# CGT Exemptions for Non Residents/Foreigners? Important legislation



## qaz (9 December 2006)

*CGT Exemptions for Foreigners? Important legislation*

I was listening to the radio on the way to uni the other day and I heard parliament talking about an amendment that would (if I heard correctly) get rid of capital gains tax for foreigners. Anybody been following this here and know something about this?. This could have massive implications for investment in Australia.


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## RichKid (9 December 2006)

*Re: CGT Exemptions for Foreigners? Important legislation*



			
				qaz said:
			
		

> I was listening to the radio on the way to uni the other day and I heard parliament talking about an amendment that would (if I heard correctly) get rid of capital gains tax for foreigners. Anybody been following this here and know something about this?. This could have massive implications for investment in Australia.




Hi qaz, I have heard this mentioned before, it is something that is worth discussing in detail. I think the Treasury is involved in reviewing the international taxation regime. There may even be some discussion of it elsewhere on ASF so other members would be better placed to comment if they're familiar with the issue.


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## qaz (10 December 2006)

*Re: CGT Exemptions for Foreigners? Important legislation*



			
				RichKid said:
			
		

> Hi qaz, I have heard this mentioned before, it is something that is worth discussing in detail. I think the Treasury is involved in reviewing the international taxation regime. There may even be some discussion of it elsewhere on ASF so other members would be better placed to comment if they're familiar with the issue.




It's funny though how they spend all day debating stem cell research yet something like fundamental changes to our tax system barely rates a mention. What do you think is gong to have a bigger day to day effect on your lives?........


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## RichKid (10 December 2006)

*Re: CGT Exemptions for Foreigners? Important legislation*



			
				qaz said:
			
		

> It's funny though how they spend all day debating stem cell research yet something like fundamental changes to our tax system barely rates a mention. What do you think is gong to have a bigger day to day effect on your lives?........




errr, this might start a huge row so let's just stick to the CGT issue in this thread and start another thread (if need be) about what you have juxtaposed (I just had to use that word!).


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## theasxgorilla (10 December 2006)

*Re: CGT Exemptions for Foreigners? Important legislation*

I can tell you one thing.  If you're an ex-pat trading the ASX it's a god-send.  I blogged it a little while back when the legislation got held up in the senate.

http://asxsifting.blogspot.com/2006/11/share-holders-may-soon-pay-no-tax.html


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## matti_pacman (11 December 2006)

*Tax changes to foreign investors*

Last wed the Aussie govt passed the law to exempted portfolio foreign investors from Australian capital gains tax, except for real estate and mining rights assets.

I am thinking it might encourage more oversea private equity firm to buy out companys on ASX... Wondering whether thats good or bad news?

What does everyone think about this change?


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## chops_a_must (11 December 2006)

*Re: Tax changes to foreign investors*

Why should foreigners not have to pay the same tax for the same things we do?


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## theasxgorilla (11 December 2006)

*Re: Tax changes to foreign investors*

There is a similar thread on this here:

https://www.aussiestockforums.com/forums/showthread.php?t=5265

In his explanatory memorandum, the Treasurer, Peter Costello, said: "The amendments will encourage more investment in Australia by aligning Australian law more consistently with international practice."


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## matti_pacman (11 December 2006)

*Re: Tax changes to foreign investors*

still cannot quite see the benefits...   
isnt there already alot of oversea private equity groups trying to buy out a number of aussie companies? Do they really need more encouragement?


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## carmo (11 December 2006)

*Re: Tax changes to foreign investors*

That stinks!


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## RichKid (11 December 2006)

From the Herald of last week: 

Foreigners to gain capital gains tax exemption
December 4, 2006 - 8:20PM
http://www.smh.com.au/news/business...s-tax-exemption/2006/12/04/1165080875364.html

Foreigners will gain exemptions from paying capital gains tax on the sale of Australian assets, under laws set to be passed by Federal Parliament.

The Tax Laws Amendment (2006 Measures No. 4) Bill is expected to be reintroduced to the Senate tomorrow, after the Government postponed the legislation last month in the face of disquiet among its own backbench.

Labor supported the bill in the House of Representatives earlier this year and will support it again in the Senate tomorrow, despite saying it has concerns about its impact.

Millions of dollars in investment projects are thought to be awaiting the passage of the controversial bill.

The law will exempt foreigners from paying capital gains tax except on the sale of Australian property.

Assistant Treasurer Peter Dutton says the bill will remove disincentives to foreign investment in Australia and ensure the country's tax laws are consistent with those of other OECD nations.

But rebel Nationals senator Barnaby Joyce today vowed to vote against the bill, as it gave an unfair advantage to foreigners.

"It means a person in Pyongyang has more rights to exemption from capital gains tax than a person in Sydney," he told AAP.

Family First senator Steve Fielding said today the bill was nothing short of a tax rort and he was amazed Labor was supporting it.

"Why should Americans or other foreigners get special treatment and Australian investors miss out? The same rules should apply to everyone," he said.

Senator Fielding said the legislation would see Australia swamped by foreign equity firms.

"Recently one of those firms, Kohlberg Kravis Roberts, made an $18.2 billion bid for Coles Myer, which was rejected by the board," he said.

"No doubt KKR will try again, and next time they won't have to pay capital gain tax."

Oposition revenue spokesman Joel Fitzgibbon said Labor had some remaining concerns with the bill, and the Government had failed to provide adequate costings.

But nonetheless the opposition would support the legislation.

AAP


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## CanOz (11 December 2006)

I really don't see what the fuss is about, you should all welcome it as fresh liquidity, and buckets of it.

Cheers,


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## chops_a_must (12 December 2006)

RichKid said:
			
		

> Oposition revenue spokesman Joel Fitzgibbon said Labor had some remaining concerns with the bill, and the Government had failed to provide adequate costings.
> 
> But nonetheless the opposition would support the legislation.




Ummmmm?


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## jiggy (14 January 2007)

Wow

So does that mean if an overseas student comes here study and trades shares - does that mean they don't have to pay any capital gains tax???  Does that apply to cfd's too?


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## billhill (14 January 2007)

Hey while they're at it why don't they just get rid of capital gains altogether. Make it fair for everyone.


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## theasxgorilla (14 January 2007)

You have to be a non-resident.  An international student would be a resident (temporary) and whether they are a non-resident for tax purposes would depend on whether they're here for less than half the year.

As I have recently learned non-residents were always tax except if you did not sell shares that equated to more than 10% of the company.  So guerilla (gorilla) traders like many of the people on this board, could buy and sell shares as non-residents and not pay capital gains tax.

The real risk and there in the benefit of this legislation is that it will attract more  international private equity groups who will get a big "tax discount" on furture leveraged buy outs.


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## mmmmining (24 January 2007)

I am exploring the opportunity to be a full-time investor, my accountant tell me I cannot:

He told me that if my transaction is large, i.e. more than 30 sells in a year, and if I have no other job, I have to be considered as share trader, not a investor. Anyone knows? Many thanks.


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## theasxgorilla (24 January 2007)

mmmmining said:
			
		

> I am exploring the opportunity to be a full-time investor, my accountant tell me I cannot:
> 
> He told me that if my transaction is large, i.e. more than 30 sells in a year, and if I have no other job, I have to be considered as share trader, not a investor. Anyone knows? Many thanks.




Get a ruling from the ATO.  Don't let the accountant tell you one way or another...and if you think he's bias and may not present your case to the ATO from the right angle then find another accountant who will.


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## mmmmining (24 January 2007)

theasxgorilla said:
			
		

> Get a ruling from the ATO.  Don't let the accountant tell you one way or another...and if you think he's bias and may not present your case to the ATO from the right angle then find another accountant who will.



Thanks, Theasxgorilla. 

He also tell me that the benefit to be a share trader is consider it as a business, so I can have the benefit of cost deduction. But I cannot get the 50% capital gain exemption for share held more than a year. Is that true? Thanks.


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## theasxgorilla (24 January 2007)

mmmmining said:
			
		

> Thanks, Theasxgorilla.
> 
> He also tell me that the benefit to be a share trader is consider it as a business, so I can have the benefit of cost deduction. But I cannot get the 50% capital gain exemption for share held more than a year. Is that true? Thanks.




It largely comes down to your economy of scale.  

Yes, so being a "share trader" business allows you to deduct costs...you can do this as a "share investor" too, but only against income (dividends) from the shares you own.  As a "share trader" your capital gains are considered income, so you may have more income to offset your expenses against, but this will probably depend on what kind of shares your are holding.  Also, will you be trading with cash, or on margin with interest?  Interest is deductible only against "income"...this could be a factor for you.

Having said all this, how much does it cost to trade???  You might have some large set-up costs initially, but annual overheads should be really small.  Internet/phone, data, subscriptions, stationary, electricity, heating, interest (if trading on margin), accountant?  What else?

Yes, as a "share trader" you also forfeit the 50% CGT discount.

As an incorporated "share trader" you also pay 30% on profits, right from the first dollar.  If you trade as an individual you'll need to make about $80k a year before your income tax liability gets above 30%.  You've also got to get the money out of the incorporated structure to use it for regular consumption, which will expose it to your individual tax brackets.  How much profit/income do you anticipate that you will make?  Do you have a partner?  Can you spread the share holdings and use their tax bracket too?  The break even point for incorporation vrs individual when you have a partner and expect to receive the CGT discount is much higher than $80k.  Probably closer to $200k.

If it were me (and it is me!), I'd draw up a budget (spreadsheets) with estimations of profit, frequency of trades (brokerage is treated differently depending on whether your a share investor or trader, so it becomes a factor), duration of positions held and then run scenarios under different tax arrangements/structures.

In your ultimate decision you will probably also factor in what you plan for the future...eg. will you  reach a break even point where incorporation is better?...what are the implications for shifting from one structure to another?...does that make one structure better for the long term, even though in the short term it will be less beneficial?  In my experience though, this is not usually the case.  As you grow you'll want to be holding onto as much money as you can so that you can  reach a critical mass as soon as possible.  If you are already big, it's a different story.

I hope this post is thought provoking, but please take it with a pinch of gorilla poo because I'm not an accountant, only a trader.


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## mmmmining (24 January 2007)

Theasxgorilla, Many thanks. I really appreciate your info. If you an accountant, I will let you to handle my business.


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