The way capital gains tax (CGT) applies to foreign residents has recently changed. If you are a foreign resident and you made a capital gain before 12 December 2006 on disposal of an asset that had the necessary connection with Australia, the gain would generally be taxed. On or after 12 December 2006, a foreign resident makes capital gains only on the disposal of taxable Australian property. Generally, CGT does not apply to pre-CGT assets - that is, assets acquired before 20 September 1985.
Unless otherwise specified, 'Australian resident' means a resident of Australia for tax purposes.
Assets which have a necessary connection with Australia include:
- land or a building in Australia (or an interest in land or a building)
- a CGT asset you have used in carrying on a business through a permanent establishment in Australia
- a share in a private company that is an Australian resident company for the income year that the CGT event happens
- a share, or an interest in a share, in a public company that is an Australian resident company and you and your associates have owned at least 10% of the value of the shares at any time during the five years before the CGT event happens
- a unit in a unit trust that is a resident trust and you and your associates have owned at least 10% of the issued units at any time during the five years before the CGT event happens
- an interest (other than a unit) in a trust that is a resident trust for CGT purposes for the income year that the CGT event happens
- an option or right to acquire any of the preceding CGT assets.
If your assets do not fit within one of the above categories - for example, land or a building overseas or shares in a foreign company - they do not have the necessary connection with Australia.
Assets that are taxable Australian property include:
- a direct interest in real property situated in Australia (for example a house or farm located in Australia) or a mining, prospecting or quarrying right to minerals, petroleum or quarry materials in Australia
- a CGT asset that you 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 any of the above.
Certain CGT assets will also be taken to be taxable Australia property. For more information, see Choosing to defer capital gains and capital losses.
You are taken to have acquired a post-CGT 'indirect Australian real property interest' on 10 May 2005 for its market value if the following applies:
- you are a foreign resident who acquired a post-CGT 'indirect Australian real property interest' before 11 May 2005
- that interest did not have the 'necessary connection with Australia' but is 'taxable Australian property'.
Last Modified: Tuesday, 31 January 2012