The 2012 budget saw the government announce that they were scrapping the 50% CGT discount for non residents. The discount has previously applied to all capital gains that related to an asset that passed the 12 month holding rule. The changes will apply from 7:30pm on the 8th of May 2012.

Under the current CGT system, non-residents are only subject to capital gains tax if the CGT event relates to taxable Australian property. Whilst the capital gains accrued prior to the introduction will still invoke the discount, any disposal after this period will not be discounted. The operational details of the new regime have yet to be determined and will likely be announced after consultation with tax associations and Australian Taxation Office policy makers.

The changes are part of an overall plugging of the revenue base which has been severely eroded by declining revenues in the difficult economic climate. This appears to be directly aimed at non-voters, so is a political no-brainer. However, like much of the Government’s policy of late there’s going to be a downside when in comes to attracting foreign investment. Foreign investors will now pay double the amount of capital gains tax than they did previously, which could make it harder for local businesses to attract capital from the overseas sector.