I'm thinking about selling a rental property I've owned since 2008. I was living in the United States between 2011 and 2015 before moving back to Australia. I heard the CGT discount was removed for non-residents. How will this affect my capital gain?
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Typically, where an individual sells a rental property and they were an Australian tax resident during the entire period of ownership, they are entitled to a full 50 per cent discount on the capital gain made on sale, meaning they will only pay tax at their marginal rate on half of the capital gain.
However, from May 9, 2012 the 50 per cent Capital Gains Tax (CGT) discount was removed for non-residents.
From this point forward, where a taxpayer was a non-resident prior to May 9, 2012 or had a period of non-Australian residency after this time, a partial (less than 50 per cent) CGT discount may still be available on the sale of a rental property which was acquired before this date.
The tax law provides two methodologies that can be used for calculating the partial discount percentage.
In other words, if a market value is obtained for the property, a reduced CGT discount percentage will only apply to the difference between the final selling price and the market value of the property as at May 8, 2012
Option one is to obtain a market valuation of the property as at May 8, 2012. Effectively this provides a full 50 per cent CGT discount on any capital gain accruing from date of purchase to May 8, 2012, with a partial CGT discount applying to any remaining capital gain accruing after this date (based on the proportion of days the taxpayer was a non-resident after May 8, 2012).
In other words, if a market value is obtained for the property, a reduced CGT discount percentage will only apply to the difference between the final selling price and the market value of the property as at May 8, 2012.
If a market value is not obtained for the property, a partial CGT discount will be calculated based on the proportion of days the taxpayer was a non-resident in their total ownership period.
This includes time prior to May 9, 2012.
As such, not obtaining a market valuation will typically give a much lower CGT discount percentage.
If you would like some more information on this topic, or have another tax question you need assistance with, please e-mail tax.albury@findex.com.au
Any information in this article has been prepared without taking into account your personal circumstances. You should seek professional advice before acting on any material. While reasonable care is taken in the preparation of this information to the extent allowed by legislation, Findex (Aust.) Pty Ltd ABN 84 006 466 351, accepts no liability whatsoever for reliance on it.