Australia — Tax: Capital Gains

Why this matters

Relocating individuals should be aware of the CGT implications when buying or selling assets in Australia, as it can impact their tax liability and financial planning — especially around the main residence exemption, which foreign residents generally cannot claim.

Key facts

• CGT is not a standalone tax: capital gains are added to assessable income and taxed at ordinary marginal income tax rates.
• Individuals (and trusts) who have held an asset for at least 12 months before a CGT event generally receive a 50% discount on the gain; companies do not get this discount.
• The main residence CGT exemption does NOT apply to foreign residents. A narrow exception exists only where the sale follows specific life events (e.g. terminal illness, death, divorce) and the individual has been a foreign resident for six years or less at the time of the CGT event.
• The cost base for calculating a gain includes the purchase price plus incidental costs (e.g. stamp duty, legal fees) and certain holding/improvement costs.

Steps

1. Determining the cost base — The cost base includes the purchase price, stamp duty, and other incidental costs incurred when buying the asset. It can also include certain costs incurred to hold or improve the asset.
2. Calculating the capital gain — The capital gain is the sale proceeds minus the cost base. If eligible (asset held 12+ months by an individual, trust, or complying super fund), only 50% of the gain is included in assessable income. If the asset was inherited, special cost-base rules apply.
3. CGT implications for foreign/non-residents — Non-residents are not eligible for the 50% CGT discount on gains accrued after 8 May 2012 in the same way residents are (discount is apportioned/restricted), and cannot claim the main residence exemption (with narrow life-event exceptions for former residents). Foreign resident capital gains withholding (FRCGW) may also apply to the sale of Australian real property by foreign residents.

Costs

• CGT rate: No separate CGT rate — taxed at the individual's marginal income tax rate on the (discounted, if eligible) gain
• Foreign resident capital gains withholding: Withholding may apply on sale of Australian real property by foreign residents; rate and threshold set by the ATO

Timelines

• CGT event: A CGT event generally occurs at the time of the contract for sale (not settlement); the gain is reported in the tax return for that income year

Required documents

• Proof of ownership and cost base documentation
• Taxation documents, including tax returns and assessments

Common mistakes

• Assuming the main residence exemption still applies after becoming a foreign resident
• Not accounting for the 12-month holding period required for the 50% discount
• Failing to declare capital gains on tax returns