For Australian residents, your home is generally exempt from Capital Gains Tax (CGT) subject to meeting the ATO’s requirements.
Australians living abroad have also been able to claim the CGT exemption on the family home. This exemption has been available to foreign residents, so long as the home was rented out for no more than six years at a time.
However, in the 2017-18 Budget, the government announced that foreign residents will no longer be entitled to claim the main residence exemption when they sell property in Australia. This change is not yet law and is subject to parliamentary process, however we feel it is important for current expats, or individuals thinking of moving overseas to understand the significant tax ramifications.
If the law is passed and you are a foreign resident when a CGT event happens to your residential property in Australia, you may no longer be entitled to claim the main residence exemption. This is irrespective of whether your property was rented or vacant in your absence, rather, it depends on the date that you acquired and disposed of your property.
|Acquired Your Property:||Disposed of Your Property:||CGT Main Residence Exemption Possible|
|Prior to 9 May 2017||By 30 June 2019||Yes|
|Prior to 9 May 2017||After 30 June 2019||No|
|After 9 May 2017||Anytime||No|
If the changes become law as intended, an Australian who is a foreign resident who sells their main residence in Australia after 30 June 2019 would be paying CGT on the property – dating back to when they acquired the property, not the date that they moved overseas. This could result in a hefty tax bill, in which case it may be worthwhile either selling prior to 30 June 2019, or holding onto the property until they return to live in Australia and requalify for the main residence exemption for residents.
Whilst we’ll be tracking the progress of these changes as they move through Parliament, we do suggest that expats or individuals considering a move overseas, consider their options now. If you would like advice on these matters, please contact your accountant on (02) 9908 9888.