Less gain for non-residential investors as laws change
Many non-residents who invest in Australian real estate will face an unexpected increase in their taxable income after the Federal Government announced a proposal to change the capital gains tax (CGT) rules on budget night last year.
Before the announcement on 8 May, 2012, both residents and non-residents of Australia were entitled to a 50 per cent discount on any capital gains arising from the disposal of property they had owned for 12 months or more.
Should the draft legislation be passed, non-residents will no longer be entitled to the 50 per cent CGT discount on any real property acquired after budget night. To further complicate matters, any real property owned by a non resident as at that date will need to be valued, as it is only that part of the gain in excess of this value which will be ultimately assessable in full. That part of the gain arising on the property prior to budget night will still be eligible for the discount.
The proposed legislation will also impact upon Australian residents who move overseas to live and as a consequence become non-residents for Australian tax purposes and who subsequently dispose of any property they may have owned when they were resident.
The Government estimates this measure will net $55 million in additional tax over the forward estimates period.
Non-residents have been given very little time to prepare for this important change and as a result, many may suffer.
The new law will have significant financial implications for non-resident Australian investors, especially for those who may be unaware of the need to have their assets valued at the time the changes were implemented.
Non-residents will find it difficult to determine the exact amount of capital gains eligible for the discount if they fail to have their property valued at 8 May, 2012. The valuation will serve as proof of capital gains accrued up to that date should the Australian Taxation Office query the eligible discount amount upon the eventual sale of the asset.
In Sydney - one of the world’s most expensive capital cities with a median house price of more than $1 million - non-resident investors may choose to look elsewhere for future investments.
Colliers research figures from the third quarter of 2012 found that foreign capital investment made up 67 per cent of all investments in Australia’s commercial property markets, which was more than double the figure for the corresponding period of 2011.
Colliers indicated that there was $1.8 billion invested for the quarter, representing $6.3 billion in Australian foreign investment in non-residential property for 2012.
Should you require further advice, please contact your Nexia Australia representative.
Stephen Rogers
