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CGT Main Residence Exemption Removed for Non-Residents

August 2017

The Government announced in May 2017 that non-residents will no longer be able to access the main residence exemption for CGT and details are now available about how this may work.

The Federal Budget announced that non-residents will no longer be able to access the main residence exemption for Capital Gains Tax (CGT) purposes from 9 May 2017 (Budget night).  Now that the draft legislation has been released, more details are available about how this exclusion will work.

What are the new rules?

Under the new rules, the main residence exemption – the exemption that prevents your home being subject to CGT when you dispose of it – will not be available to non-residents. 

The draft legislation is very black-and-white. If you are not an Australian resident for tax purposes at the time you dispose of the property, capital gains tax will apply to any gain you made – this  applies in conjunction with  the 12.5% withholding tax that applies to taxable Australian property with a value of $750,000 or more (from 1 July 2017).

Are there any transitional rules in place?

Transitional rules apply for non-residents affected by the changes if they owned the property on or before 9 May 2017, and dispose of the property by 30 June 2019.

This gives non-residents time to sell their main residence (or former main residence) and obtain tax relief under the main residence rules if they choose.

The draft rules apply even if you were resident part of the time

Interestingly, the draft rules apply even if you were a resident for part of the time you owned the property. The measure applies if you are a non-resident when you dispose of the property regardless of your previous residency status.

Special amendments are also being introduced to apply the new rules consistently to deceased estates and special disability trusts to ensure that property held by non-residents is excluded from the main residence exemption.

Rules tightened for property held through companies and trusts

The rules have also been tightened for property held through companies or trusts to prevent complex structuring to get around the rules.

The draft amends the application of CGT to non-residents when selling shares in a company or interests in a trust.  The rules ensure that multiple layers of companies or trusts cannot be used to circumvent the 10% threshold that applies in order to determine whether membership interests in companies or trusts are classified as taxable Australian property.

The residency tests to determine who is a resident for tax purposes can be complex and are often subjective. Simply living in Australia does not make you a resident for tax purposes, particularly if you continue to have interests overseas. 

Please contact us on 02 9957 4033 if you would like to better understand your position and the tax implications of your residency status.

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Disclaimer

This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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