GM Tax

Capital Gains Tax - Australian Non Resident Selling Property

Your residency status and CGT

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

 

The FRCGW tax rate is 12.5%.

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.

How your residency affects CGT

It is the vendor’s responsibility to obtain the clearance certificate and provide it to the purchaser at or before settlement.   

Without a valid clearance certificate, the purchaser will be required to remit 12.5% of the purchase price to the ATO.

How to apply

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.

If you become an Australian resident, or stop being one, this is a CGT event and the assets on which you pay CGT in Australia will change.

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.  A full list of CGT available from the ATO website.

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 chargeable to CGT

Foreign and temporary residents are subject to capital gains tax (CGT) only on taxable Australian property.

Taxable Australian property includes:

  • Australian real property, such as a house, apartment, commercial building or land

  • an indirect interest in Australian real property

  • a mining, quarrying or prospecting right in Australia

  • a CGT asset that you have used to carry on a business through a permanent establishment in Australia

  • an option or right over one of the above – for example, a contract to purchase property off the plan.

For CGT events happening on or after 20 May 2009, a leasehold interest in land in Australia is Australian real property.

If you stop being an Australian resident, you are taken to have disposed of each of your assets that are not taxable Australian property for their market value at the time you stopped being a resident.

These include:

  • Direct shares and equities listed on the ASX.

  • Exchange-Traded Funds (ETFs) listed on the ASX

  • Managed Funds domiciled in Australia

It is important that you understand the difference between taxable and non-taxable Australian Property as they can have major tax benefits and implications for Australian expats.

You have the option of disregarding capital gains and losses at that time. If you do this, your assets will be taken to be taxable Australian property. For example, if you disregard the capital gain or loss on Australian shares you own, those shares would become taxable Australian property.

Who is chargeable to CGT

A foreign or temporary resident, or a resident that changes their residency status.

CGT when selling your rental property

When you sell or dispose of a rental property or a former main residence you may make a capital gain or loss.

A capital gain or loss is the difference between what it cost you to obtain and any costs associated with improving the property (the cost base) and the amount you receive when you dispose of it less and cost associated with the sale of the property.

If you make a:

  • net capital gain in an income year, you’ll generally be liable for capital gains tax (CGT)

  • net capital loss, you can carry it forward and deduct it from your capital gains in later years.

It is from this gain that a claim is made for any further deductions/discounts that may be available to you along with any eligible relief’s such as the main residency exemption.

CGT for temporary residents

Temporary residents for income tax purposes generally do not pay tax on income they earn in another country.   That is, unless you acquire shares or rights under an employee share scheme.

You may be treated as a temporary resident for income tax purposes if you are an Australian resident for tax purposes and you also hold a temporary migration visa.

You do not have to pay tax on most of your foreign income if you both:

You are a temporary resident if:

  • you hold a temporary visa granted under the Migration Act 1958

  • you are not an Australian resident within the meaning of the Social Security Act 1991

  • your spouse (if applicable) is not an Australian resident within the meaning of the Social Security Act 1991.

The Migration Act provides that a temporary visa is a visa to travel to and remain in Australia:

  • during a specified period

  • until a specified event happens

  • while the holder has a specified status.

What are the CGT implications if you are a temporary resident?

If you are an Australian resident for tax purposes and meet the requirements to be a temporary resident, the temporary resident rules mean that should a capital gains tax event occurs while you are a temporary resident, you are not liable to capital gains tax (nor treated as having made a capital loss) unless the asset is ‘taxable Australian property’.

Special rules apply to capital gains on shares and rights acquired under employee share schemes.

GM Tax also offers the following services:

  • Tax planning advice and guidance with regards to your residency status in Australia.
  • Preparation of Australian tax returns, with all returns submitted to the ATO electronically where possible.
  • Advice on the tax position where a property in Australia is being let while a taxpayer is living overseas.
  • Capital Gains Tax advice and guidance in relation to your Australian assets.
  • Assistance to ensure Australian sourced income of those who are non-residents of the Australia is properly taxed and is not taxed twice, or double taxed.
  • This last point is particularly relevant to those who have Australian sourced income or capital gains which may also be subject to tax in the country in which the taxpayer is now resident.