Changes to legislation in Australia will result in expats disposing of their main residences or returning to Australia to resume residency for tax purposes.
Legislation assented to on 12 December 2019 has radically amended the availability of the main residence exemption on capital gains tax (CGT) to foreign residents for tax purposes (expats).
Under the former legislation, expats who sold their Australian main residence whilst living overseas were generally still entitled to the main residence exemption. Partial exemptions were also available to expats who used their main residence to produce assessable income for part of their ownership period and for expats who were temporarily absent from their main residence for a maximum of 6 years.
However, under the new legislation, this exemption will now only be available to:
- Owners who are tax residents of Australia on the date of the CGT event (e.g. date of contract for sale); and
- Owners who have been expats for 6 years or less AND have triggered the CGT event due to a life event (e.g. the owner, their spouse or child had a terminal illness, the owner’s spouse or child passed away or the owner and their spouse went through a relationship breakdown).
Expats who acquired their main residence before 9 May 2017 have been given a transitional window until 30 June 2020 to dispose of their main residence and apply the full main residence exemption to any capital gain made. Expats who miss this window and do not satisfy the new criteria for an exemption, will be liable for the full amount of CGT.
For expats who acquired their main residence after 9 May 2017 and do not meet the new criteria for an exemption, they will also be liable for the full amount of CGT.
Expats will no longer be entitled to any concession on CGT in light of any days in residence during the ownership period. The “6 year temporarily absent” exemption is also no longer available.
This approach is a severe departure from the application of other CGT exemptions and concessions based on days in residence and days in non-residence.
This will, no doubt, result in:
- Many expats disposing of their main residences before they had previously intended to;
- Many expats returning to Australia to resume residency (for tax purposes) and sell their main residences; and
- Many employers and employees in the global market considering the attractiveness of owning property in Australia, given that CGT is taxed at a taxpayer’s marginal tax rate.
For any landowners considering relocating overseas, it is vital that you obtain financial advice about whether you sell your property before relocating.