NON-Resident Property CGT Tax Return
Prior to the modifications, non-residents who sold CGT assets that had a “necessary relationship” to Australia were required to pay CGT. Assets with the necessary connectivity are classified as follows:
- Australian real estate;
- Stocks in Australian corporations or unit trusts. (There was an exception if the asset represented less than 10% of the shares of a publicly traded corporation or the units of a public unit trust that were in issue at any given point in the five years prior to the disposal.)
The term “taxable Australian property” is used in favor of the more specific term “necessary connection” in the new regulations.
- Australian real estate, including rights to mine, quarry, and prospect therein if the underlying materials are situated there;
- CGT assets used in the operation of an Australian permanent establishment
- indirect ownership of real estate in Australia; and
- The ability or right to buy any of the above.
New law: tax breaks for specific time periods
Under previous laws, any gain from the sale of assets used in an Australian PE was taxed at 100%.
The new regulations provide that no tax is due on gains made while an asset was not used in an Australian PE. For instance, if a taxpayer sells a business branch but keeps some of the CGT assets used in the branch and relocates them overseas for use in foreign businesses, tax is not due on the gain.
Indirect interest in Australian real estate is now prohibited under a new rule.
The new regulations broaden the CGT net to include even the most egregious indirect interests in Australian real estate that non-residents may have. Regardless of whether the entities are Australian resident entities or not, the rules actually give the ATO the ability to track through all interposed entities to determine the interest.
Passive investors, on the other hand, can exhale a sigh of relief because interests of less than 10% are ignored. For example, CGT is payable if a non-resident sells a stake in a land-holding company, whether based in Australia or elsewhere, if the following conditions are met:
1.The organization directly or indirectly owns Australian real estate;
2.more than half of the entity’s total assets are represented by real estate; and
3.A non-resident owns at least 10% of the entity.
Practical implications
Create a non-residential structure in order to gain entry into Australia.
It is preferable to do so through a structure that allows assets to be held directly by the non-resident if a non-resident wants to purchase assets other than real property in Australia (rather than through an Australian entity).For example, a person who incorporates a business to acquire non-real estate assets must pay CGT on the sale of the shares. However, a non-resident who sells the same directly owned assets will not have to pay CGT.
Restructure an existing non-residential building
A non-resident who already does business in Australia may want to consider reorganizing their current setup to take advantage of the new opportunities. In this sense, numerous CGT rollovers.
Summary
Non-residents find it less desirable to own these assets as a result of the government’s attempt to tax entities with indirect holdings in Australian real estate. The new laws’ extensive impact, meanwhile, may make them challenging to put into practice. And so:
- Even if authorities can enforce indirect ownership laws when dealing with Australian land-holding organizations,
- If a non-resident sells stock in a non-Australian company that owns Australian land (directly or indirectly),