There are special CGT rules that apply if you are a foreign resident or if you become, or cease being, an Australian resident. (Unless otherwise specified, 'Australian resident' means a resident of Australia for tax purposes.) There are also specific rules for temporary residents. These rules do not affect pre-CGT assets.
For periods when you are a foreign resident or temporary resident only certain assets are subject to CGT. In addition, when you become an Australian resident or stop being one, the range of assets on which you pay CGT in Australia changes.
Foreign residents
Changes to the law on 12 December 2006 mean that the range of assets on which a foreign resident may now have to pay CGT has been reduced. These assets are now described as 'taxable Australian property' rather than 'CGT assets that have the necessary connection with Australia'.
If you are a foreign resident, you are subject to CGT if a CGT event happens on or after 12 December 2006 to a CGT asset that is 'taxable Australian property'. There are specific rules where the CGT asset is a share or right acquired under an employee share scheme and you are or have been a temporary resident (see ESS – Foreign income exemption for Australian residents and temporary residents).
If you are a foreign resident and the CGT event happened before 12 December 2006, CGT applies if the event happened to a CGT asset that had the 'necessary connection with Australia'.
Necessary connection with Australia
Assets you may own that have the necessary connection with Australia include:
- land or a building in Australia (or an interest in land or a building)
- a CGT asset you have used in carrying on a business through a permanent establishment in Australia
- a share in a private company that is an Australian resident company for the income year in which the CGT event happens
- a share, or an interest in a share, in a public company that is an Australian resident company and in which you and your associates have owned at least 10% of the value of the shares at any time during the five years before the CGT event happens
- a unit in a unit trust that is a resident trust and in which you and your associates have owned at least 10% of the issued units at any time during the five years before the CGT event happens
- an interest (other than a unit) in a trust that is a resident trust for CGT purposes for the income year in which the CGT event happens, and
- an option or right to acquire any of the preceding CGT assets.
Assets that do not fall within one of the above categories - for example, land or a building overseas or shares in a foreign company - do not have the necessary connection with Australia.
Taxable Australian property
Taxable Australian property includes:
- a direct interest in real property situated in Australia or a mining, prospecting or quarrying right to minerals, petroleum and quarry materials situated in Australia
- a CGT asset that you have used at any time in carrying on a business through a permanent establishment in Australia
- an indirect Australian real property interest - which is an interest in an entity, including a foreign entity, where you and your associates hold 10% or more of the entity and the value of your interest is principally attributable to Australian real property.
Taxable Australian property also includes an option or right over one of the above.
Certain CGT assets will also be taken to be taxable Australian property - see Choosing to disregard capital gains and capital losses when you cease being an Australian resident.
If you are a foreign resident, or the trustee of a trust that was not a resident trust for CGT purposes, and you acquired a post-CGT indirect Australian real property interest before 11 May 2005 and that interest did not have the necessary connection with Australia but is taxable Australian property, you are taken to have acquired it on 10 May 2005 for its market value on that day.
Temporary residents
For CGT events that happened on or after 1 July 2006, temporary residents are subject to the same CGT rules as foreign residents. However, there are specific rules where the CGT asset is a share or right acquired under an employee share scheme and you are, or have been, a temporary resident (see ESS – Foreign income exemption for Australian residents and temporary residents).
This means, if you are a temporary resident, you will be subject to CGT on CGT events:
- that happen on or after 1 July 2006 and before 12 December 2006 to assets that have the necessary connection with Australia
- that happen on or after 12 December 2006 to taxable Australian property.
- You are a temporary resident if you:
- hold a temporary visa granted under the Migration Act 1958
- are not an Australian resident within the meaning of the Social Security Act 1991, and
- do not have a spouse who is an Australian resident within the meaning of the Social Security Act 1991.
The Social Security Act 1991 defines an Australian resident as a person who resides in Australia and is an Australian citizen, the holder of a permanent visa, or a protected special category visa holder.
Anyone who is an Australian resident (for tax purposes) after 6 April 2006, but is not a temporary resident cannot later become a temporary resident, even if they later hold a temporary visa.
Ceasing to be a temporary resident
If you cease being a temporary resident:
- on or after 1 July 2006 and before 12 December 2006 and remain an Australian resident, you are taken to have acquired assets (other than assets you acquired before 20 September 1985) that do not have the necessary connection with Australia for their market value at that time
- on or after 12 December 2006 and remain an Australian resident, you are taken to have acquired assets (other than assets you acquired before 20 September 1985) that are not taxable Australian property for their market value at that time.
There is an exception to these rules for employee shares and rights.
Becoming a resident
When you become an Australian resident (other than a temporary resident), you are taken to have acquired certain assets at the time you became a resident for their market value at that time.
If you became a resident before 12 December 2006, you are taken to have acquired assets that did not have the necessary connection with Australia at that time. This does not apply to assets you acquired before 20 September 1985 (pre-CGT assets) and assets that had the necessary connection with Australia.
If you have become a resident on or after 12 December 2006, you are taken to have acquired assets that were not taxable Australian property at that time. This does not apply to assets you acquired before 20 September 1985 (pre CGT assets) and assets that were taxable Australian property.
If you became a resident before 12 December 2006, the general cost base rules apply to any CGT assets that have the necessary connection with Australia. If you have become a resident on or after that date, the general cost base rules apply to any CGT assets that are taxable Australian property.
Ceasing to be an Australian resident
If you cease being an Australian resident, or a resident trust for CGT purposes, you are taken to have disposed of certain assets for their market value on the day you stopped being a resident.
If, before 12 December 2006, you ceased to be an Australian resident or a resident trust for CGT purposes, you are taken to have disposed of each of your assets that did not have a necessary connection with Australia for their market value at the time you ceased being a resident. See Necessary connection with Australia for more information.
If on or after 12 December 2006 you ceased being an Australian resident, or ceased being a resident trust for CGT purposes, you are taken to have disposed of each of your assets that are not taxable Australian property for their market value at the time you ceased being a resident. In the case of any indirect Australian real property interests and options or rights to acquire such interests, you are taken to have immediately re-acquired these assets for their market value. See Taxable Australian property for more information.
Exemption for a temporary resident who ceases being an Australian resident
If you are a temporary resident when you cease to be an Australian resident, you are not taken to have disposed of any of your assets.
Exemption for a short-term resident who ceases being an Australian resident
If you are an individual who was in Australia on 6 April 2006 and have remained here as an Australian resident since that date, an exemption applies if you satisfy certain conditions. You disregard the capital gain or capital loss if you were an Australian resident for less than a total of five years during the 10 years before you stopped being one, and either:
- owned the asset before last becoming an Australian resident, or
- inherited the asset after last becoming an Australian resident.
Choosing to disregard capital gains and capital losses when you cease being an Australian resident
If you are an individual, you can choose to disregard all capital gains and capital losses you made when you stopped being a resident.
If you ceased being a resident before 12 December 2006 and make this choice, the assets are taken to have the necessary connection with Australia until the earlier of:
- a CGT event happening to the assets (for example, their sale or disposal)
- you again becoming an Australian resident.
If you ceased being a resident on or after 12 December 2006 and make this choice, the assets are taken to be taxable Australian property until the earlier of:
- a CGT event happening to the assets (for example, their sale or disposal), or
- you again becoming an Australian resident.
The effect of making this choice is that the increase or decrease in value of the assets from the time you cease being a resident to the time of the next CGT event, or of you again becoming a resident, is also taken into account in working out your capital gains or capital losses on those assets. (For information about when and how you make a choice, see Choices).