Capital gains tax discounts undergo changes

Tax law amendments announced in the 2012-13 Budget mean foreign or temporary residents and Australian residents who have lived overseas may not receive the complete capital gains tax discount

The Australian Taxation Office has changed the capital gains tax discount for foreign residents.

A capital gain or loss is the difference between what an asset cost and the amount individuals receive when disposing of the asset, with tax paid on any capital gains (profit).

Selling property is one of the most common ways individuals can make a capital gain or capital loss.

Individual foreign residents were previously able to claim a capital gains tax discount of 50 per cent.

However, tax law amendments announced in the 2012-13 Budget mean foreign or temporary residents and Australian residents who have lived overseas may not receive the complete capital gains tax discount.

From 8 May, 2012 individuals who are temporary or foreign residents must meet certain eligibility conditions to apply the capital gains tax discount.

Individuals who will be affected by the changes to the capital gains tax include foreign or temporary residents; Australian residents who have a period of foreign residency after 8 May 2012; and those who had a discount capital gain from a related event that occurred after 8 May, 2012.

If the capital gain occurred before 8 May, 2012, there is no change to the capital gains tax discount.

For capital gains tax events after 8 May, 2012 the percentage of the capital gains tax discount will depend on whether the asset was held before or after 8 May, 2012 and the residency status of the individual who has the capital gain.

"You must calculate the CGT discount you can apply to the capital gain if you are a foreign or temporary resident individual and, after 8 May 2012, you have a discount capital gain from a CGT event," ATO guidelines state.

The Australian Tax Office said individuals who were a foreign or temporary resident on 8 May, 2012 may “wish to get a market value for the CGT asset as at 8 May 2012 and use a market value calculation. This will apportion the CGT discount to take into account the capital gain you have that was accrued before 8 May, 2012.”

The Australian Taxation Office has a capital gains tax worksheet (PDF) to help individuals determine their eligibility and calculate their capital gains tax discount.

Australian residents who have a period of foreign or temporary residency after 8 May, 2012 and have a capital gains tax related event must calculate their capital gains tax discount.

The Australian Taxation Office said the “period of foreign or temporary residency after 8 May 2012 is taken into account when calculating the CGT discount you can apply to your capital gain”.

Australian residents can also use the capital gains tax worksheet (PDF) to determine their eligibility and determine their capital gains tax discount.

If individuals sold more than one asset, a worksheet must be completed for each asset unless they were sold or acquired at the same time.

Small businesses working out their capital gains tax discount percentage can use the small business concessions tool.