In general, capital gains made by a non-resident are assessable only in relation to taxable Australian property, including real property and land-rich Australian companies. A land-rich company has more than 50% of its asset value in land.
Comparable treatment is available for interests held through a fixed trust.
Non-final withholding tax on taxable Australian property transactions
[update 9 May 2017]
The Government will extend Australia’s foreign resident capital gains tax (CGT) regime by:
- denying foreign and temporary tax residents access to the CGT main residence exemption from 7:30PM (AEST) on 9 May 2017, however existing properties held prior to this date will be grandfathered until 30 June 2019 – see further on this here
- increasing the CGT withholding rate for foreign tax residents from 10 % to 12.5%, from 1 July 2017; and
- reducing the CGT withholding threshold for foreign tax residents from $2 million to $750,000, from 1 July 2017.
In other budget measures, the government proposes
- Foreign investor levy: An annual foreign investment levy of at least $5,000 on all future foreign investors who fail to either occupy or lease their property for at least six months each year.
- The Government will introduce a 50 per cent cap on foreign ownership in new developments through a condition on New Dwelling Exemption Certificates. The cap will be included as a condition on New Dwelling Exemption Certificates where the application was made from 7:30PM (AEST) on 9 May 2017.
- Foreign and temporary tax residents will be denied access to the CGT main residence exemption from 7:30PM (AEST) on 9 May 2017, however existing properties held prior to this date will be grandfathered until 30 June 2019
The Federal Budget 2013 introduced the 10% non-final withholding tax on the proceeds of the sale of ‘taxable’ Australian property by non-residents. Amending legislation was passed by the parliament on 22 February 2016, and took effect from 1 July 2016.
The measures require the payer (i.e. purchaser) in a property sale transaction to withhold 10% of the property sale proceeds unless an exemption or exception applies.
An Australian resident vendor selling real property over the value threshold, needs to obtain a clearance certificate from the ATO prior to settlement to ensure they don’t incur 10% withholding.
‘Non-final withholding tax’ means that the tax withheld from a transaction can be included as a credit or offset against an income tax assessment arising from the lodgment of a tax return by the vendor.
The withholding regime applies to direct and certain indirect interests in
- Real property in Australia – land, buildings, residential and commercial property
- Mining, quarrying or prospecting rights
- value threshold: property transactions valued at under $750,000 from 1 July 2017 ($2 million up to 30 June 2017)
- stock exchange transactions
- foreign resident vendor under external administration or in bankruptcy
- securities lending arrangements which are eligible for CGT roll-over relief
- transactions for which ATO-issued clearance certificate is obtained
- See the Tax Office overview of the measures; including links to forms and online application processes.
- LCG 2016/5 Foreign resident capital gains withholding regime: the Commissioner’s variation power
- LCG 2016/6 Foreign resident capital gains withholding regime: amount payable to the Commissioner, and
- LCG 2016/7 Foreign resident capital gains withholding regime: options.
- The foreign resident 10% withholding regime: practical issues – Wolters Kluwer (4 April 2016)
Removal of capital gains tax discount for non-residents
The 50% capital gains tax discount for non-resident individuals on taxable Australian real property or mining assets capital gains accrued after 7.30 pm (AEST) on 8 May 2012 is no longer available. Non-residents will be subjected to tax on 100% of such gains, apportioned where necessary to the attributable periods (number of days) of non-residence.
In anticipation of this legislation, a market valuation of affected assets as at the date of commencement, 8 May 2012, will enable that gains accrued before that date to be identified, and still be eligible for the discount.
- Note: A non-resident taxpayer only pays CGT on shares in a public company if they hold more than 10 per cent of the total value of the company.
CGT and Temporary residents
Temporary residents are basically treated in the same way as non-residents for CGT purposes.
However, to be treated as a temporary resident, a person must hold a temporary resident visa (not having previously been resident) and not be a resident or have spouse who is a resident within the meaning of the Social Security Act 1991. See Temporary residents.
Under temporary tax resident rules, a temporary resident is not liable to capital gains tax on non-Australian property. Special rules apply to capital gains on shares and rights acquired under employee share schemes.
Becoming resident, and cessation of temporary residence
On becoming resident, taxable Australian property is deemed to have been acquired at market value from that date. (This does not apply property acquired before the introduction of capital gains tax in 1985).
The main residence exemptions and extensions can apply to a foreign residence, and within the limitations of the main residence exemption rules, can apply to exempt gains which accrued from the date of becoming tax resident.
The effect of becoming non-resident can trigger a capital gain, without an actual disposal of the asset having taken place, however the CGT impact can be deferred.
In general, assets which are not taxable Australian property are deemed to have been disposed of at market value on the date a person ceases to be an Australian resident. However the taxpayer can choose to defer the CGT effect of such gains (and losses) on the basis that henceforth:
- all assets are deemed to be taxable Australian property
- CGT will be accounted for whenever an asset is disposed of in future
Double tax treaties
Domestic tax rules in general give way to tax treaties. A capital gains deferral obtained on becoming non-resident (referred to in the previous paragraph), may eventually be disregarded in Australia on subsequent disposal of the asset if the foreign country has taxing rights under a treaty.
In other cases the Australian tax will generally only apply as a top-up to tax paid in the foreign jurisdiction.
- ATO: CGT withholding and indirect Australian real property interests
- ATO: Capital Gains on Australian Assets
- CGT Discount
- CGT Discount worksheet
This page was last modified on 23 Aug 2017