Avoiding Australian Capital Gains Tax

Summary: The legal avoidance of capital gains tax in Australia is now possible for certain non-residents with assets in Australia

As part of an ongoing and thorough re-evaluation of taxation in Australia the Australian government has announced that it has plans to abolish capital gains tax for non-residents – the new proposals were presented to the parliament in draft form back in June 2006 and the proposals are widely expected to come into full effect shortly.

Under the proposals of the draft CGT law, avoiding Australian capital gains tax will be possible and legal for non-residents who have certain types of capital gains accruing assets which are either physically or legally located in Australia.

The draft proposals are currently under review; if and when they are ratified and passed into law only the actions of those affected following the generation of a capital gain will be exempted from Australian CGT when the taxable action takes place after the law is passed – i.e., as the draft law stands it will not be possible to back date Australian capital gains tax relief.

For expatriates who spend time living, working, investing and accruing assets in Australia it will theoretically become possible to avoid having to pay any capital gains tax if the expat in question leaves Australia and becomes resident elsewhere before they enact any taxable action through the sale or release of their Australian based assets.  However – there is specific mention of such an event in the law and those who elect to take this path should take advice first.  Furthermore, such individuals must ensure that they are not in some way liable for capital gains tax on their worldwide assets in their new country of residence.

As the tax law stands at the moment in Australia, expats and non-residents have to pay capital gains tax to the Australian government on a whole host of assets and profits they derive from their Australian interests and investments – these include any interest in trusts or shares of private companies for example.  This can result in up to a 30% loss in terms of a return on investment and can effectively negate any significant profits made. However, under the new legislation only a very few categories of asset would remain affected in terms of CGT liability for non-residents.

The remaining categories that can be affected by CGT are taxable Australian real property, indirect real property interests in Australia which are further defined as non-portfolio interests in any entity whose primary assets are taxable Australian real property, business assets which have ever been used in Australia, future options on any of the above category of property and finally - any assets held by a non-resident who has deliberately opted to postpone the capital gain producing action so that they can become non-resident first.

Naturally enough the final category could affect expatriates who were once resident in Australia and then later become non-resident – this is why it will be essential for such individuals to seek independent taxation advice before taking a taxable action.

SHARE: del.icio.us   Digg   Facebook   Google   Mixx   NewsVine   StumbleUpon   Technorati   YahooMyWeb