CGT and the family home: expats and foreigners targeted again

November 2019

The Government is again attempting to remove access to the main residence exemption for non-resident taxpayers-a move that will have impacts on expats and foreign residents.

As part of its 2017-18 Federal Budget, the Government announced it would remove the ability for non-resident taxpayers to claim the main residence exemption. It was a deeply unpopular move and while the measures were introduced into Parliament, they have yet to find the necessary support.

However the Morrison Government has introduced a revised version of the measures, proposing that they would apply from the original announcement date of 9 May 2017 which means the change would impact properties that have already been sold. A transitional rule may mean that the existing rules might continue to apply, assuming that a property was held continuously before 9 May 2017 to the sale date.

What does this mean for non-resident taxpayers?

Currently, individuals are generally not subject to capital gains tax (CGT) on the sale of the home they treat as their main residence.

There are various rather complex rules to effect the main residence exemption such as the partial main residence rule or the absence rule etc. The main residence exemption is currently available to individuals who are residents, non-residents, and temporary residents for tax purposes

For non-resident individuals, there will be a significant flow-on impact if the legislation passes Parliament as:

  • They will miss out on a full or partial exemption under the main residence rules;
  • They will generally be taxed at non-resident rates (i.e., no or only partial tax-free threshold)
  • The CGT discount percentage could be less than 50%
  • The cost base reset rules which sometimes apply to provide an uplift in the cost base of the property to its market value at the time it is first rented out are unlikely to apply 
  • The foreign resident withholding rules could impact on the cash flow position of the vendor

A Proposed Exemption

Assuming the measures pass through Parliament, a non-resident taxpayer would not be able to apply the main residence exemption rule to the sale of a property, regardless of whether they were a resident of Australia for some or most of the ownership period.

There is a proposed exception to the new rules for expats: in situations where the individual has been non-resident for 6 years or less and that a specific life event occurred during the period of foreign residency, for example:

  • Terminal illness suffered by the individual or certain family members
  • The death of certain family members
  • The break-down of a marriage or de facto relationship

A simple example of this would be that you may have been working overseas and your spouse died. In that case, the exception could potentially apply to a former Australian main residence.

Seek advice

The measures are still before the House of Representatives and are not yet law, and for that reason, seek advice before making any changes.

If you are concerned about how these impending changes may impact you, please contact us on 02 9957 4033.

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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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