Australia Monitoring Capital Gains Tax Avoidance By Foreign Residents

by Mary Swire, Tax-News.com, Hong Kong

19 November 2008

Australian Tax Commissioner Michael D’Ascenzo has issued a statement warning foreign residents selling indirect holdings in Australian real property about arrangements that attempt to avoid Australian capital gains tax.

The alerts cover arrangements that attempt to circumvent indirect holding rules through staggered sell down arrangements and manipulation of the value of assets.

A staggered sell down arrangement attempts to progressively ‘sell-down’ an interest held by a foreign vendor through a series of transactions which are intended to avoid Australian capital gains tax. The other warning concerns an arrangement which attempts to use selective valuations or injection of assets to change the calculation of assets held by a foreign vendor that may be subject to capital gains tax in Australia.

Tax Commissioner Michael D’Ascenzo said in the current economic environment he is concerned foreign resident vendors may be tempted to try to avoid their Australian capital gains tax obligations.

“The tax office closely monitors disposals of real property by foreign residents using information from Australia and overseas agencies and has identified several suspect arrangements that attempt to avoid capital gains tax,” D’Ascenzo said adding:

“Anyone thinking about entering into such arrangements should carefully consider whether a capital gain arises, as we will be actively looking at such arrangements if they prove to be ineffective.

“Taxpayers who are unsure of their tax obligations should seek independent advice from a person not trying to market such a scheme or contact us so that we can help them understand and comply.

“If they are genuinely uncertain they can ask for a free private ruling from us.

“If taxpayers who have entered into such an arrangement come to us before we contact them for an audit, they will be entitled to a reduction in any penalties that may apply.”

Recommended