Capital gains considerations when moving overseas permanently

If you're an Australian resident planning to move overseas permanently, it's essential to understand the capital gains tax (CGT) implications of such a decision. Australia’s tax system has specific rules for individuals who cease to be tax residents, and these can significantly impact your financial situation, especially when it comes to assets like property, shares, or managed funds.

Types of assets can be split into 2 categories:

• Taxable Australian property- assets subject to CGT in Australia regardless of tax residency. Examples of this include:
  • Real estate in Australia
  • Business assets in Australia
  • Significant ownership (>10%) in Australian companies and trusts
• Non-Taxable Australian property - assets generally not subject to CGT when held by a non-resident. Examples of this include:
  • Shares & equities listed on the ASX
  • Exchange Traded Funds (ETFs) listed on the ASX
  • Managed funds in Australia

Taxable Australian property will have CGT implications at the date the investment is sold, similar to the situation for an Australian tax resident. However there are some benefits non-residents miss out on including:

1. No access to the general 50% CGT discount
2. No access to main residence exemption

There may be a partial exemption for the capital gain made prior to becoming a non-resident based on how long the taxpayer was a resident and the total period the asset was held.

If you hold non-taxable Australian property, you have two options when moving overseas in regard to disposing of assets.

1. Deemed disposal - i.e. a sale of the asset at the date you cease being an Australian tax resident. Even though the asset was not sold, the gain or loss is crystalised, resulting in CGT implications in Australia. Assuming the asset was held for 12 months prior to leaving, the general CGT 50% discount still applies. The challenge with this method is that no sale proceeds are available to pay potential tax liabilities.
2. Elect to defer CGT. This means the asset is still subject to Australian CGT even though you are a non-resident. The full capital gain from the purchase date to the sale date will be taxed in Australia when the property is sold, at foreign income tax rates, and without access to the general CGT 50% discount. These restrictions often make it more favourable to elect to use the deemed disposal method but will depend on the investment performance.

Moving overseas permanently can be an exciting new chapter, but it also brings complex tax implications, especially when it comes to capital gains tax. Australia’s tax rules can be complicated but with careful planning the impact can be managed. Whether it's deferring tax, applying for rollover relief, selling assets before departure, or ensuring the correct main residence exemptions are claimed, the key is to understand how the rules apply to your personal asset portfolio and future intentions.