If you are a foreign resident, here are 3 important things you should know if you are thinking of selling your Australian property:
1. 10% withholding tax
2. 50% CGT discounts
3. Income tax
1. Withholding tax
From 1 July 2016, purchasers of certain ‘taxable Australian property’ from foreign tax residents will be subject to a non-final withholding tax of 10 per cent of the total consideration for the transaction to the Australian Taxation Office.
Foreign resident vendors will be entitled to claim the tax credit for the 10% withholding tax paid but they will be required to lodge an income tax return. The Commissioner will then issue the foreign resident with an assessment, which will either require the purchaser to pay for any capital gains tax (CGT) liabilities less the withholding tax credit already paid or issue a refund if the withholding tax credit paid exceeds the CGT liabilities.
A withholding tax obligation will only arise if the purchaser is aware or reasonably believes the vendor is a foreign resident or reasonably believes the vendor is not an Australian resident. Moreover, the purchaser can rely on any declaration by the vendor that it is not an Australian resident or that the asset being purchased is not ‘taxable Australian property’.
However, if the foreign resident vendor falls within one of the following categories then the 10% withholding tax is excluded:
- Real property transactions with a market value under $2 million, ensuring that the vast majority of residential house sales will be unaffected by this measure;
- Transactions listed on an approved stock exchange;
- The foreign resident vendor is under external administration or in bankruptcy.
2. 50% CGT Discounts
Are you aware of the special capital gains tax (CGT) rules that apply if you are a foreign resident or if you become, or cease being, an Australian resident?
In the 2013 Federal Budget, the Government announced that non-residents will not be eligible for the 50% CGT discount effective from 8 May 2012. The CGT discount will remain available for capital gains accrued prior to this date if a market valuation of the assets as at 8 May 2012 is obtained.
As the 50% CGT discount is no longer eligible for non-resident and temporary resident individuals, when intending to purchase a property in Australia they should place consideration in the appropriate structure or entity to hold the asset.
3. Income Tax
A non-resident will need to lodge a tax return only if they have Australian income, including:
- Employment income;
- Rental income;
- Australian pensions and annuities, unless an exemption is available under Australian tax law or a tax treaty;
- Capital gains on Australian assets.
Any income from which non-resident withholding tax has been deducted such as bank interest and unfranked dividends can be excluded.
Australian residents are generally taxed on their worldwide income while non-residents are taxed only on Australian sourced income. The marginal tax rates are different for income below $37,000, and the effective tax rates are much higher for non-residents.
Below are the 2015-16 tax rates for residents for tax purposes and non-residents. Note: These rates include the Temporary Budget Repair Levy but do not include the Medicare levy.
General individual income tax rates for residents
General individual income tax rates for non-residents
|If you are a foreign tax resident and would like to know more information on how selling your Australian property can impact you, please contact our office on 02 9299 4520 to speak to our experienced business and tax advisers at Linton Solutions.|