Australian Federal Budget 2024-2025 CGT Changes for Non-Residents

31st May, 2024

The recent 2024-2025 Australian Federal Budget (Budget) announced, amongst other key economic forecast updates, proposed changes to the Capital Gains Tax (CGT) regime for non-residents of Australia. Whilst the details surrounding the CGT regime changes are lacking, information released so far anticipates that the changes are expected to generate an additional $600 million for the Australian economy over the next five years.

The existing non-resident CGT regime permits a non-resident to disregard capital gains or losses from the sale of an asset, unless that asset sold is:

  1. taxable Australian real property;
  2. indirect Australian real property interest (which includes a significant interest of 10% or more in an entity with value primarily derived from Australian real property); or
  3. assets used in an Australian permanent establishment.

Changes to the non-resident CGT regime on applicable CGT events from 1 July 2025 will:

  1. clarify and broaden the types of assets on which foreign residents are subject to CGT;
  2. amend the point-in-time principal asset test to a 365-day testing period; and
  3. require foreign residents disposing of shares and other membership interests exceeding $20 million in value to notify the ATO, prior to the transaction being executed.

Proposed changes to the principal asset test from point-in-time (which examines asset values at a point in time) to a 365-day period suggests the introduction of a new calculation method to apply to the principal asset test which examines the asset values over one year.

In theory, the proposed notification requirements to ATO for non-residents disposing shares or other interests exceeding $20 million in value (where non-residents self-assess that the shares or other interests are not an indirect Australian real property interest) introduces oversight on a process previously difficult to monitor. Practically, however as the Budget has not provided further details in this regard, the implication of this new process would significantly impact transaction timeframes if the ATO assessment process lacks transparency and clarity.

There is a key theme in these proposed amendments which theoretically introduces new processes to ensure non-residents of Australia are assessed on transactions that have a close economic connection to Australian land.

To read more about the proposed non-resident CGT regime changes from the Budget, please click here.

Should you have any queries, please contact Michelle Huang by email to mhuang@mphlawyers.com.au or on (08) 9221 0033.

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