Selling Property in Australia

If you are planning to sell property in Australia, it is important to understand the tax implications and regulations that apply. This article will provide you with an overview of the direct and indirect sale of real estate in Australia, including information on capital gains, VAT/transfer taxes, and losses.

Direct Sale of Real Estate

Resident Individual

Capital Gains

Capital gains realized by resident individuals on the sale of real estate are generally taxable at a rate of 15%. However, there is an exemption in place until 31 December 2024, which means that capital gains on the disposal of real estate are currently exempt from tax. This exemption has been in effect since 2013 and is expected to continue until other taxes on real estate are rationalized.

VAT/Transfer Tax

In Australia, the supply and lease of immovable property are generally exempt from VAT. However, starting from 1 January 2025, VAT will be charged if a new building is sold before its first occupation. The applicable tax rate for such cases is 24%.

Transfer tax applies to the acquisition of legal or economic ownership of Australian real estate and is paid by the purchaser. The tax value of the real estate is taxed at a rate of 3%. However, if VAT is charged on the sale of a new building, the 3% transfer tax is not payable.

Losses

Currently, losses arising from the sale of Australian real estate made by individuals are ignored, as gains are not taxable.

Non-Resident Individual

Non-resident individuals are treated in the same manner as resident individuals when it comes to the sale of real estate in Australia.

Resident Company

Capital Gains

When a resident company sells Australian real estate, any capital gains realized are subject to corporate income tax as business income. The tax rate for business income is 22%.

The corporate income tax on capital gains is based on the difference between the net sales proceeds and the tax book value.

VAT/Transfer Tax

Similar to individuals, the supply and lease of immovable property by resident companies are generally exempt from VAT. However, if a new building is sold before its first occupation, VAT will be charged starting from 1 January 2025. The applicable VAT rate is 24%.

Transfer tax applies to the acquisition of legal or economic ownership of Australian real estate and is paid by the purchaser. The tax value of the real estate is taxed at a rate of 3%. If VAT is charged on the sale of a new building, the 3% transfer tax is not payable.

Losses

If a resident company incurs a loss on the sale of Australian real estate, this loss can be carried forward for up to five years to offset future gains.

Non-Resident Company

Non-resident companies are treated in the same manner as resident companies when it comes to the sale of Australian real estate. However, losses can only be offset against other taxable income in Australia.

Indirect Sale of Real Estate

Resident Individuals

Capital Gains

When resident individuals sell unlisted shares, any capital gains realized are subject to income tax at a rate of 15%. The tax is calculated based on the difference between the sales price and the acquisition price of the shares. However, if the seller holds less than 0.5% of the share capital, the sale is exempt from capital gains tax.

VAT/Transfer Tax

The transfer of shares is not subject to indirect taxes in Australia.

Non-Resident Individual

Non-resident individuals are treated in the same manner as resident individuals when it comes to the indirect sale of real estate in Australia.

Resident Company

Capital Gains

Capital gains realized by resident companies on the sale of shares are subject to corporate income tax at a rate of 22%.

VAT/Transfer Tax

The transfer of shares is not subject to transfer tax or VAT in Australia.

Withholding Tax

Withholding tax is not applicable in the case of the indirect sale of real estate by resident companies.

Losses

Losses arising from the sale of shares by resident companies can be offset against profits in the same year or the next five years.

Non-Resident Company

Non-resident companies are treated in the same manner as resident companies when it comes to the indirect sale of real estate in Australia. However, losses can only be offset against other taxable income in Australia.

Direct Transfer Intra Concern (Australian Real Estate to Australian Company)

Capital Gains

When Australian real estate is transferred from one Australian company to another, any capital gains realized are subject to corporate income tax as business income. The tax rate for business income is 22%.

The corporate income tax on capital gains is calculated based on the difference between the net sales proceeds and the tax book value.

VAT/Transfer Taxes

In general, the supply and lease of immovable property in Australia are exempt from VAT. However, if a new building is sold before its first occupation, VAT will be charged starting from 1 January 2025. The applicable VAT rate is 24%.

Transfer tax applies to the acquisition of legal or economic ownership of Australian real estate and is paid by the purchaser. The tax value of the real estate is taxed at a rate of 3%. If VAT is charged on the sale of a new building, as mentioned earlier, the 3% transfer tax is not payable.

Losses

If a loss is realized on the sale of Australian real estate, this loss can be carried forward for up to five years to offset future gains. Additionally, under incentive legislation for business combinations or restructurings, transfer taxes and capital gain taxes may be avoided.

Indirect Transfer Intra Concern (Australian Real Estate to Australian Company)

Capital Gains

Capital gains realized on the indirect transfer of Australian real estate to an Australian company are subject to corporate income tax at a rate of 22%.

VAT/Transfer Tax

The transfer of shares in the indirect transfer of Australian real estate to an Australian company is not subject to transfer tax or VAT.

Losses

Losses arising from the sale of shares in the indirect transfer of Australian real estate can be offset against profits in the same year or the next five years. If the merger and acquisition provisions apply, transfer taxes and capital gain taxes may be avoided.

Direct Transfer Intra Concern (Australian Real Estate to Foreign Company)

Capital Gains

When Australian real estate is transferred from an Australian company to a foreign company, any capital gains realized are subject to corporate income tax as business income. The tax rate for business income is 22%.

The corporate income tax on capital gains is calculated based on the difference between the net sales proceeds and the tax book value.

VAT/Transfer Taxes

In general, the supply and lease of immovable property in Australia are exempt from VAT. However, if a new building is sold before its first occupation, VAT will be charged starting from 1 January 2025. The applicable VAT rate is 24%.

Transfer tax applies to the acquisition of legal or economic ownership of Australian real estate and is paid by the purchaser. The tax value of the real estate is taxed at a rate of 3%. If VAT is charged on the sale of a new building, as mentioned earlier, the 3% transfer tax is not payable.

Losses

If a loss is realized on the sale of Australian real estate, this loss can be carried forward for up to five years to offset future gains. Additionally, under incentive legislation for business combinations or restructurings, transfer taxes and capital gain taxes may be avoided.

Indirect Transfer Intra Concern (Australian Real Estate to Foreign Company)

Capital Gains

Capital gains realized on the indirect transfer of Australian real estate to a foreign company are subject to corporate income tax at a rate of 22%.

VAT/Transfer Tax

The transfer of shares in the indirect transfer of Australian real estate to a foreign company is not subject to transfer tax or VAT.

Losses

Losses arising from the sale of shares in the indirect transfer of Australian real estate can be offset against profits in the same year or the next five years. If the merger and acquisition provisions apply, transfer taxes and capital gain taxes may be avoided.

Transfer of Australian Real Estate to an EU Company

If the transferor’s home jurisdiction is within the European Union, the same rules apply as when the transferor is an Australian company. For example, liability to tax on capital gains may be avoidable if the merger and acquisition provisions apply. Detailed conditions can be found in the Council Directive of 19 October 2009.