Capital gains tax for foreign property buyers operates differently than for Australian residents. The rules changed substantially in 2020, removing key exemptions that non-residents previously enjoyed. Understanding these changes is critical before you purchase or sell Australian real estate.
The 50% CGT Discount
Australian tax residents who hold property for more than 12 months receive a 50% discount on their capital gain. Foreign residents do not receive this discount on gains accrued after 8 May 2012. If you purchased property while a temporary resident and later sell as a non-resident, the discount calculation becomes complex. Only the portion of your ownership period when you were an Australian resident may qualify for the discount.
Foreign Resident CGT Australia: Withholding at Settlement
The foreign resident capital gains withholding regime requires buyers to withhold 15% of the purchase price when acquiring property from a foreign resident vendor. For contracts entered into on or after 1 January 2025, this applies to all real property transactions regardless of the purchase price. As a foreign investor selling property, you should factor this withholding into your settlement calculations. The withheld amount is not a tax payment itself. It is a credit against your actual tax liability, calculated when you lodge your Australian tax return.
Annual Tax Obligations
Foreign investors earning rental income from Australian property must lodge annual tax returns with the ATO. You cannot simply collect rent and deal with tax when you sell. The ATO requires non-residents to report rental income and claim allowable deductions each financial year. Failure to lodge can result in penalties and complicate future property sales.
FIRB Tax Implications at Purchase
Your FIRB application fee is not tax deductable. However, other costs associated with your purchase may be added to your cost base, reducing your eventual capital gain. Stamp duty, legal fees, and certain other acquisition costs can be included. Keeping detailed records from the outset makes your eventual CGT calculation much simpler.
State-Based Taxes
Beyond federal CGT, foreign investors face additional state taxes. Foreign purchaser surcharges apply in New South Wales, Victoria, Queensland, and other states. These surcharges add between 7% and 9% to your stamp duty bill. Some states also impose land tax surcharges on foreign-owned property. These ongoing costs affect your investment returns and should factor into your purchase decision.
Working With Your Accountant
We are FIRB lawyers, not tax accountants. We provide foreign investment tax advice in the context of your property purchase and FIRB approval. For detailed tax planning, annual returns, and CGT calculations, you need a qualified accountant familiar with non-resident taxation. We work alongside your accountant to ensure your legal structure supports your tax objectives.
