Removal of the Capital Gains Tax Discount in Australia for Non Residents

On Budget Day 2012 – the 8th of May, 2012 – the Australian Government announced that it was abolishing the 50% CGT discount for individuals who are not resident in Australia.  The CGT discount is generally available on the disposal of a CGT asset when it is sold more than 12 months after original purchase.

The abolition only applies to disposals after the 8th of May, 2012, and applies to individuals who are not resident in Australia as well as those who are temporary tax residents (those who are resident in Australia, holding most types of temporary residency visa).

The change seeks to ensure that the 50% CGT discount is only applied to periods where the CGT asset was held:

  • Prior to the 9th of May, 2012, and
  • After the 8th of May, 2012 but only where the individual is an Australian tax resident who is not a temporary tax resident.

Individuals who make a discounted capital gain indirectly – for example as a beneficiary of a trust – are also affected by this change.

Individuals who are taxpayers in Australia and who are foreign tax residents or temporary tax residents should therefore consider how they are affected, and what they should do to mitigate their Australian tax position.

Options might include:

  • Making a deemed disposal election when becoming a foreign tax resident.
  • Obtaining a market valuation of CGT assets as at the 8th of May, 2012 – and particularly  “taxable Australian property” to ensure that the element of the capital gain that accrued on the asset before the 9th of May, 2012 remains eligible for the full CGT discount.  It should be noted that when a market valuation is not obtained no CGT discount on gains that arose before the 8th of May, 2012 will be available.

“Taxable Australian property” includes:

  • A direct interest in real property situated in Australia
  • A mining, quarrying or prospecting right to minerals, petroleum or quarry materials situated in Australia
  • A CGT asset that the taxpayer has used at any time in carrying on a business through a permanent establishment in Australia
  • An indirect interest in Australian real property – where the taxpayer (with associates) holds 10% or more of an entity – including a foreign entity – and the value of the taxapyer’s interest is principally attributable to Australian real property.

“Taxable Australian property” also includes an option or right over one of the above.

For most non resident and temporary tax resident individuals real estate in Australia will be the main CGT asset that is impacted by the abolition of the CGT discount.

If you think you are affected by this change please contact GM Expat Tax to discuss your situation.  An initial discussion is without charge.  Our subsequent fees will be fixed in amount and are agreed by you before making any commitment to us.