Foreign and temporary residents are subject to capital gains tax (CGT) only on taxable Australian property.
Taxable Australian property includes:
- Australian real property, such as a house, apartment, commercial building or land
- an indirect interest in Australian real property
- a mining, quarrying or prospecting right in Australia
- a CGT asset that you have used to carry on a business through a permanent establishment in Australia
- an option or right over one of the above – for example, a contract to purchase property off the plan.
For CGT events happening on or after 20 May 2009, a leasehold interest in land in Australia is Australian real property.
If you stop being an Australian resident, you are taken to have disposed of each of your assets that are not taxable Australian property for their market value at the time you stopped being a resident.
You have the option of disregarding capital gains and losses at that time. If you do this, your assets will be taken to be taxable Australian property. For example, if you disregard the capital gain or loss on Australian shares you own, those shares would become taxable Australian property.
If you are a foreign or temporary resident, any indirect interest you have in Australian real property is subject to CGT.
You have an indirect interest in Australian real property if both the following are true:
- you and your associates together own 10% or more of another entity, whether Australian or foreign – this is called the 'non-portfolio interest test'
- the market value of the assets of that entity is mainly attributable to Australian real property – this is called the 'principal asset test'.
Indirect interests acquired before 11 May 2005
If you acquired an indirect interest in Australian real property before 11 May 2005, you are taken to have acquired it at its market value on 10 May 2005 if:
- you are a foreign resident or the trustee of a trust that was not a resident trust for CGT purposes
- the interest did not have the necessary connection with Australia but is taxable Australian property.
The entity through which you have an indirect Australian real property interest may keep its accounts mainly in a foreign currency.
If so, when you dispose of your interest you must apply functional currency rules to calculate your capital gain or loss.
This means if the entity uses the foreign currency to account for its transactions, you will convert your capital gain or loss into Australian currency.As a foreign resident, find out which of your assets are taxable in Australia.