In the May 2012 Budget, the Federal Treasurer announced that he intended to remove the CGT discount for non-resident individuals on taxable Australian property, such as real estate and mining assets. The world then went silent.

Nearly 10 months after the Budget announcement, the Assistant Treasurer, David Bradbury, finally released for consultation on 8 March 2013 the exposure draft legislation and associated explanatory memorandum.

Key impacts

The legislation is significantly broader than originally announced in the 2012 Federal Budget.

The proposed measures will apply where an individual has a discount capital gain, including a discount capital gain as a result of being a beneficiary of a trust, from a CGT event that occurred after 8 May 2012 and the individual was a foreign resident or a temporary resident at any time on or after 8 May 2012.

The proposed measures will also apply to Australian residents in a number of instances.

In summary, the effect of the measure will be to:

  • retain the full CGT discount for discount capital gains of foreign resident individuals to the extent the increase in value of the CGT asset occurred prior to 9 May 2012;
  • remove the CGT discount for discount capital gains of foreign and temporary resident individuals accrued after 8 May 2012; and
  • apportion the CGT discount for discount capital gains where an individual has been an Australian resident and, a foreign or temporary resident, during the period after 8 May 2012. The discount percentage will be apportioned to ensure the full 50% discount is applied to periods where the individual was an Australian resident.

Importantly, where an Australian resident becomes a foreign resident, the amendments will only apply in circumstances where the assets are taxable Australian property, including where the individual has chosen to disregard any capital gains under CGT event I1 triggered by their change in residency status on making the election under s 104-165.

The proposed amendments will apply to CGT events that occur after 8 May 2012. However, the portion of gains accrued prior to 9 May will still be eligible for the full CGT discount if the taxpayer undertakes a market valuation of the asset as at 8 May 2012.

A number of issues are already apparent within the draft legislation.

If the changes go ahead, it will be necessary to reconsider the vehicles in which taxable Australian property are held.

It also appears to send a negative message to people looking at investing in Australia under the recently announced Significant Investor Visa.

Submissions

Submissions are invited to be made by 5 April 2013 in respect of this proposed legislation.

Moore Stephens will be lodging a submission and a copy will be forwarded shortly.

This publication is issued by Moore Stephens Australia Pty Limited ACN 062 181 846 (Moore Stephens Australia) exclusively for the general information of clients and staff of Moore Stephens Australia and the clients and staff of all affiliated independent accounting firms (and their related service entities) licensed to operate under the name Moore Stephens within Australia (Australian Member). The material contained in this publication is in the nature of general comment and information only and is not advice. The material should not be relied upon. Moore Stephens Australia, any Australian Member, any related entity of those persons, or any of their officers employees or representatives, will not be liable for any loss or damage arising out of or in connection with the material contained in this publication. Copyright © 2011 Moore Stephens Australia Pty Limited. All rights reserved.