Australia: Selling Land And Land Rich Entities: Non-Resident Tax Issues

Last Updated: 7 February 2007
Article by Karen Payne

This Legal Update provides an overview of the Australian tax issues for non-residents in respect of the sale of Australian real property interests following Australia's capital gains tax (CGT) reforms contained in Taxation Laws Amendment (2006 Measures No.4) Act 2006 (the CGT Reforms). The CGT Reforms will apply to gains made on or after 12 December 2006.

It also outlines some related stamp duty issues for non-residents on the sale of interests in 'land rich' entities.


For Australian income tax purposes, a non-resident is generally only assessable on income arising from sources in Australia. Gains arising from the sale of an interest in Australian real property is regarded as having a source in Australia. In addition, gains arising from the sale of interests in a company or trust that has assets being Australian real property interests is also regarded as having a source in Australia where those real property interests represent more than 50% of the market value of the underlying assets ('land rich' entities).

The CGT Reforms will also result in assessable Australian capital gains arising on the sale of non-resident entities being taxable in Australia where those entities (on a trace through basis) are land rich in Australia. Existing interests will transition into the Australian tax net with a cost base equal to market value on 10 May 2005.

Capital Gains Tax – Australian real property

Under Australia's domestic taxation laws, and in particular the relevant CGT provisions, the gain on the sale of Australian real property is subject to Australian income tax. Under Australia's double tax agreements ('DTAs'), Australia generally reserves the right to tax a gain on the sale of Australian real property - refer to the Alienation of Property Article (Article 13) of most DTAs. Therefore, where a non-resident makes a gain on the sale of Australian real property, the non-resident will be subject to Australian income tax on that gain.

Capital Gains Tax – land rich entities (before 12 December 2006)

Prior to Australia’s CGT Reforms, a non-resident was only subject to Australian income tax on gains made in respect of assets that had the 'necessary connection with Australia’. Shares in an Australian resident private company had a necessary connection with Australia as did shares in an Australian listed company where the non-resident (on an associate inclusive basis) owned at least 10 percent of the company at any time during the five years prior to the relevant disposal. Similarly, units in an Australian resident unit trust had the necessary connection with Australia where the non-resident (on an associate inclusive basis) owned at least 10 percent of the unit trust at any time during the five years prior to the relevant disposal. This was regardless of the underlying assets of the Australian company or trust.

Interests held by non-residents in non-resident entities did not have the necessary connection with Australia and were not generally subject to Australian income tax.

Australia's double tax agreements

As noted above, Australia will generally reserve the right to tax a gain made on the sale of shares or interests in entities whose assets consist wholly or principally of Australian real property under Australia's DTAs (refer to the Alienation of Property Article (Article 13) of most DTAs).

Australia amended its domestic legislation following the Full Federal Court decision in Commissioner of Taxation v Lamesa Holdings BV (1997) 77 FCR 597 to maintain its taxing right over the alienation of Australian real property in situations where real property was owned through a chain of interposed Australian entities and the interposed Australian entity that was sold did not directly hold the real property interests.

In Lamesa the Full Federal Court held that the relevant provisions of the Alienation of Property Article in the Australia/Netherlands DTA did not extend to an effective alienation of Australian real property held by a Dutch resident through a chain of Australian companies.

The amendment to the domestic legislation effectively extends the Alienation of Property Article in Australia’s DTAs to cover the alienation or disposition of shares where directly or indirectly the underlying assets are wholly or principally attributable to Australian real property. Treaties entered into by Australia subsequent to the Lamesa decision generally mirror this approach in the express wording of the Alienation of Property Article. For example, see Article 13(4) of the Australia/United Kingdom DTA.

CGT Reforms for non-residents (on or after 12 December 2006)

The Federal Government recently passed the CGT Reforms to reduce the Australian CGT base as it applies to non-residents who hold a direct interest in Australian entities. The CGT Reforms will also broaden the Australian CGT base as it applies to non-residents who dispose of interests in resident or non-resident entities whose "underlying" value is principally attributable to Australian real property.

As outlined above, a non-resident was previously only subject to Australian CGT on gains made in respect of assets that had the necessary connection with Australia. Such assets included land and buildings situated in Australia, shares or units in Australian companies or trusts (but excluding holdings of less than 10% in listed companies and unit trusts) and assets used at any time in carrying on a business through a permanent establishment in Australia.

Under the CGT Reforms, a non-resident will only be subject to Australian CGT in respect of Taxable Australian Property ('TAP'). The five categories of CGT assets that are TAP are:

(a) Taxable Australian real property

(b) a CGT asset that:

  • is an indirect Australian real property interest, and
  • is not covered by (e)

(c) a CGT asset that:

  • has been used at any time in carrying on a business through a permanent establishment and
  • is not covered by (a), (b) or (e)

(d) An option or right to acquire a CGT asset covered by item (a), (b) or (c), and

(e) A CGT asset that is covered by subsection 104-165(3) of the Income Tax Assessment Act 1997 (choosing to disregard a gain or loss on ceasing to be an Australian resident).

Taxable Australian real property is defined as real property situated in Australia, and also includes a mining, quarrying or prospecting right, if the minerals, petroleum or quarry materials are situated in Australia.

Indirect Australian Real Property Interests

An 'indirect Australian real property interest' is defined as essentially a membership interest of at least 10 percent (on an associate inclusive basis) in a resident or non-resident entity where the market value of the entity's assets that are taxable Australian real property is more than 50 percent of the entity’s total assets. Assets of subsidiary members are therefore also taken into account.

In particular, a membership interest in an entity will be an indirect Australian real property interest where:

  • it passes the non-portfolio interest test (that is, a membership interest of at least 10%) at that time, or throughout a 12 month period that began no earlier than 24 months before that time and ended no later than that time, and
  • the interest passes the principal asset test (that is, the market value of taxable Australian real property represents more than 50 percent of the total assets).

Stamp Duty Implications

Each Australian State and Territory imposes 'land rich' duty on dealings in certain entities irrespective of where those entities are resident or incorporated. The entities are private companies and private unit trust schemes but in some limited circumstances can include other listed entities.

Land rich duty is only payable on certain dealings in entities which are 'land rich'. In most jurisdictions a company or a private unit trust scheme is 'land rich' if:

  • its land holdings in all places, whether within or outside Australia, comprise 60 percent or more of the unencumbered value of its total assets (not counting excluded assets), and
  • it has land holdings in the relevant Australian State or Territory with an unencumbered value of at least $1 million to $2 million (depending on the relevant Australian State or Territory).

In determining whether a private company or a unit trust scheme is taken to be land rich it is necessary to include land or and other property held by a 'linked entity' (of the private company or unit trust scheme). In most jurisdictions, an entity will be a linked entity of a target if 20 percent or more of the equity interests in that entity are held by the target.

For example, if company A held 30 percent of the issued capital of company B which directly held land, then company A would be deemed to be entitled to 30 percent of the land and other property of company B for the purposes of determining whether company A is itself 'land rich'.

A liability to pay duty under the land rich provisions arises when a 'relevant acquisition' is made. Generally, a relevant acquisition occurs when a person acquires a significant interest in the landholder. A significant interest is an interest of 20 percent or more in a private unit trust scheme or 50 percent or more in a wholesale unit trust scheme or a private company arising under one arrangement and calculated on an associate inclusive basis.

A person acquires an interest in a land rich landholder if the person obtains an interest in the landholder, or the person's interest in the landholder increases, regardless of how it is obtained or increased.

In Queensland and Western Australia, the land rich provisions relate only to companies. However, other provisions impose duty on dispositions of interests in private unit trust schemes effectively on a look-through basis as if an interest in the underlying land had been acquired.

Depending on the relevant jurisdiction, duty must be paid within 30 days to six months after the date on which a liability to pay duty arises. Generally duty is payable by the person who makes the relevant acquisition or relevant disposal and is chargeable at the rate applicable to a transfer of land. The top transfer duty rate is 5.5 percent in most jurisdictions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.