What do Australian Expats need to know about Deemed Disposal Rules?

Australians moving overseas should familiarise themselves with the deemed disposal rules. This is to ensure they have the opportunity to maximise the tax outcomes of their Australian investments.

What is deemed disposal?

A deemed disposal refers to a situation where a person is considered to have sold or disposed of an asset for Capital Gains Tax (CGT) purposes, even if they haven't actually sold or physically transferred the asset. This can occur when a person moves overseas and stops being an Australian resident for tax purposes. You are taken to have disposed of certain CGT assets for their market value at the time you stopped being a resident.

What assets does deemed disposal apply to?

If you stop being an Australian resident for tax purposes, the CGT assets subject to deemed disposal do not include ‘Taxable Australian Property (TAP)’, such as Australian residential property. See our Fact sheet on what assets are considered TAP.

The CGT assets subject to the deemed disposal rules include Australian shares, managed funds, Exchange-Traded Funds (ETFs), and cryptocurrency assets. This may mean you become liable to pay CGT as part of moving overseas.

Is deemed disposal optional?

You can choose not to have deemed disposal apply. If you do this, your CGT assets are taken to be taxable Australian property until you eventually dispose of them. When this occurs, the Australian Tax Office (ATO) will consider the whole period of ownership, including any period when you're not an Australian resident when they calculate a capital gain or loss for CGT purposes. Additionally, if you dispose of the asset as a non-resident, the foreign resident tax rates will apply to any capital gain.

Example: Australian moving overseas stops being a resident for tax purposes

Jennifer resides in Australia. She gets a job in Hong Kong and decides to move there permanently.

Jennifer owns an apartment in Melbourne that she decided to keep and rent out. Jennifer also owns some Australian shares in publicly listed ASX companies.

She leaves Australia on 15 January 2024 and stops being an Australian resident at that date.

As Jennifer has stopped being an Australian resident, she is taken to have disposed of her shares for their market value on 15 January 2024.

Jennifer has the option not to apply the disposal rules, however, Jennifer decides to, as any further gains on the shares after 15 January 2024 are not subject to tax while she remains a non-resident.

Jennifer is not taken to have disposed of her apartment because it is taxable Australian property. A CGT event will only occur in respect of the apartment if she decides to dispose of it.

Reporting and Compliance

In Australia, deemed disposals must be reported in your tax return. The Australian Taxation Office (ATO) requires accurate reporting of any deemed disposals to ensure compliance with CGT obligations. Failure to report correctly can result in penalties or additional tax liabilities. You don't need to tell the ATO what you decide, the way you prepare your tax return is generally sufficient evidence of your choice.

Concluding thoughts

Careful consideration should be given to the decision to apply deemed disposal as the most suitable choice varies depending on your personal situation. Understanding deemed disposal is essential for managing your tax obligations effectively and maximising your future outcome. It is advisable to consult with a tax professional who can provide guidance tailored to your circumstances.

By staying informed about deemed disposal rules, you can make better financial decisions and ensure the best outcome for your situation.

General Advice Disclaimer: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.