Capital Gains Tax (CGT) - An Introduction and FAQ's

Australia has had a comprehensive capital gains tax (CGT) regime since 20 September 1985. Individuals planning to move to Australia or leave Australia should understand the framework of these rules so as not to trigger any avoidable adverse Australian CGT consequences. Some general information is provided below, but Exfin strongly recommends that you seek advice from a qualified Australian taxation agent before any relocation, as the rules are complex

Q :What assets are subject to Australian CGT?
 

A : Broadly, any type of property. Most commonly, it will include real estate, shares in companies and interests in unit trusts.

Q: What is the rate of Australian CGT?
 

 A:  There is no rate of Australian CGT as such. A net capital gain is included in a taxpayer’s assessable income and taxed along with their other assessable income at their marginal rate of tax.  The current top marginal rate of tax is currently 46.5%. If you hold an asset for at least 12 months before you dispose of it, you will be entitled to the 50% CGT discount - only one half of your net capital gain will be assessable. If you are on the top marginal rate of tax, the rate of tax on a capital gain after applying the 50% CGT discount is effectively reduced to 23.25%.

Q: I am a non-resident of Australia but I am considering acquiring investments in Australia. Will I be subject to Australian CGT should I sell these investments?
 

A: It depends upon the type of investments. Non-residents will only be subject to Australian CGT on assets that fall within the definition of Australian taxable property; Broadly, these are confined to Australian real property and certain business assets located in Australia. However, in some cases, interests in entities that in turn hold these types of assets can also be considered taxable Australian property (referred to as indirect property interests).

Q: I am planning to emigrate to Australia. Will there be any Australian CGT consequences on my holdings of my overseas investments once I move to Australia.
 

A: Yes. Persons emigrating to Australia will normally be deemed to be residents of Australia for taxation purposes from the date of their arrival in Australia. Australia’s CGT rules will then deem you to acquire all your CGT assets that are not already Australian taxable property; on the date of your arrival for their market value at that date. You will then be subject to Australian CGT on any subsequent disposal of those assets.

Please note: from 1 July 2006 modified rules applied to temporary residents - generally speaking these are people who are not Australian citizens and come to Australia on a temporary entry visa (eg. a 457 visa).

Q: I am an Australian resident having lived here my entire life. I am planning to leave Australia indefinitely. What are the Australian CGT implications for my assets in Australia?
 

A: On the date of your departure you will be deemed to have disposed of all your CGT assets that are not Australian taxable property for their market value on that date. As such, you may be liable to pay Australian CGT should you be deemed to have realised a capital gain (broadly where the cost of those assets to you are less than their market value on the date of your departure).

You can make an election for this taxing event not to occur, but if you do this Australia will always be able to tax you on any subsequent disposal of the assets going forward (despite you no longer being a resident).

Please note: An exemption from these rules may apply to your main residence. Furthermore, the Australian tax laws allow you to rent out your main residence for a period of up to 6 years after your departure and you can still then dispose of the property free from Australian CGT.

If you believe that a CGT liability might arise on the sale of an asset you should seek professional assistance to assess the likelihood and amount of any liability.

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