International tax series Part 6: recap: foreign residents, Australian residents, and capital gains

This is the sixth in our international tax series. The series discusses tax issues relating to non-resident beneficiaries of Australian trusts and resident beneficiaries of foreign trusts. The rest of the series is available here.

In this article we recap and summarise previous articles as those articles relate to:

1. Australian trusts distributing capital gains to foreign resident beneficiaries;

2. foreign trusts distributing capital gains to Australian beneficiaries; and

3. foreign individuals, companies, or trusts making Australian capital gains directly (that is, not through an Australian trust).  

Throwback: residency and source in Australia

Part 1 discussed the various residency tests that apply in relation to individuals, companies and trusts.

Australian tax residents are assessed in Australia on ordinary and statutory income from all sources whether inside or outside of Australia unless a statutory rule overrides this general rule.  A foreign resident however is generally assessable only on income from Australian sources or on income on a basis other than having an Australian source. Australia’s double tax agreements, for countries where Australia has such an agreement, can alter these general principles.

It is important to keep in mind that the concept of foreign persons, companies, or trusts for State or Territory taxes differ from the federal income tax concepts discussed throughout this article and in the International Tax Series. For more information about State taxes as they pertain to foreign persons, please see here.

International aspects of Australian capital gains tax

The following tables summarise the Australian tax and capital gains tax consequences for:

1. Australian trusts distributing capital gains to foreign resident beneficiaries;

2. foreign trusts distributing capital gains to Australian beneficiaries; and

3. foreign individuals, companies, or trusts making Australian capital gains directly (that is, not through an Australian trust).  

A key distinction in determining the tax outcome is between taxable Australian Property (TAP) and non-taxable Australian property (NTAP). Broadly, TAP includes:

1. Australian real property;

2. a 10% or greater direct or indirect interest in a company or trust where more than 50% or more of that company or trust’s assets are Australian real property;

3. assets of an Australian permanent establishment (branch); or

4. options or rights to buy the above.

Tax consequences for foreign beneficiaries of an Australian trust

	Discretionary Trust	Fixed Trust	Read more
TAP	Assessable	Assessable	Part 3
NTAP	Assessable	Disregarded	Part 3

Tax consequences for Australian beneficiaries of a foreign trust

	Position	Read more
TAP	Assessable, eligible for CGT discount and capital loss offset	Part 5
NTAP	Assessable, no CGT discount or capital loss offset	Part 5

Foreign individuals, companies, and trusts Investing in Australia directly (not through an Australian trust)

	Individuals	Company	Trusts	Authority
TAP	Assessable	Assessable	Assessable	Section 855-10
NTAP	Disregarded	Disregarded	Disregarded	Section 855-10

To discuss this further or for more information please contact:

Neil Brydges
Principal Lawyer | Accredited Specialist in Tax Law
M +61 407 821 157 | T +61 3 9611 0176
E: nbrydges@sladen.com.au

Henri Sheridan
Graduate Lawyer
T +61 3 9611 0194
hsheridan@sladen.com.au