The proposed removal of the main residence exemption on capital gains tax (CGT) for non-residents was met with criticism when it was first introduced in 2017. Although the Bill lapsed, a recent reworking was brought back on October 23rd, 2019.
So, what’s new? More importantly, what does this mean for Australian expats who still own a former main residence?
Changes with the main residence exemption for non-residents
As a revisal of the original Bill, this new proposed measure delays the inevitable loss of the CGT exemption. Two primary changes have been introduced. The first is simply an extension of the transitional concessions.
This concession applies for expats who owned a primary residence on May 9th, 2017. Existing Australian expats now have until June 30th,2020, to sell their main residence under the existing rules. (Previously they had until June 30th, 2019).
The new Bill also introduced some exceptions whereby a non-resident may be able to access the main residence exemption. These exceptions apply in the event of death, terminal medical conditions, or divorce. However, these events must occur within 6 years of becoming a non-resident. This ensures that the 6-year absence rule can still be accessed by expats who face such unexpected life events.
Retrospective application means there will be no expat CGT main residence exemption for any foreign resident.
It’s not all that often that major tax changes are applied retroactively. In this case, it does. Anyone who purchased their primary residence before a hint of these changes existed will still be caught by them.
Were you a foreign resident with a main residence property held on May 9th, 2017? The main residence exemption will only apply for non-residents if you sell prior to June 30th, 2020. Of course, you still need to meet the usual requirements for main residence CGT exemptions. If you wait, then you’ll miss out. You won’t even be able to apply for a partial main residence exemption.
No relief for long-term main residence
Imagine this scenario.
You purchase and live in a home from 1989 through to 2019. You’re then given the opportunity of a lifetime and make a permanent move overseas. You put your home up for sale immediately. However, by the time your property sells, you are a non-resident for Australian tax purposes. This means you are hit with a CGT bill on the capital gain. It doesn’t matter how long you previously lived in the property. You don’t qualify for any exemption. On top of this, you’re missing out on potential capital gains reductions. That’s because you didn’t think it was necessary to keep the relevant records for the 20 years that you lived in the property.
Anyone who purchased their main residence after May 9th, 2017 will be caught under the new laws when they sell as a non-resident. Whether they sell now or next year, they will be subject to the full CGT.
Time To Act
While the Bill hasn’t passed into law yet, it is important to strategise. Be prepared for what it may mean for your situation and plans so that you have your contingencies ready and, if necessary, put any immediate plans into action. While CST Tax Advisors and other accounting bodies will continue to address the concerns with this measure, it’s important that you understand how these measures could impact you.
Contact CST Tax Advisors to discuss your current situation and assess your options.
The president of the International Association of Movers (IAM), Charles White, recently submitted comments on the Customs and Border Protection Bureau regarding the Proposed Rule: Customs Broker Verification of an Importers’ Identity.
The proposed rule requires importers to provide additional information to U.S. customs brokers with the purposes of verification of the importer’s identity. The rulemaking requires the following details:
- Email and business website
- Business registration details
- Recent credit report
- License with state authorities
In the submitted comments IAM challenges that the proposed elements are not applicable for individuals who don’t own a business and are just importing their used household goods and personal effects into the U.S.
IAM states that “These requirements are clearly written for companies that import goods into the U.S. but do not recognize that people like our clients import goods as well.”
Expatland is a member of the IAM and we fully support the view that individuals moving their personal possessions to the U.S. should be exempt from these new requirements.
Often inbound expats are seen as imposing a cost for the government of the host country.
There are a number of reasons for this , including funding its immigration system to deal with issuing work visas and naturalization procedures. In some cases there are legal expenses of deporting people who overstay their visas.
Then there are a range of other costs including public infrastructure costs, healthcare and education costs.
While dealing with expats can be an initial economic burden, it is clear that at the same time an inflow of expats brings positive effects to the economy, providing a positive impact on GDP.
Expats contribute to a country’s wealth
A recent study on world wealth shows some interesting figures: the leader in the overall wealth ranking is the US with $60.7 trillion in assets owned by individuals (property, cash, equities, business interests) minus liabilities.
It is not coincidental that the US (as the wealthiest country in the world) is also the world leader in the total number of migrants, outnumbering the second wealthiest country on the list, Saudi Arabia, by 37 million people.
The US is on the top 10 list of rankings based on wealth per capita, while China, Japan and India with inflow of expats of less than 0.2% (while following closely following the United States in the overall wealth list) are way down the list in terms of per capita findings.
Expats bring new skills to host countries
Countries with the highest percentages of expats among the total population – more than 70% – Saudi Arabia, Qatar, Kuwait, UAE are not surprisingly among the top 5 destinations, voted by expats as having the best opportunities for personal financial growth.
The oil sector is one example of an industry where expat workers earn more than local workers. Taking the UAE as an example, the average expat Oil and Gas worker earns $USD127K per annum, while the average income for locals in the Oil and Gas sector is just $USD46K.
It is worth mentioning that according to the HSBC report, UAE has the highest percentage of working expats – 92%, with the top industries being finance and engineering.
Continuing down the list of the countries with the highest migration rates, next comes Monaco and Lichtenstein (more than 45% of total population); wealth per capita in Monaco reaches astonishing $2,144,000, Lichtenstein follows with $786,000. The expats contribution to these numbers is undeniable: while the Gulf countries attract mostly global employees, European countries attract more entrepreneurs than employees.
Expats not only bring their knowledge to the new communities, but these 3% of the world population, who live “on the move”, contribute to the prosperity of their host countries by relocating their financial wealth and spending it in Expatland.