Capital gains tax (CGT) payable by foreign or temporary resident on Australian assets
In Australia, a foreign or temporary resident is required to pay capital gains tax (CGT) to the Australian Taxation Office (ATO) on “taxable Australian property”. This is a legal requirement and there are heavy penalties under the law for failing to meet that obligation.
If you are a foreign or temporary resident of Australia for tax purposes, you should contact King Lawyers and get legal advice on your legal obligations to pay capital gains tax to the ATO on your Australian assets.
What is capital gain?
In general terms, a capital gain is the difference between what it cost you to get an asset and what you got when you sold or otherwise disposed of the asset. You make a capital gain when the sale price is higher than the purchase price of the asset.
What is capital gains tax (CGT)?
Capital gains tax (CGT) is a tax payable in Australia on the capital gain made from the sale of a capital asset.
If you need to pay capital gains tax in Australia, you need to report the capital gain in your income tax return and lodge it with the ATO by the required deadline. The ATO will then process your tax return and issue you with a notice of assessment showing the tax amount that you need to pay. You then need to pay the tax to the ATO by the required deadline, as stated in the tax assessment.
What is “taxable Australian property”?
Taxable Australian property includes:
- A direct interest in real property situated in Australia
- A mining, quarrying or prospecting right to minerals, petroleum or quarry materials situated in Australia
- A capital gains tax (CGT) asset that you have used at any time in carrying on a business through a permanent establishment in Australia
- An indirect interest in Australian real property (you and your associates hold 10% or more of an entity, including a foreign 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.
Foreign resident capital gains withholding payments
Foreign resident capital gains withholding applies to sellers disposing of certain taxable Australian property. A 12.5% non-final withholding is applied to these transactions at settlement.
The assets subject to the withholding tax are:
- Taxable Australian real property with a market value of $750,000 or more
- An indirect Australian real property interest
- An option or right to acquire such property or interest
Where the seller of these Australian assets is deemed a foreign resident, the buyer must pay 12.5% of the purchase price to the ATO as a foreign resident capital gains withholding payment.
The foreign resident seller can claim a credit for the foreign resident capital gains withholding payment by lodging a tax return for the relevant year.
When do the foreign resident capital gains withholding rules apply?
The foreign resident capital gains withholding rules apply when:
- An entity (the purchaser) becomes the owner of a capital gains tax (CGT) asset as a result of acquiring it from a vendor (or vendors) under one or more transactions
- At least one of those vendors is a relevant foreign resident at the time at least one of the transactions is entered into
- The CGT asset is a certain type of Australian property or an option or right to acquire such property
- The purchaser acquires the CGT asset under a contract entered into on or after 1 July 2016
- There are no exceptions (e.g. a “clearance certificate” provided by the ATO or a “vendor declaration” provided by the seller)
The withholding obligation applies to both Australian resident and foreign resident purchasers.
When do the foreign resident capital gains withholding rules not apply?
The foreign resident capital gains withholding does not apply when the seller disposes of either:
- An Australian real property and provides the purchaser with a “clearance certificate” from the ATO
- Any other asset where the purchaser is given a “vendor declaration” by the seller
Are you under a tax audit by the ATO for capital gains tax?
If you are audited by the ATO, you should engage an experienced tax lawyer immediately to get legal advice and representation. This will ensure that you get the possible outcome for the audit and minimise the ATO’s penalties.
Do you need an experienced tax lawyer to give you legal advice on your Australian tax affairs?
This content of this article is offered as general information only and should not be relied on as specific legal advice on Capital gains tax (CGT) payable by foreign or temporary resident on Australian assets.
To get legal advice from King Lawyers on your specific circumstances, please contact us to arrange an initial consultation with our professional taxation lawyers.