What has changed? Well several things actually. Remember how you got a 50 percent discount on capital gains for your investment property. Yup, for non-residents, that’s gone. Had this occurred on Australian residents, there would have been a complete up-roar and front-page news. Effectively this doubles the tax payable on your property’s capital gains from this point. If you have some good gains it could be up to 48 percent tax rate, which you can just round to 50 percent when you complain to your foreign friends at the bar. This could cost you (and me) at least tens if not hundreds of thousands of dollars. 

Stings, doesn’t it?

 

Yes, it only applies to gains since 7:30pm on the 8th of May 2012 so hopefully the boom in your property value was earlier in the afternoon. Yes, the CGT discount will remain available for capital gains accrued prior to this time. You will need to dissect the growth before and after this date, so you will need to get a valuation when you sell to see how much gain was before and how much was after. This really reduces the attractiveness of the Australian property investment for a non-resident. “Try not to think about it too much, it only makes you grumpy”, is the sage advice from my wife. So let’s move on.

 

Secondly, in more bad news, although relatively minor by comparison, we have the rise in tax rates on Australian-based incomes to 32.5 percent. As of July 1, 2012, the first two marginal tax rate thresholds will be merged into that single rate and will apply to all Australian based taxable income below $80,000. From July 2015, the rate to 33 percent, which aligns with the second marginal rate for residents at that time. That doesn’t mean tax parity however, since non-residents, such as us don’t have the luxury of a tax-free threshold that is the privilege of residents, which coincidentally tripled from $6,000 to $18,000.

 

Next, any property investment funds that are paying you interest or payments to a non-Australian address. Well that rate of with-holding tax rate went up. The rate of withholding tax is now 7.5 percent but it doubles to 15 percent (or 30 percent if the country doesn’t have an exchange of information agreement with Australia).  Awkwardly this reflects a repeal of the current government’s own reforms just a few short years ago made to assist the development of the funds management industry. I guess it wasn’t a long-term plan.

 

Finally, Superannuation. In some good news there were no changes for non-residents specifically. Cue an overdue sigh of relief. Still there was action here but so worth having a quick gander to see what is going on so you can follow when you get home. The contribution limit on $25,000 per year over 50 with a balance less than $500,000 was supposed to be increased but was delayed until 2014/2015. Finally those who earn more than $300,000 AUD per year will be taxed 30 percent on superannuation contributions rather than the normal 15 percent and their will be no more reduced termination payment discount above $180,000. Thus the gold parachute executives get tangled up with the blue-collar worker payouts.

 

It seems the government was very canny, politically speaking, with the budget by trying to increase revenue (ie tax) on small groups unlikely to illicit much sympathy from the Sydney or Melbourne based media. Chinese investors or non-residents who can invest tax-free in Hong Kong or Singapore don’t elicit much sympathy.  It’s also canny because many long-term non-residents let their voting rights lapse and can’t re-enroll unless they are about to move home. Talk about taxation without representation. Still, we aren’t American, who pay global tax regardless of where they live, in a really complicated way, so at least you can take solace in these small mercies.

 

With the proposed changes it is recommended that you seek financial and/or tax advice to determine how any of the above changes may affect your personal circumstances. ■