Contact Us

Phone
+61 3 9939 4488
+61 2 8226 8756

Email
info@aa.tax

Address
Level 4 34 Queen Street Melbourne, Victoria 3000
Level 26 1 Bligh Street Sydney,New South Wales 2000

Online Enquiry

* Required fields

Reference Guide: Part 1 - Capital Gains Tax discount for Temporary & Foreign Residents.

Posted By Tax and Legal  
08/11/2021

Our three-part series is a guide to the key things you need to know about how to manage the Capital Gains Tax (CGT) discount for Temporary & Foreign Residents. The guide covers foundational terminology, how net capital gain or loss is calculated and how the CGT discount is applied.  

Part 1 of 3: Understanding the CGT foundations.  

What is Capital Gains Tax? 

The Capital Gain Tax (CGT) regime was introduced in Australia on 20 September 1985. Any transactions occurred on CGT asset acquired after this date will subject to CGT. There is more about what classifies as a CGT asset below.  

Why does it matter if you’re a temporary resident for CGT purposes? 

Subdivision 768 R of Income Tax Assessment Act (ITAA) 1997 outlined that temporary resident is not subject to capital gain or loss unless the asset is ‘Taxable Australian Property’. 

Who classifies as a temporary resident? 

temporary resident for Australian tax purpose is defined as a person who satisfies all the following three tests:  

  • must hold a temporary visa granted under the Migration Act 1958,  
  • must not be an Australian resident within the meaning of the Social Security Act 1991, and  
  • must not have a spouse who is an Australian resident within the meaning of the Social Security Act 1991. 

 What is a CGT asset? 

The CGT asset is defined as any kind of properties and legal or non-property equitable rights under S108-5(1) of ITAA 1997. For example: land, buildings, shares, options, collectables, personal use assets, etc.    

Both collectables and personal use assets are generally defined as CGT assets that are kept for the personal use or enjoyment of the owner. Special CGT rules apply to collectables and personal use assets, which will be beyond the scope of this article.  

CGT Assets are divided into Taxable Australian Property (TAP) and Non-Taxable Australian Property (NTAP). A Taxable Australian Property (TAP) includes the following: 

  • Taxable Australian Real Property (TARP) – e.g. land and buildings situated in Australia  
  • An asset used at any time in carrying on a business through a permanent establishment in Australia 
  • Indirect Australian Real Property Interests – e.g. a shareholding of 10% or more in a company where the assets of the company are principally (i.e. greater than 50%) made up of TARP  
  • An option or right to acquire one of the above assets. 
  • Another type of asset that falls to TAP is assets that attract capital gains tax that creates a CGT event (CGT event I1) when a taxpayer ceases to be an Australian tax resident and elects to defer their CGT liability You can read more about this in our article on CGT issues when leaving Australia.   

NTAP is defined as any CGT assets which do not fall into the definition of the above TAP.  

What is a CGT event? 

CGT event is the occurrence of certain circumstances that trigger the capital gain or loss calculation on CGT asset. There are various types of CGT events outlined in Division 104 ITAA1997. One of the most commonly occurred CGT event is CGT Event A1- Disposal of CGT asset.   

Contact Us

   +61 3 9939 4488