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No more CGT discount for non-residents

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On 8 March 2013, the Assistant Treasurer, David Bradbury, released for consultation exposure draft legislation and explanatory materials to remove the capital gains tax (CGT) discount for non-resident individuals on taxable Australian property, such as real estate and mining assets. The exposure draft legislation will implement the Government’s decision to remove the discount, as announced in the 2012–2013 Federal Budget. Public consultation closes on 5 April 2013.

According to the Assistant Treasurer, the change is being introduced because the CGT discount is not necessary to attract investment from non-residents in these assets, which are immobile.

Key features

The proposed measures will apply where an individual has a discount capital gain, including as a result of being a beneficiary of a trust, from a CGT event that occurred after 8 May 2012 and where the individual was a foreign resident or temporary resident at any time on or after 8 May 2012.

In summary, the effect of the measure will be to:

  • retain the full CGT discount for discount capital gains of foreign resident individuals to the extent that the increase in value of the CGT asset occurred prior to 9 May 2012;

  • remove the CGT discount for discount capital gains of foreign and temporary resident individuals that accrued after 8 May 2012; and

  • apportion the CGT discount for discount capital gains where an individual has been an Australian resident and a foreign or temporary resident during the period after 8 May 2012. The discount percentage will be apportioned to ensure the full 50% discount is applied to periods where the individual was an Australian resident.

Importantly, where an Australian resident becomes a foreign resident, the amendments will only apply in circumstances where the assets are taxable Australian property, including where the individual has chosen to disregard any capital gains under CGT event I1 triggered by his or her change in residency status on making the election under s 104-165 of the Income Tax Assessment Act 1997 (ITAA 1997).

In addition, the proposed measures will ensure that capital losses continue to be offset against capital gains and that net capital losses may still be carried forward.

Note that the draft legislation also provides that the amendments are only intended to affect the discount percentage applied to a discount capital gain. The amendments are not intended to affect other rules in the CGT regime, such as the application of the main residence exemption.

Date of effect

The proposed amendments will apply to CGT events that occur after 8 May 2012. However, the portion of gains accrued prior to 9 May will still be eligible for the full CGT discount if the taxpayer undertakes a market valuation of the asset as at 8 May 2012.

Sources: Treasury exposure draft and explanatory memorandum, “Removal of capital gains tax discount for non-resident individuals”, 8 March 2013, www.treasury.gov.au/ConsultationsandReviews/Submissions/2013/Removal-of-CGT-discount-for-non-resident-individuals;

Assistant Treasurer’s media release No 029, 8 March 2013, http://ministers.treasury.gov.au/DisplayDocs.aspx?doc=pressreleases/2013/029.htm&pageID=003&min=djba&Year=&DocType=.

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