Changes to Capital Gains Tax in Australia for Non-Residents

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Important changes were proposed dramatically affect the way that Capital Gains made by non-resident tax-payers on Australian property (real estate or mining) assets are taxed.

Until now, non-resident tax-payers in Australia enjoyed a 50% discount on any Capital Gains tax payable in relation to the sale of Australian property (real estate or mining assets), if they held the asset for a period of 366 days or longer. This is the same 50% discount on Capital Gains tax that is afforded to resident tax-payers.

It was announced last year in the 2012-2013 Australian Federal Budget, that from 8 May 2012, the eligibility for non-resident tax-payers in Australia to apply the 50% Capital Gains tax (CGT) discount to gains made on their Australian property would cease. The Government have now released the Exposure Draft Legislation (on 8 March 2013) outlining the details of the proposed changes, which will be subject to consultation until 5 April 2013.

Until such time that the legislation is passed by Parliament, the Australian Tax Office (ATO) will accept tax returns that are prepared and lodged on the basis of the law as it currently stands. They will not review any assessments until after the outcome of the proposed amendment is known. Once the law is passed however, tax-payers will be required to amend their tax returns if necessary, and if done within a reasonable time limit, any penalties and interest in relation to tax shortfall amounts will be remitted by the ATO.

The proposed legislation only removes the eligibility of the 50% CGT discount on gains that accrued post 8 May 2012. Therefore, if you obtain a valuation of your Australian property as at that date, it is possible to apply the 50% discount to any gains that were accrued up to that date, (after first offsetting any Capital losses) with any gains accruing to the period after that date being ineligible for the discount.

What you need to do:

In light of the above, it would be our recommendation for any tax-payers who were non-residents of Australia for any period prior to 8 May 2012, who also have any ownership interest (directly or indirectly through a Trust) in Australian property that went up in value prior 8 may 2012, to obtain a written valuation of that property as at 8 May 2012. This written valuation would be required to be retained as supporting documentation in any attempt to apply 50% discount to a portion of any capital gain realised on the sale of said assets in the future.

The ATO have published guidelines with respect to valuations to be used for taxation purposes, and who can carry out such valuations. A market valuation may be undertaken by a registered valuer, a member of a recognised professional valuation body, or a person without formal valuation qualifications whose assessment is based on reasonably objective and supportable date. According to legal precedent, experts who assess market value should have specific knowledge, experience and judgement in that particular field. To ensure the objectivity of the report, the valuer should also be independent of the interests of the party commissioning the report.

If you require any further information with respect to this, please contact us.

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