Removal of CGT for Expats
Removal of CGT Main Residence Exemption for Expats – Transitional Period Ending 30th of June this year
Many of you will be aware of the announcement back in the 2017 budget, that the Government had introduced a bill that would end the entitlement of non-residents to the 6 year Capital Gains Tax exemption on one’s Principal Residence. After seemingly walking away from this bill without ever enacting it (the bill was ignored by the government for 2 years after first being announced) it finally passed the House of Representatives on the 27th of November and the Senate on the 5th of December, receiving Royal Assent on Thursday the 12th of December. The transitional period was extended to 30th of June 2020 for expats already residing overseas and owning the property as at the 9th of May 2017.
What is the exemption currently?
If you own an Australian property which was your Principal Place of Residence (PPR), you are not obligated to pay capital gains tax on the growth made. In the event that the Main Residence becomes an income producing asset (e.g. renting) and you do not purchase a new Main Residence, then a 6 year CGT relief rule applies.
What are the changes?
With effect as of the 9th of May 2017, expats can no longer access this exemption, unless they were already non-residents as of that date. The transitional period, which was originally til the 30thof June 2019, was extended to the 30th of June 2020. As a result of the bill being passed, any Australian expat living overseas at the time they sell their Australian Main Residence will no longer be able to access the Main Residence Exemption from the 1st of July 2020. The most punitive aspect of the rule change is that the cost base for calculating the gain has been grandfathered back to the date you first purchased the property regardless of whether or not you lived in the property at all. If you sell your Main Residence as an expat before the 30th of June 2020 cutoff, you will still be entitled to receive the full benefit of the Main residence exemption provided you owned that property before the 9th of May 2017.
In the latest iteration of the bill, new exceptions for Australian expats were included whereby if you lived overseas for less than 6 continuous years and certain life events occur then you may still be able to access the CGT Main Residence Exemption.
What life events are included?
You or your spouse has had a terminal medical condition that existed at any time during that period of foreign residency;
- Your child has had a terminal medical condition that existed at any time during that period of foreign residency, and that child was under 18 years of age at least one such time;
- Your spouse, or your child who was under 18 years of age at death, has died during that period of foreign residency;
- The CGT event happens because of either divorce or separation involving you and your spouse (or former spouse) and there is a distribution of assets in a family law context.
For more information about this matter and to find out how this may affect your specific situation, please contact:
Atlas Wealth Management
+971 526 183 781