All foreigners are expected to pay their capital gains tax for the properties they own in Australia.
In addition, as a foreigner, you cannot use CGT discounts like permanent residents; foreigners are not allowed to discount their CGT percentage of 10% (or 20% if they hold the property for more than 12 months) like other Australians.
Tax Residency Status in Australia
In Australia, tax residency is divided into 3 categories:
- Australian Resident: You are considered to be an Australian resident if you have been in the country for more than half of the year.
- Temporary Resident: This status applies when you have been in Australia for less than 18 months in a row or 12 months in a row that includes parts of 2 years, and also applies to foreign students who entered the country on a student visa.
- Foreign Resident: If you are not considered an Australian resident as per above and the country is not your main residence, then you would be a non-resident for tax purposes.
Your residency status in Australia will determine if you are liable to pay CGT on your Australian real estate:
• If the property is in your main residence and you have lived in it for at least 6 months, then you may qualify for a full exemption from CGT. This means that you do not need to pay any capital gains tax when you sell the property.
• If the property is not your main residence and you earn a rental income from it, then you will need to include this as taxable income in your annual tax return. The CGT will be deducted from this income amount before you are taxed on it.
• As a temporary or foreign resident, if you have been selling a property as a business, then you will need to pay tax on your earnings from this transaction.
Foreigners Are Not Eligible for the Main Residence Exemption
In Australia, capital gains tax is applicable for all individuals who sell properties that are not their main residence. However, there are exemptions for Australian permanent residents and foreigners with a secondary residence in the country.
Australian permanent residents can qualify for a full exemption from CGT if they sell their main residence and hold another one continuously for 12 months or more.
This exemption also applies to foreign citizens who have been granted a permanent visa and who have already spent 12 months owning a property as their main place of residence.
In addition, you will need to visit a tax specialist to help prepare your tax return and provide an estimate on how much CGT you need to pay.
Accurate Business & Accounting Services can also provide advice on whether you will need to pay CGT or any other tax along with your property sale.
Warning: Don’t Hide Your Foreign Income from ATO and Know the Tax Implication Right