Less gain for non-resident investors in Australian real estate
Many non-residents who invest in Australian real estate will face an unexpected increase in their taxable income under proposed changes to capital gains tax rules.
Both residents and non-residents of Australia have previously been entitled to a 50 per cent discount on any Capital Gains Tax (CGT) arising from the disposal of property they have owned for 12 months or more.
However, under proposed new legislation, non-residents will no longer be entitled to the 50 per cent CGT discount on any real property acquired after 7 May 2012. To further complicate matters, any real property owned by a non-resident will need to be valued as at this date, as only the part of the gain in excess of this value will ultimately be assessable in full.
The proposed legislation will also impact on Australian residents who move to live overseas and as a consequence, become non-residents for Australian tax purposes and who subsequently dispose of any property they may have owned when they were resident.
The Government estimates this measure will net Aus$55 million in additional tax over the forward estimates period.
Non-residents have been given very little time to prepare for this important change and many may suffer as a result.
The new law will have significant financial implications for non-resident Australian investors, especially those who may be unaware of the need to have their assets valued at the time the changes were implemented.
Difficulties for non-residents
Non-residents will find it difficult to determine the exact amount of capital gains eligible for the discount if they do not have their property valued at the specified date. The valuation will serve as proof of capital gains accrued up to that date should the Australian Taxation Office query the eligible discount amount upon the eventual sale of the asset.
In Sydney – one of the world’s most expensive cities, with a median house price of more than Aus$1 million – non-resident investors may choose to look elsewhere for future investments.
Research conducted by Colliers estimates that around Aus$6.3 billion of foreign investment went into non-residential property in Australia in 2012.
For further information, contact:
T +61 2 8264 0600