Foreign Residents and Taxable Australian Property: What Remains Within the Australian CGT Net

After an individual becomes a foreign resident, Australia generally limits capital gains tax to taxable Australian property. The term is defined and should not be replaced with the broader idea of an “Australian investment”.

An asset issued, managed or held through an Australian platform may fall outside the category, while an interest in an overseas entity can fall within it if it is sufficiently connected with Australian real property.

Direct Australian real property

Land, buildings, leases and certain rights over Australian real property are taxable Australian property. This category also includes interests in mining, quarrying or prospecting rights in Australia.

The eventual main residence or discount outcome is a separate question. Classification as taxable Australian property merely keeps the gain within Australia’s CGT jurisdiction.

Indirect Australian real property interests

An interest in an entity can be taxable Australian property where the non-portfolio interest test and principal asset test are satisfied. Broadly, this targets substantial interests in land-rich entities.

Market values of Australian real property and other assets may need to be established. A small portfolio shareholding in an ordinary operating company will often not satisfy the tests, but the facts must be checked.

Permanent establishment assets

CGT assets used in carrying on a business through an Australian permanent establishment can remain taxable Australian property. The business and treaty analysis should be consistent.

Closing or restructuring a business can itself create CGT events.

CGT event I1 choice assets

Assets treated as taxable Australian property because the individual chose to disregard CGT event I1 remain within the Australian net until the statutory endpoint. These assets might otherwise have ceased to be taxable after departure.

Good departure records are essential because a later broker statement may not reveal that the choice was made.

Options and related rights

Options or rights to acquire taxable Australian property can also fall within the definition. Derivatives and trust interests require analysis of the specific legal rights.

Practical takeaway

Classify each asset under the statutory categories. Do not use issuer country, exchange listing or account location as a proxy for taxable Australian property.

Official sources and further reading

• Australian Taxation Office: Taxable Australian property
• Australian Taxation Office: How changing residency affects CGT
• Australian Taxation Office: Foreign and temporary residents

CGT