Our focus
Foreign residents disposing of taxable Australian property who fail to lodge returns correctly advising of any gain or loss attract our attention. Purchasers who fail to withhold and pay the withholding on purchase from foreign residents of certain high-value real property and membership interests also attract our attention.
Foreign residents disposing of taxable Australian property
Foreign residents are subject to capital gains tax (CGT) on the disposal of taxable Australian property (TAP). In contrast, foreign residents (except beneficiaries of resident non-fixed trusts) can generally disregard a capital gain or loss from a CGT event (such as a disposal) relating to non-TAP assets.
TAP comprises of:
- taxable Australian real property (TARP)
- indirect interests in Australian real property
- assets used in carrying on a business through a permanent establishment in Australia
- an option, or right, to acquire any of the above assets.
Foreign residents disposing of TAP are expected to lodge returns advising of any gain or loss.
Foreign residents attract our attention if they:
- hold significant direct or indirect interests in TAP assets – for example, shares in mining companies and interests in commercial properties
- dispose of TARP or indirect interests but do not meet their CGT obligations in relation to the disposal
- characterise or value assets in a way to come within the CGT exclusion
- enter into a series of transactions such as 'staggered sell-down' arrangements that attempt to come within the CGT exclusion
- lodge returns that are not in accordance with new associate inclusive test in determining total participation interests
- fail the principal asset test by inappropriately allocating significant market value to non-TARP assets
- are unlikely to have sufficient funds or assets remaining in Australia to meet their tax obligation relating to a disposal of a TARP.
For information on staggered sell-down arrangements and exploiting asset valuations to avoid capital gains tax, see:
- TA 2008/19 Foreign residents attempting to avoid Australian capital gains tax by certain 'staggered sell down' arrangements
- TA 2008/20 Foreign residents exploiting asset valuations to avoid capital gains tax.
Foreign resident capital gains withholding
Foreign resident capital gains withholding applies to disposals of certain taxable Australian property under contracts entered into from 1 July 2016.
Situations that attract our attention include where there is a disposal of:
- real property with a market value of at least $750,000 and
- the foreign resident vendor did not apply for a clearance certificate or a withholding variation
- the purchaser has not paid a withholding amount
- membership interests in an Australian entity that owns substantial real property assets and the foreign resident vendor held a material ownership interest in the entity.
For more information on withholding, see Capital gains withholding: Impacts on foreign and Australian residents.