Do Foreign Investors Pay Capital Gains Tax in Australia?

In short: Yes. And there’s no escaping it.

As a foreign property investor in Australia, you are subject to Capital Gains Tax (CGT).

While you do not pay for the Medicare Levy, your taxes from any income as a non-resident still applies with the following income tiers: 

$0 – $135k = 30 cents to a dollar.
$135k – $190k = $40,500 + 37 Cents for each $1
$190k over = $60,850 + 45 Cents for each $1

These tax rates are much higher than taxes paid by Australian residents. You must also know that Starting January 1, 2025, the Australian Tax Office (ATO) will implement a new 15% withholding tax on all property sales by overseas investors.

Yes, Australia is a taxing country!

Foreign investors must have proper record keeping to calculate their capital gains properly. This includes getting a tax file number.

But, you can still reduce your capital gains tax and potentially get more withheld tax back from the ATO by considering the following: 

1. Residency and CGT Discounts: If you’re not an Australian resident, you usually can’t get the 50% discount on CGT for properties sold after May 8, 2012. But if you owned the property while you were a resident, you might still qualify for the discount for those times.
2. Main Residence Exemption: You might not have to pay CGT if the property was your main home. However, if you sell it while you’re a non-resident, you can’t claim this exemption unless specific life events occur.
3. Six-Year Rule: If you move out of your property, you can still treat it as your main home for up to six years, as long as you don’t claim another property as your main home during that time. This can help reduce CGT if you become a resident again.
4. Boosting the Cost Base: You can lower the CGT by adding costs like legal fees, stamp duty, and improvements to the property’s purchase price. This reduces the profit you need to pay tax on.
5. Market Valuation Method: If you owned the property before May 8, 2012, getting a market valuation from that date can help you calculate a new CGT discount. 
6. Regaining Residency: If you wait to sell the property until you’re an Australian resident again, you might get better CGT conditions, including possible discounts.

But first, you’ll need a Tax File Number (TFN)

Your tax responsibilities are linked to either your property or your TFN. If you don’t have a TFN, these responsibilities will stick around until you get one or file a tax return. It’s important to file tax returns starting from when you bought the property, even if you didn’t make any money at first. This way, you can build up losses over time, which can help reduce future capital gains tax.

Understanding Tax Responsibilities

Many foreign investors don’t realize their tax duties in Australia. They often think that if there’s no profit, they don’t need to report taxes. This isn’t true. Keeping proper record like filing regular tax returns is important for accumulating losses and lowering capital gains tax. If you don’t meet your tax obligations, you might have to deal with requirements going back to when you first bought the property.

Nobody wants to deal with that headache.

With your obligations to pay CGT or to understand how to reduce it and the upcoming changes to withholding tax, it’s more important than ever to be prepared. Read more about the the new withholding tax rules here. 

If you have questions or need assistance with your tax obligations, don’t hesitate to reach out to us.

Watch our latest video as we explain the upcoming tax law changes that will affect all foreign property investors in Australia

Our team at TJD Accounting Services has over 40 years of experience in handling non-resident tax returns and providing financial guidance to overseas investors. Let us help you make informed decisions to help protect your assets and finances.