Capital Gains Tax – Australian Tax Resident

Your Residency Status & CGT

Understand your residency for tax purposes and how it affects CGT on your assets.

  • Know your tax residency status
  • How your residency affects CGT
  • Selling Australian real estate

Know Your Tax Residency Status

There are 3 categories of tax residency:

  • Australian resident
  • foreign resident
  • temporary resident

It is important to check your tax residency status as the ATO do not use the same rules as the Department of Home Affairs.

What Is A CGT Event?

When you sell an asset that is subject to capital gains tax (CGT), it is called a CGT event. This is the point at which you make a capital gain or loss.

The type of CGT event that applies to your situation may affect:

  • the time when the CGT event happens
  • how to calculate your capital gain or loss

What Is Capital Gains Tax?

Capital gains tax (CGT) is the tax you pay on profits from selling assets, such as property.

You report capital gains and capital losses in your income tax return and pay tax on your capital gains. Although it is referred to as ‘capital gains tax,’ it is part of your income tax. It is not a separate tax.

Different rules apply if you:

  • sell your home
  • live abroad

When you do not pay:

  • Assets acquired before 20 September 1985 are exempt from CGT
  • Your car or motorcycle is exempt from CGT
  • Your main residence (your home) is exempt from CGT.

However, CGT may apply if:

  • you rent out part of it
  • you use it for business
  • it is on more than 2 hectares of land
  • you are a foreign resident and you do not satisfy the requirements of the life events test at the time the ‘CGT event’ happens.

Please refer to the ATO page for a full list of exempt assets

If you need to pay

  • You must report any disposal on your Individual Tax Return and pay tax along with your income tax obligations.

Ceasing To Be An Australian Tax Resident

If you cease being an Australian resident, for CGT purposes, you are taken to have disposed of each of your assets that are not considered to be taxable Australian taxable property for their market value at the time you ceased being a resident.

Choosing To Disregard Capital Gains And Capital Losses When You Cease Being An Australian Tax Resident

If you are an individual, you can choose to disregard all capital gains and capital losses you made when you stopped being a resident.

If you ceased being a resident and make this choice, the assets are taken to be taxable Australian property until the earlier of:

  • a CGT event happening to the assets (for example, their sale or disposal), or
  • you again becoming an Australian resident.

The effect of making this choice is that the increase or decrease in value of the assets from the time you cease being a resident to the time of the next CGT event, or of you again becoming a resident, is also taken into account in working out your capital gains or capital losses on those assets.

Reliefs Available To Offset Capital Gains Tax On Property

There are reliefs available for individuals to offset capital gains tax (CGT) on the sale of assets:

Capital Gains Tax Discount

If an individual has owned an asset for at least 12 months, they may be eligible for a CGT discount of 50% on the capital gain. This discount is not available for certain types of assets, such as collectables and personal use assets.

Principal Place Of Residence Exemption

If an individual sells their primary residence, they may be able to claim an exemption from CGT if they have lived in the property.

Generally, a property stops being your main residence when you stop living in it. However, for CGT purposes you can continue to treat the property as such for up to 6 years if it is used to generate an income and indefinitely if not used to generate an income.

This will only apply if you are not treating another property at the same time as your main residence. If you are, you may be able to choose which of the properties get the exemption for the period of time they overlap.

A Note On Reliefs

To qualify and apply any of the CGT reliefs that may be available to you it is recommended to seek the advice of a tax professional when considering the sale of a property.

Other CGT Reliefs Available When Selling Assets

Small Business CGT Concessions

This relief allows eligible small businesses to transfer active assets from one entity to another without incurring an income tax liability where the transfer of assets forms part of a genuine restructure.

The 4 Small Business CGT Concessions

You must meet basic eligibility conditions common to all 4 concessions;

  • small business entity with aggregated turnover less than $2 million
  • not carrying on a business (other than as a partner) but your asset is used in a closely connected small business (passively-held assets)
  • a partner in a partnership that is a small business entity, and the asset is either
    • an interest in a partnership asset
    • an asset you own that is not an interest in a partnership asset but is used in the business of the partnership.
  • you satisfy the maximum net asset value test.

CGT 15 Year Exemption

You will not pay CGT when you dispose of an active asset if you meet both of the following additional requirements

  • you are aged 55 years or older and retiring, or are permanently incapacitated.
  • You have continuously owned to asset for at least 15 years.

CGT 50% Active Asset Reduction

You will only pay tax on 50% of the capital gain when you dispose of an active asset.

The 50% active asset reduction applies if you meet the basic eligibility conditions and applies in addition to the CGT discount.

CGT Retirement Exemption

Capital gains from the disposal of active assets are exempt from CGT up to a lifetime limit of $500,000.

If you are under 55, the exemption amount from the proceeds of the disposal of the asset must to be paid into a complying superannuation fund or retirement savings account without affecting your non concessional contribution limits.

CGT Rollover

You can defer all or part of the capital gains made from a CGT event until a later year if you buy a replacement asset or improve an existing active asset.

The replacement asset can be acquired one year before and 2 years after the CGT event in the income year of which you choose the rollover.

You can apply as many of the small business CGT concessions as you are eligible for until the CGT is reduced to Nil.

Capital Gains Tax Returns & Advice For Landlords & Property Investors

GM Tax & Accounting provides specialist CGT advice to landlords and property investors. There are many factors that can be considered by landlords and investors for minimizing tax burdens and improving your tax position, our specialised team can help navigate the complexities of selling a UK property.

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