Contact: Amanda Kennedy
Deloitte
Media and Communications
+61 (0) 418 806 477

Contact: Joe Niven
Deloitte
Partner
+61 (0) 2 9322 7991

Draft laws introduced yesterday will largely do away with Australia's hated Capital Gains Tax (CGT) for foreign investors.

Deloitte International Tax and M&A Partner, Joe Niven, said under the new laws most foreign investors can sell their Australian investments without paying CGT.

"Currently, foreign investors in Australian private companies pay CGT just like Australian residents," Mr Niven said.

"Australia is one of the few countries in the world that taxes capital gains made by foreign investors.

"CGT has been a real hurdle for foreign investors who have looked at Australia in the past.

"Private equity investors in particular have faced a real dilemma when deciding where to put their investment dollar.

"Do they put their money into Australia and potentially lose 30 per cent of their return or do they invest somewhere else that doesn't tax non-residents? To its credit, the Australian government has finally resolved this dilemma."

A number of high profile deals involving foreign private equity firms have taken place since the new laws were originally announced, such as Newbridge Capital's $1.4b purchase of the Myer Department Stores and KKR's $1.8b acquisition of the Brambles waste management business.

"Combined with other recent changes to Australia’s international tax regime, this should encourage foreign investment, as well as make Australia more attractive as a holding company location in the Asia Pacific region," Mr Niven said.

The new law will exempt non-residents from CGT on the sale most Australian assets.

"However, not everyone will be happy as certain categories of Australian assets will continue to be taxed, in particular real property (such as Australian land and mining rights) and Australian branch assets.

"Foreign investors in these industries may not be so welcoming of the news.

"Whilst the new laws generally cut the scope of the CGT, foreign investors in the property and infrastructure industries will be horrified to learn that Australian CGT now applies to the sale of shares in foreign companies and trusts that have significant interests in Australian property."

The changes will not have a retrospective affect and will only apply to disposals occurring after the new rules become law.