Australian expats lose capital gains tax exemptions

From 30 June 2020, Australian property owners living overseas will lose capital gains tax (GCT) exemptions on their main residence under legislation introduced by the Australian government.

The new rules mean that Australians living abroad will be required to pay CGT on any capital gains made from the sale their property, not just for the time they have lived overseas, but for the entire duration of owning the property.

This is a major change for Australians living abroad, who have been able to claim an exemption from CGT on their family home, as long as it was not rented out for more than six years, since 1985.

The government’s $581 million plan was first introduced in 2017, but its implementation was postponed. Following the national election, the legislation was reintroduced into parliament in October 2019.

The new legislation is designed to reduce pressure on housing affordability and dissuade people from either owning property that they do not live in or owning under-utilised land. It is hoped that the changes will also encourage investors to either put their land up for sale or keep their properties habitable and occupied.

Who will be impacted by the changes?

The changes will affect anyone who has a main residence in Australia and is considered a foreign resident for tax purposes. Although there is no clear test to determine who is considered a foreign resident for tax purposes, some of the factors include:

• Your citizenship
• The amount of time you’ve lived overseas
• Your employment status
• Whether you’ve purchased a home overseas
• Whether your family has relocated overseas with you
• Whether the ticket you bought to go overseas is a one-way or return ticket

Is there a transitional period?

The government has extended the period for which the main residence exemption can still be claimed up until 30 June 2020 for properties that were owned on 9 May 2017. 

If you purchased your main residence after 9 May 2017, the main residence CGT exemption is not available to you, unless certain ‘life events’ occur within six years of you becoming a non-resident for Australian taxation purposes.

What is considered a ‘life event’?

According to the ATO, the legislation does not apply in the following circumstances:

• • The taxpayer, their spouse or child under age 18 is diagnosed with a terminal medical condition
  • The taxpayer, their spouse or child under age 18 has died
  • The taxpayer is required to transfer ownership of the property to their spouse because of divorce, separation, or similar maintenance agreements

What are your options?

The introduction of the new legislation has left many expats questioning whether owning a main residence in Australia will remain financially viable and need to consider their positions well in advance of 30 June 2020. If you have like to know more about the changes to capital gains tax, call us today. Billings + Ellis can give you advice that’s specific to your needs and help you make an informed decision.