Capital Gains Tax for Foreign Residents – by Sam
As a foreign resident, you must lodge a tax return in Australia. You must pay tax on all Australian-sourced income, except for income that has already been correctly taxed (such as interest, unfranked dividends and royalties).
Australia has tax treaties with other countries and this may affect the amount of tax you need to pay. Ensure your Australian financial institutions have your updated overseas address and residency status so they deduct the correct amount of tax. This will reduce follow-up actions by Australia or a treaty country when discrepancies are found.
Non-tax residents are only subject to CGT on Taxable Australian Properties (TAP). Generally, you must include capital gains you make on assets that are considered taxable Australian property in your Australian tax return and pay tax on that amount.
TAP includes:
- A direct interest in real property situated in Australia
- A mining, quarrying or prospecting right to minerals, petroleum or quarry materials situated in Australia
- A CGT asset that has been used for carrying on a business through a permanent establishment in Australia
- Holding 10% or more of an entity
No tax on franked dividends
Non-tax residents who are authorised to franked dividends will not be able to utilise franking credits as it is intended to eliminate double taxation for Australian tax residents.
Non-resident withholding tax
Unfranked dividends paid out by Australian shares are subject to a non-resident withholding tax of 15% – 30%, depending on your country of residence.
No capital gains tax
Non-tax residents are not subject to CGT on Australian share investments. However, if you hold more than 10% of shares for the company or the company invested in principally invests in property, then CGT will apply.
Once you acquire Australian residency for tax purpose, the shares held will be considered to have been obtained at the market on that date.
Tax return obligations
One perk of being a non-tax resident is there is no obligation to lodge a tax return IF you only receive interest, franked dividends, or royalties where the withholding tax has already been withheld. Similarly, if you receive unfranked dividends and non-resident withholding tax has been withheld, then they won’t be required to be included in your tax return.
In saying that, if you are a non-resident working in Australia, then the Australian sourced income will most likely be subject to income tax at the end of the financial year.
At Simpro Taxation Services, we understand the challenges and complexity being faced in Australia. If you are considering on making tax-free capital gains on Australian shares whilst working as a non-tax resident, please contact us today for more information!
