Property Investor Leaving Australia – Non-Resident Tax Law’s Effect You?
No CGT discount for non-residents, however former Australian residents will get a pro-rata discount.
From 9 May 2012, the 50% CGT discount allowed for gains made by individuals is reduced for any periods in which the taxpayer has been a foreign resident during the period of ownership (s 115-105 ITAA 1997). This applies irrespective of whether the asset is held directly or through a trust. For these purposes, a foreign resident includes a temporary resident.
The method of calculation varies according to when the asset was acquired. For example:
- If a resident holds an asset as at 8 May 2012, but later loses their Australian residency, for example, due to working overseas for an extended time, or relocate for family reasons, the discount allowed on the subsequent disposal of that asset will be apportioned (s 115-115 of ITAA 1997).
Mary purchased a rental property 10 October 2005 when she was a resident of Australia. On 09 November 2017, after being posted overseas, Mary ceased to be a resident. On 1 April 2018, she sold the property for a capital gain.
As the ownership period is 4,557 days, of which 144 occurred while Mary was a foreign resident, the discount percentage is:
50% × (4,557 − 144) / 4,557 = 48.42%
If the overall net gains were $500,000 over the period of ownership, the amount subject to the CGT Discount would be:-
· $500,000 @ 48.42% = $242,100, with the balance being assessable at Foreign resident tax rates.
- If a resident acquires an asset after 8 May 2012, and later loses their Australian residency, the discount allowed on the subsequent disposal of that asset is calculated as shown in the following example:
John purchases a rental property on 10 June 2015 (ie after 8 May 2012) while he was a resident. Then on 10 November 2016, he ceased to be a resident but continued to own the property. On 25 June 2018, he realised a capital gain on the property.
As the ownership period is 1,112 days and the days John was an Australian resident were 520, the discount percentage is:
50% × 520/1,112 = 23.38%
If the overall net gain was $100,000 over the period of ownership, the amount subject to CCT would be:-
· $100,000 @ 23.38% = $23,380, with the balance being assessable at the foreign resident tax rates.
If you have investment properties and are considering leaving Australia, and would like any advice, please call or email our office to discuss your tax options.