Capital Gains Tax (CGT) treatment of property as an Australian Expat

As a Foreign tax resident, capital gains tax (CGT) on property in Australia is handled differently than Australian residents. Australian Expats should be mindful of how the CGT will apply to their property in Australia and plan accordingly.

Here’s a breakdown of how it works for Australian Expats who are foreign residents for tax purposes (non-residents):

Capital Gains Tax for Foreign Residents: Foreign tax residents are only taxed on their Australian-sourced capital gains. This generally includes gains from the sale of Australian real estate and certain other Australian assets. There are exceptions for Australian shares which do not attract the same CGT treatment.

Australian Real Estate: If you sell a property located in Australia, you are liable for CGT on the gain from that sale, regardless of your residency status. This includes residential, commercial, and industrial properties.

No Tax-Free Threshold: Foreign tax residents do not benefit from the tax-free threshold of AUD 18,200 that Australian residents do. Therefore, all income earned in Australia is taxable from the first dollar.

CGT Rates: Capital gains are taxed at foreign resident tax rates. For the 2023-24 financial year, the tax rates for foreign residents are as follows:

• Income up to AUD 135,000: 30%

• Income from AUD 135,001 to AUD 190,000: 37%

• Income over AUD 190,000: 45%

CGT Concessions: The availability of capital gains tax (CGT) concessions in Australia is more limited compared to Australian residents:

• Main Residence Exemption (MRE): Foreign residents are generally not eligible for the main residence exemption while abroad. This exemption allows Australian residents to be exempt from CGT on their primary residence. This exemption is not available to foreign residents even if the property was used as their main residence while they were Australian residents. In some instances, Australian Expats can still use the MRE upon their return to Australia under the temporary absence rule.

  
  

• 50% CGT Discount: Foreign residents cannot access the 50% CGT discount for property held for more than one year. This discount reduces an Australian resident's capital gain by half but does not apply to foreign residents. The only exception is where the property was owned for a period up to 8 May 2012, where a partial exemption is available.

Withholding Tax: When selling a property, a withholding tax of 15% might apply. This amount is withheld by the buyer and paid to the Australian Taxation Office (ATO) as a prepayment of your CGT liability. You may be able to apply for a clearance certificate to avoid this withholding if you meet certain conditions.

Learn more about Foreign Resident Capital Gains Withholding (FRCGW) rules.

Filing Requirements: Foreign tax residents are required to file an Australian tax return to report the capital gain and pay any CGT liability. This must be done even if the gain is only from Australian sources.

Double Tax Agreements (DTAs): If you are a tax resident of another country, you should check if Australia has a Double Tax Agreement (DTA) with that country. DTAs can affect how your capital gains are taxed and may provide relief from double taxation.

In summary, foreign tax residents face fewer CGT concessions compared to Australian residents, with significant tax consequences applying without prior planning. As tax rules can be complex and subject to change, Australian Expats should seek professional tax advice to ensure compliance and optimize their tax situation.

Learn more about Selling an Australian Property as an Australian Expat.

Runway Wealth Management is the trusted Financial Adviser to the Australian Expat community. Our tailored advice is backed by expertise, education and experience, which allows us to be at the forefront of Australian Expat Financial Planning.

If you would like to speak to one of our Expat Financial Advisers about this blog or if you have other queries, we would be more than happy to speak with you. Feel free to send us an enquiry through the ‘Contact Us’ tab provided in the below link:

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General Advice Disclaimer: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.