If you are a temporary resident, foreign resident or the trustee of a foreign trust, you are subject to capital gains tax (CGT) if a CGT event happens to a CGT asset that is taxable Australian property, such as real estate property in Australia or assets used in a business in Australia.

Foreign resident capital gains withholding (FRCGW) applies to vendors disposing of certain taxable property under contracts entered into from 1 July 2016. The FRCGW tax rate is 12.5%. It also now applies to real property disposals where the contract price is $750,000 or more.

For contracts that are entered into from 1 July 2016 and before 1 July 2017, even if they are not due to settle until after 1 July 2017, the FRCGW withholding tax rate is 10% and applies to real property disposals where the contract price is $2 million and above.

Where the seller of these Australian assets is deemed a foreign resident, the buyer must pay 10% or 12.5% of the purchase price (depending on the date of the contract) 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.

CGT discount

Up to 8 May 2012, the CGT discount of 50% was available to foreign resident individuals who were subject to CGT on taxable Australian property.

For assets acquired after 8 May 2012, the discount is generally not available to foreign and temporary resident individuals, including beneficiaries of trusts and partners in a partnership.

The discount is apportioned where a CGT event happens after 8 May 2012 and:

• you acquired the asset before that date; or
• you had a period of Australian residency after that date.

Main residence exemption

If you are a foreign resident, you are not entitled to the main residence exemption from capital gains tax (CGT) for property sold after 30 June 2020, unless you satisfy the requirements of the life events test. If you are an Australian resident at the time you dispose of your property this does not affect you.

Life events test

When you dispose of your residential property, you satisfy the requirements of the life events test if both of the following are true:

• You were a foreign resident for tax purposes for a continuous period of 6 years or less; and
• during that period, one of the following occurred:
  • You, your spouse or your child under 18 had a terminal medical condition;
  • Your spouse or your child under 18 died; or
  • The CGT event happened because of a formal agreement following the breakdown of your marriage or relationship.

If you satisfy both these criteria and meet the general requirements for the exemption, you can:

• Claim the main residence exemption; and
• use the exemption as a reason to vary the capital gains withholding that would otherwise apply to your property.

Disposal of property by 30 June 2020

You do not need to apply the life events test to a property that you:

• Acquired before 7.30pm (Canberra time) on 9 May 2017; and
• disposed of by 30 June 2020.

You can claim the main residence exemption if you meet both of these requirements in addition to the general requirements for the exemption.

If you were not an Australian resident for tax purposes while living in your property, you are unlikely to meet the requirements for the CGT main residence exemption.

If you dispose of your property under a contract, the disposal time is when you enter into the contract. If there is no contract, the disposal time is when you settle.

After more tailored information surrounding foreign and temporary residents CGT implications? Speak to a specialised property tax accountant for advice by contacting us here at IP Tax today.