Capital Gains Tax changes for foreign investors
On 9th May 2017 the Government announced that if you are a foreign resident, temporary resident or a trustee of a foreign trust, you will no longer be exempt from capital gains tax when selling your main residence in Australia.
As a general rule, your property is treated not to be your main residence when you cease living in it. However, there are situations where the dwelling will continue to be treated as main residence for CGT purposes, for instance, if the property is not used to produce income.
The recent budget announcement has disallowed a main residence capital gains tax exemption for temporary and foreign residents of Australia. From a tax perspective, this means that any gain from selling a property in Australia by a foreign resident will be subject to capital gains tax.
However, limited grandfathering rules are available for foreign residents who already own properties as at 7:30pm on 9th May 2017. Such properties will continue to be exempt from capital gains tax (assuming they are treated as their main residence) until 30th June 2019 and if sold after 30th June 2019, then CGT will apply.
Moreover, in the recent budget announcement, the Government has also increased the capital gains tax withholding rate from 10% to 12.5% and reduce the threshold from $2 million to $750,000 effective from 1st July 2017. In other words, if a dwelling is sold by a temporary or foreign resident for $750,000 (previously $2 million) under contracts entered into on or after 1st July 2017, the purchaser must withhold 12.5% of the purchase price and remit it to the Australian Taxation Office.
Please contact our office for more information.