Changes to the Capital Gains Tax main residence exemption – What does it mean for non-residents?

On 9 May 2017, the Australian Government announced that it was introducing a range of reforms to reduce the pressure on housing affordability for Australians, which would come into effect in the 2017-2018 Federal Budget. One of the reforms was the movement to no longer allow foreign tax residents exemption from capital gains tax (CGT) when they sold their main residence.

This policy change means that if you sell your Australian residence and are a foreign resident at the time of disposal, you will no longer be entitled to the main residence exemption and will be required to pay full capital gains tax on the disposal.

The Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018 was introduced to Parliament on 8 February 2018, to enact the 2017-2018 Federal Budget announcement, removing the entitlement to the CGT main exemption for foreign residents.

I am a non-resident and own property in Australia, what does this mean for me?

  • If you are a non-resident and enter into a contract for sale of a residential property that had previously been your main residence, you will no longer be able to access the full or partial main residence CGT exemption, including the temporary absence concession which currently allows you to rent out your home for up to six years without losing the CGT exemption.
  • These changes will apply to all sales on or after 1 July 2019.
  • These changes will also apply to sales from now if you purchased your Australian main residence after 7:30AET on May 9, 2017 (budget night).
  • It is important to note that the sale of a property is defined by the date that contracts are exchanged, and not the settlement date.
  • As foreign residents no longer qualify for the 50% CGT discount, the effective tax rate on the sale of a property that was previously a main residence and exempt from CGT will be up to 45%.
  • If you’re an Australian ex-patriot and have taken up foreign employment and are looking to sell your Australian property whilst living abroad, these changes will affect you also. However, if you permanently return to Australia and then sell your property all or part of the CGT exemptions may be available to you.

It is always critical to plan any sale of property whether you are a resident or a non-resident, but in light of the new amendments, it is crucial that if you are a foreign resident and own Australian residential property, that you understand and consider the tax implications associated with any sale.

For more information on the changes to the capital gains tax main residence exemption visit the Australian Tax Office. If you would like to receive some advice about your personal situation, we have a dedicated international team at Allan Hall who can help you you’re your enquiry. Please call us on +61 2 9981 2300 and one of our advisors will be able to assist you or click here to send an enquiry via our website.

 

This article was written by Trinity Woolnough – Client Service Director, Allan Hall Business Advisors

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