Although the changes in legislation has been from more than a couple of years ago, taxpayers are still being caught unaware by not seeking advice at the right time. The taxation of capital gains from the sale of Australian assets by temporary Australian residents and non-residents changed in 2012 reducing the 50% capital gains discount that was available on assets owned for at least 12 months. These amendments also made changes affecting trustees of trusts that distribute capital gains through to non-resident beneficiaries.
Non-residents are only subject to capital gains tax on “Taxable Australian Property” (TAP), these include taxable Australian real property, business assets of a permanent establishment in Australia, an option or right to acquire Australian real property, business assets or where a taxpayer ceases to be a resident and has made an election to treat an asset as “Taxable Australian Property”.
There is now no entitlement for temporary residents or non-residents to the 50% capital gains discount for gains made on Taxable Australian Property purchased after 8 May 2012. However, there may be an apportionment of the discount if there was a period of Australian residency during the period of ownership.
Assets purchased prior to 8 May 2012:
Where a taxpayer has a period of non-residency during the period of ownership of assets acquired before 8 May 2012, provided they have an independent valuation of the asset at that date, then a partial capital gains discount of up to 50% may be available depending on whether the gain accrued to 8 May 2012 is higher or lower than the overall gain.
Changes in residency status
As a result of these changes, the period of residency becomes a consideration in the taxation of capital gains. In particular, it is now important that any Australian resident considering becoming a non-resident, does so after considering the impact on any potential future gain, along with the other consequences of being treated as a non-resident.
Temporary residents receive some special tax treatment in other respects, however they are taxed on capital gains and losses in the same way as non-residents.