Below, we highlight the main points to be aware of when it comes to CGT for Foreign Residents in Australia.
Regardless of your residency status, navigating CGT, and getting it right, can be complex. It’s a task best left to the professionals. Engaging expert CGT advice from experienced tax accountants like the team at The Quinn Group, will ensure that you are not only correctly meeting your CGT obligations, but also maximising the opportunity for any concessions and exemptions, and thereby potentially reducing the amount of tax that you are required to pay. Contact us by calling 1300 QUINNS (1300 784 667) or +61 2 9223 9166 or submit an online enquiry to arrange an appointment to discuss your capital gains tax enquiry.
What is Capital Gains Tax (CGT)?
In brief terms, capital gains tax refers to the tax you are required to pay on profits that are made as a result of a CGT event. The disposal of an asset, such as property, shares and crypto currency are examples of instances that may trigger a CGT event and result in a capital gain.
There is no separate tax on capital gains, it is a component of your income tax. You are required to include any capital gains (or losses) in your annual income tax return and are therefore taxed on your net capital gain at your marginal tax rate.
There are a number of CGT exemptions and concessions that taxpayers may be eligible for. Additionally, CGT applications can differ depending on the tax residency status of the individuals involved in the CGT event.
Australian Tax Residency Status
In Australia, there are 3 categories of tax residency.
- Australian Resident
- Foreign Resident
- Temporary Resident
It is important to note that in some cases your tax residency status may be different to your residency status as determined by the Department of Home Affairs.
For example:
- You can be an Australian resident for tax purposes without being an Australian citizen or permanent resident, or
- You may have a visa to enter Australia but are not an Australian resident for tax purposes.
Note: any reference to residency in this article refers to tax residency.
Tax Residency & CGT: Key Points
As mentioned above, CGT can be complex, and it becomes even more so when considering residency status.
Here’s a quick overview of the main points to be aware of when it comes to the effects of tax residency on CGT. We’ll go into more detail for a few of these below.
- Foreign and temporary residents are subject to CGT only on taxable Australian property, such as real estate in Australia and assets used to carry on a business in Australia.
- The 50% CGT discount is generally not available to foreign and temporary residents for assets acquired after 8 May 2012.
- Foreign residents are not entitled to the main residence exemption, unless they satisfy the requirements of the life events test.
- If you become an Australian resident, or stop being one, the assets on which you pay CGT in Australia will change.
- Assets you acquired before CGT started on 20 September 1985 are not subject to CGT.
- Foreign residents who sell Australian real estate may be required to pay foreign resident capital gains tax withholding (FRCGW).
CGT Main Residence Exemption for Foreign Residents
As a foreign resident, it is unlikely that you will be entitled to claim the main residence exemption (that is available to Australian residents) for capital gains tax on property that is sold after 30 June 2020.
For properties sold after that date, the only exception to access the exemption is if you satisfy the requirements of the life events test.
For properties acquired before 7:30pm on 9 May 2017 and disposed of by 30 June 2020, foreign residents are able to claim the main residence exemption, provided that they also meet the general requirements for the exemption.
CGT Discount for Foreign Residents
In addition to the CGT exemption, there is also eligibility for the 50% capital gains tax discount for foreign residents to be considered.
There are separate applications, depending on whether the assets were acquired on or before, or after, 8 May 2012.
If the asset was purchased:
- after 8 May 2012, and you remain a foreign or temporary resident for the entirety of ownership, you aren’t entitled to any CGT discount when you sell the asset.
- on or before 8 May 2012, you may apply a discount to your capital gain using one of two methods. If both apply, you can choose which one to use.
- If you had a period of Australian residency after 8 May 2012, you may pro rata the discount for the number of days you were an Australian resident after 8 May 2012.
- If you were a foreign resident or temporary resident on 8 May 2012, you can use the market value method to calculate your discount instead of the pro rata method.
Other CGT Considerations for Foreign Residents
If you are a foreign resident selling Australian real estate worth more than $750,000, the buyer of your property must withhold 12.5% of the purchase price and submit it to the Australian Tax Office (ATO) on your behalf.
This is called foreign resident capital gains withholding and you can claim it back when you lodge your Australian tax return.
A foreign resident can apply for a reduction in the rate of foreign resident capital gains withholding on the sale of certain taxable Australian property (the asset) by completing a variation form. It provides the details of the vendor, the asset, and the reason for a variation.
Expert CGT Advice for Foreign Residents
As we’ve already said, navigating CGT can be complex. Be sure to seek expert CGT advice from experienced tax accountants at the team at The Quinn Group, to ensure that you are correctly meeting your CGT obligations, maximising concessions and exemptions, and potentially reducing the amount of tax that you are required to pay.
Contact us by calling 1300 QUINNS (1300 784 667) or +61 2 9223 9166 or submit an online enquiry to arrange an appointment to discuss your capital gains tax enquiry.
