Treasury has released draft legislation to implement 2017–2018 Federal Budget measures relating to the CGT liability of foreign residents and these measures are set out in more detail below. 

The measures, which will generally apply from 9 May 2017:

  • remove the entitlement to the CGT main residence exemption (MRE) for foreign residents that have dwellings that qualify as their main residence; and 
  • ensure that, for the purpose of determining whether an entity's underlying value is principally derived from taxable Australian real property (TARP), the principal asset test is applied on an associate inclusive basis.
Main residence exemption
  • Individuals who are foreign residents at the time a CGT event happens, to a dwelling in which they have an ownership interest, will not be entitled to the MRE.
  • A trustee of a deceased estate will not be entitled to the MRE in respect of an ownership interest in a dwelling of a deceased individual if the deceased was a foreign resident at the time of death. A beneficiary of a deceased estate will not be entitled to the MRE in respect of an ownership interest in a dwelling of a deceased individual if the deceased was a foreign resident at the time of death.

The amendments will not apply to a capital gain or loss from a CGT event that occurs to a dwelling if the CGT event occurs on or before 30 June 2019:

  • if an individual or trustee of a special disability trust held an ownership interest in the dwelling to which the CGT event relates at all times from immediately before the application time until immediately before the CGT event happens; or
  • if an individual acquired the property as a beneficiary of a deceased estate and at all times from immediately before the application time until immediately before the CGT event happens to the dwelling that individual, the deceased person, the trustee of the deceased estate of the deceased person, the trustee of a special disability trust on behalf of a principal beneficiary or a combination of these entities held the ownership interest in the dwelling.

Principal asset test

Under the foreign resident CGT regime, a capital gain or capital loss made by a foreign resident in respect of a membership interest will be disregarded unless both the non-portfolio interest test and the principal asset test are satisfied in relation to the interest.