Foreign Investors and Capital Gains Tax
Generally, an Australian tax resident is taxed on their worldwide income and capital gains regardless of source, whilst a person who is considered a non-resident is normally only taxed on their Australian sourced income. To those non residents the ATO imposes special income tax liabilities in relation to any gains on the disposal of taxable Australian property.
As such, it is important to know whether you are an Australian tax resident or a non-resident.
Broadly, you will be an Australian tax resident if any of the following applies:
- you ordinarily reside in Australia;
- your domicile is Australia unless you convince the ATO that your permanent place of abode is overseas;
- you are physically present in Australia for 183 days or more in a tax year unless you convince the ATO that your usual place of residence is overseas; or
- you are a member of a Commonwealth or public sector superannuation scheme, or you are a spouse or child under 16 years of such a person.
Identifying if you are a resident or not for tax purposes is pivotal now that the ATO has the opportunity to do date matching with a lot of government agencies.
An important change in law occurred on 12th of December 2019 as Australians living overseas or those who are considered as foreign resident for tax purposes at the time they dispose of their residential property in Australia, they no longer qualify for exemption from CGT unless you satisfy the life events test outlined by the ATO.
For properties held before 7.30pm (AEST) on 9 May 2017, the CGT main residence exemption can only be claimed for disposals that happen up until 30 June 2020, provided the taxpayer satisfies the other existing requirements for the exemption.
Under the foreign resident capital gains tax withholding system, where a foreign resident disposes of residential or other certain Australian property above a specified threshold, the purchaser of that property is required to withhold and remit a percentage of the purchase price to the Australian Taxation Office. Further information is available on the ATO website.
Guidance regarding ‘CGT rules – foreign residents, temporary residents, changed residency status’ can be found on the ATO website searching for foreign residents, temporary residents, changed residency status. However for further information you can contact our office and get in touch with one of our accountants.