There are special CGT rules that apply if you are a foreign resident or if you become or stop 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. Also, when you become an Australian resident or stop being one, the range of assets on which you pay CGT in Australia changes.
If you are:
- an individual
- a beneficiary of a trust, or
- a partner in a partnership
and
- a foreign or temporary resident, or
- an Australian resident with a period of foreign residency
you may no longer receive the full 50% discount on capital gains made after 8 May 2012 on taxable Australian property.
Changes to the CGT main residence exemption law on 12 December 2019 mean you can no longer claim the CGT main residence exemption if you are a foreign resident when you dispose of your residential property in Australia, subject to certain exceptions. There is a transitional period which allows existing residential property owners to dispose of their property and access the CGT main residence exemption under the pre-existing rules. To qualify, you must have held the property before 7.30pm AEST on 9 May 2017 and disposed of it on or before 30 June 2020.
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Foreign residents
If you are a foreign resident, you are subject to CGT if a CGT event happens 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.
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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.
For CGT events happening on or after 20 May 2009, a leasehold interest in land situated in Australia is 'real property situated in Australia'.
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.
If you are a foreign resident and have entered into a transaction on or after 1 July 2016 to dispose of a CGT asset of yours that is taxable Australian property, payments made to you in that transaction may be subject to withholding.
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Temporary residents
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 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 and remain an Australian resident, then 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 the time you ceased being a temporary resident. There is an exception to this rule 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.
This does not apply to assets you acquired before 20 September 1985 (pre-CGT assets) and assets that were taxable Australian property.
If you have become a resident, 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 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 reacquired these assets for their market value.
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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.
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 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.
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