Australian Capital Gains Tax (CGT) - An Introduction and FAQ's
Australia has had a comprehensive capital gains tax (CGT) regime since 20 September 1985. Individuals planning to move to Australia or leave Australia should understand the framework of these rules so they do not to trigger any "avoidable" adverse Australian CGT consequences. Some general information is provided below, but Exfin strongly recommends that you seek advice from a qualified Australian taxation advisor before any relocation, as the rules are complex.
In the May 2017 Federal Budget, the Government indicated an intention to deny "foreign tax residents" - and that included Australian expatriates - access to the CGT main residence exemption from May 9, 2017 - with existing properties held prior to this date grandfathered until 30 June 2019. The proposed changes lapsed on July 1, 2019 but the Treasurer indicated on July 4, 2019 that the changes "remain...government policy", but did not provide any indication of when the Government might seek to reintroduce legislation or whether it might be backdated. Many Australian expatriates will be significantly disadvantaged by this move and refer to our page on the CGT main residence exemption for more details.
Q :What assets are subject to Australian CGT?
A : Broadly, any type of property. Most commonly, it will include real estate, shares in companies and interests in unit trusts.
Q: What is the rate of Australian CGT?
A : There is no rate of Australian CGT as such. A net capital gain is included in a taxpayer’s assessable income and taxed along with their other assessable income at their marginal rate of tax. The top marginal rate of tax is currently 47%, including the 2% Medicare levy. If you hold an asset for at least 12 months before you dispose of it, you will be entitled to the 50% CGT discount - so that only one-half of your net capital gain will be assessable. If you are on the top marginal rate of tax, the rate of tax on a capital gain after applying the 50% CGT discount is effectively reduced to 23.5%.
However, effective May 8, 2012 this discount ceased to apply to non-residents and temporary residents. Eligibility in relation to existing assets is based on a formula which takes into account the number of days a taxpayer was resident or non-resident from that date, on a pro-rating basis. These changes, the enabling legislation for which was passed in June 2013, also applied to trusts holding these assets, raising the possibility that in some circumstances it may be preferable to hold real estate assets in a corporate structure.
We have stated this previously, but it is imperative that individuals who wish to ensure access to the discount in relation to growth prior to May 8, 2012 have a market valuation as at that date performed by a licensed valuer. Obviously, the more time elapses the more scope there is for argument with the ATO regarding the appropriate valuation.
Q: I am an Australian resident who is leaving Australia indefinitely. What are the Australian CGT implications for my assets in Australia on departure and what is the best tax approach?
A: On the date of your departure you will be deemed to have disposed of all your CGT assets that are not taxable Australian property (TAP) for their market value on that date. You have two choices, you can :
- Choose to pay tax on any existing capital gains or claim for any overall capital loss; in the tax year of becoming a tax resident of Australia, or
- You can disregard the CGT event on ceasing to be a resident by effectively choosing to treat your assets as TAP. The consequence of the assets being regarded as TAP - which largely includes Australian real property - is that Australia will always be able to tax you on any subsequent disposal of these assets going forward (despite your no longer being a resident).
In a nutshell this means that when you are becoming non-resident you should examine your portfolio and determine the extent of any capital gains. If they are modest and you expect significant growth while overseas then it may be appropriate - particularly if moving to a low tax regime - to pay out any existing CGT so there is no future liability on the portfolio. Note that your choice in this regard is made at the time you lodge your departure year tax return and in hindsight the markets should be clearer - particularly if you use a tax advisor since returns have a later due date.
Q: I am a non-resident of Australia but I am considering acquiring investments in Australia. Will I be subject to Australian CGT should I sell these investments?
A: It depends on the type of investments. Non-residents will only be subject to Australian CGT on assets that fall within the definition of "Australian taxable property". Broadly, these are confined to Australian real property and certain business assets located in Australia. However, in some cases, interests in entities that in turn hold these types of assets can also be considered taxable Australian property (referred to as indirect property interests).
Q: I am planning to emigrate to Australia. Will there be any Australian CGT consequences on my holdings of my overseas investments once I move to Australia.
A: Yes. Individuals emigrating to Australia will normally be deemed to be residents of Australia for taxation purposes from the date of their arrival in Australia. Australia’s CGT rules will then deem you to acquire all your CGT assets that are not already Australian taxable property on the day of your arrival for their market value at that date. You will then be subject to Australian CGT - calculated in terms of AUD - on any subsequent disposal of those assets.