When introduced, the new rules will apply to all forms of non-residents, be they individuals, companies, trusts or partnerships. (However, the definition of a 'non-resident' will stay the same.
The basis of CGT on non-residents will change from the current 9 categories of CGT assets which have the necessary connection with Australia to incur the tax (sec.136-25 of ITAA97).
The new basis will be whether the asset is "Taxable Australian Property". The new rules focus on a non-resident's real property and mining interests as the basis for levying tax.
'Taxable Australian property' (TAP) will broadly include:
All assets that are not TAP will not trigger CGT implications when dealt with by a non-resident.
A non-resident will have an indirect interest in Australian real property if it holds, through a resident or non-resident entity:
Capital profits accumulated by non-residents before the introduction of the new rules will not be grandfathered. Accordingly, book profits generated on assets previously within Australia's CGT net which move outside the net under the new rules will not be subject to CGT.
The rules enhance the integrity of Australia's CGT base — for example, by extending Australia's CGT rules to foreign company shares if the foreign company passes the principal asset test and a non-resident holds a non-portfolio interest.
Some of the key practical implications of the new rules are set out below:
Importantly, the new rules only apply to gains and losses generated on capital account. If a non-resident deals in an asset and generates a profit or loss on revenue account, that profit or loss is not dealt with by CGT.
The new rules have not yet become law. Keep an eye on the ATO website (www.ato.gov.au) which will confirm their introduction. Otherwise contact Michael Taylor-Sands or Julian Smith at Maddocks on (03) 9288 0555.
Leigh is a partner in the Maddocks Tax & Revenue team.
Leigh regularly provides advice on:
His advice covers both direct and indirect tax considerations.
Leigh advises Australian and multinational companies, high net worth individuals, accountants and financial advisers on all areas of taxation law.
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For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of their team.