Be Aware: CGT on Overseas Property Sales for Former Australian Residents
If you're an individual who moves abroad and becomes a foreign resident, selling overseas property may trigger Capital Gains Tax (CGT) obligations if you previously chose to defer gains upon leaving Australia.
When you cease to be an Australian resident, CGT event I1 occurs, requiring you to account for capital gains and losses on assets not considered taxable Australian property, such as overseas property.
However, you have the option to defer these gains and losses by making a choice under Section 104-165. By doing so, your CGT assets are treated as taxable Australian property, subjecting them to CGT if sold later when you're a foreign resident.
While CGT applies to the sale of taxable Australian property, like real estate in Australia, it generally doesn't apply when selling property located overseas.
The Australian Taxation Office (ATO) faces challenges in enforcing compliance among foreign residents who fail to report CGT obligations related to taxable Australian property, especially when they reside overseas.
To address this, the ATO introduced foreign resident CGT withholding rules under Subdivision 14-D of Schedule 1. These rules require buyers to withhold a portion of the purchase price (12.5% or 10%, depending on the contract date) for certain property acquisitions made by foreign residents.
Note: The withholding rate may be adjusted under Section 14-235 for contracts entered into from July 1, 2017.
For further guidance or assistance, contact Tax Ideas Accountants & Advisers at
+61 2 83181545 or book an appointment via our live calendar.