Capital Gains Tax (CGT) for Foreign Investors

If you're a foreign investor selling property in Australia, you’ll likely be liable for Capital Gains Tax (CGT) — one of the most significant tax costs you’ll encounter.

Unlike some other countries, Australia does not distinguish between residents and non-residents when it comes to the source of the gain: if the property is located in Australia, it’s always taxable in Australia, even if you live and pay tax elsewhere.

CGT applies when you sell, transfer, gift, or otherwise dispose of real estate, including:

• Residential investment properties

• Holiday homes

• Vacant land

• Inherited property (in some cases)

When CGT Applies to Non-Residents

If you're a foreign resident (for tax purposes) and you sell taxable Australian property, you must:

• Report the gain in an Australian tax return, and

• Pay CGT at non-resident tax rates (starting from 32.5%)

  
  

Common CGT events for foreign owners:

• Selling an Australian property

• Gifting the property to a family member

• Transferring property to a trust or company

• Being subject to a compulsory acquisition (e.g., government resumption)

• Key Point: Even if the sale proceeds are paid into a foreign bank account and the buyer is overseas, CGT still applies if the property is in Australia.

  
  

CGT Discount Eligibility: 50% Rule

In general, Australian tax law allows individuals to reduce their capital gain by 50% if the asset is held for more than 12 months before sale.

However, non-residents are not eligible for this discount on gains that accrue after 8 May 2012.

📅 How the 50% Discount Applies:

Ownership Period	CGT Discount?
Before 8 May 2012	Yes — full 50% discount applies to that portion of the gain
After 8 May 2012	No — no discount for non-residents unless they were an Australian resident during that time
Mixed periods	Partial discount may apply (apportioned based on valuation or time)

Main Residence Exemption – Non-Residents

One of the biggest tax traps for foreign investors and expats is the loss of the main residence exemption if you’re a non-resident at the time of sale.

Current Rule:

• If you're a foreign resident for tax purposes when you sell, you are not entitled to the main residence exemption, even if you previously lived in the home.

• This applies regardless of how long the property was your main residence or how long you've owned it.

  
  

Limited Exception:

• If you have been a non-resident for less than 6 years, you may still qualify if:

  • You became a resident again before selling, or

  • A life event exemption applies (e.g. death of a spouse, serious illness, divorce)

    
    

    Tip: If you are an expat or planning to move overseas, consider selling before you become a non-resident to preserve the exemption.

    
    

How to Calculate the Capital Gain

Your capital gain is generally the sale proceeds minus the cost base.

Step-by-Step:

1. Sale Proceeds (Capital Proceeds):

   • Contract sale price

   • Less: selling costs (e.g. agent commission, legal fees)

     
     

2. Cost Base (Original Purchase Price + Additions):

   • Purchase price

   • Purchase costs (stamp duty, legal fees, buyer’s agent)

   • Capital improvements (e.g. renovations)

   • Holding costs (e.g. interest, rates – only if not previously claimed as deductions)

   • Selling costs

     
     

3. Apply Any Discounts (if eligible):

   • Apply partial CGT discount (only for pre-2012 gains)

   • Subtract any capital losses carried forward from prior years

     
     

4. Tax the Net Gain:

   • Include the taxable capital gain in your Australian tax return

   • Taxed at non-resident marginal rates (32.5%+)

   • No tax-free threshold

Other CGT Considerations for Foreign Investors

Currency & FX Conversions:

• All figures must be reported in AUD

• Use the exchange rate on the contract date (not settlement)

• Fluctuations in foreign currency can affect your gain/loss when converting into AUD

Foreign Capital Gains Withholding:

• If you sell property over $750,000, the buyer must withhold 12.5% (rising to 15% from 1 Jan 2025) of the sale price

• This is a prepayment of CGT — you claim a credit when lodging your return

• You may apply for a clearance certificate if you are an Australian resident, or a variation if the actual CGT is lower than 12.5%

Record Keeping:

• Keep records for at least 5 years after the sale:

  • Contract of sale/purchase

  • Invoices for legal, agent, renovation costs

  • QS reports for improvements