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 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.
Purchasers may be required to withhold foreign resident capital gains tax (FRCGW) from the sale price and remit this to us. FRCGW must be withheld unless the foreign resident vendor has a variation notice specifying a reduced rate of FRCGW.
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.