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.
A range of income tax concessions are available to individuals who become resident of Australia and who qualify as temporary resident.
Many have the impression that Australia is a very high taxing country with very few tax concessions.
While that may be true in many cases, Australia also has very generous tax concessions in relation to temporary residents.
Australia, being a worldwide tax regime, taxes its residents on their worldwide income.
This means that if you move to Australia any foreign investment income your have will be taxable here.
Can you be a “temporary resident”?
If you are the holder of a “temporary resident” visa, and provided your spouse is also not an Australian citizen or permanent resident then you will qualify as a temporary resident and you can take advantage of these generous concessions.
This would mean that you would not be required to pay tax on your foreign investment income in Australia, even if you bring that income in Australia.
It is also the case that you would only be subject to capital gains tax in Australia on a very narrow range of assets, which would typically only include Australian real estate investments.
Foreign sourced capital gains would not be taxable in Australia.
This makes Australia a very compelling jurisdiction for foreign nationals to move to on a temporary basis without having to worry about all the complexity associated with bringing foreign investment “on shore”.
However, if you move to Australia and then decide to become permanent resident or if your spouse becomes an Australian citizen then you would cease being a temporary resident for tax purposes.
Note that the definition of “spouse” includes a person who you are legally married to or who you live with on a genuine domestic basis as a couple.
If you have questions about your eligibility to this very important tax concession, please reach out to CST Tax in Sydney and we would be happy to advise you further.