Understanding Tax Implications for Foreign Residents in Australia
When someone who was living outside Australia passes away, certain rules apply to their property, especially regarding capital gains tax (CGT) on their home. If the deceased was a foreign resident, these rules change slightly to ensure fair taxation. Let's break it down:
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Cost Base and Reduced Cost Base Adjustment:
- Before calculating any capital gain or loss on the deceased's home, we need to adjust the cost base and reduced cost base for the beneficiary. Essentially, we use the value of the property at the time of the deceased's death. If the deceased wasn't a foreign resident, we'd use the market value instead.
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Building, Repairing, or Renovating a Home:
- If the deceased was a foreign resident at the time of their death and the home was still under construction, repair, or renovation, certain tax benefits may not apply to the surviving joint tenant. The home can't be considered the deceased's main residence in this scenario.
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Apportionment Calculation:
- We treat the days the deceased owned the home as non-main residence days to ensure fair taxation, particularly if they were a foreign resident. This helps avoid any unintended tax implications.
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Excluded Foreign Resident Status:
- If both the deceased and the beneficiary are foreign residents at the time of the CGT event, the Main Residence Exemption (MRE) doesn't apply. The beneficiary must report the entire capital gain or loss on the property.
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Trustee Acquiring and Disposing of a Dwelling:
- If a trustee of a deceased estate buys a home for someone to live in according to the will, and the deceased was a foreign resident, the MRE doesn't apply when the trustee sells the property later on.
Understanding these rules ensures compliance with Australian tax laws, especially for foreign residents inheriting property in Australia.
Should you have any questions or need assistance, feel free to reach out to Tax Ideas Accountants & Advisers at +61 2 83181545 or book an appointment through our live calendar.
