Australian’s Living Overseas Impacted by Tax Changes
New tax law removes the Capital Gains Tax (CGT) exemption on the sale of a Main Residence for many Australian’s living overseas
In a tax change which will likely be of concern and interest to many Australian’s living overseas, on 5 December 2019 a Bill to remove the main residence capital gains tax exemption for Australian tax non-residents was passed in Parliament.
This change was first put forward in the 2017 Budget and, whilst there was significant lobbying over the proposals, other than some limited concessions the original proposals have largely been passed into law (subject to the final formality of Royal Assent).
The change will mainly impact individuals who are leaving Australia, or who are already overseas, and who sell their main residence while considered a tax non-resident of Australia.
An individual’s home is prima facie exempt from Australian CGT where it is their main residence throughout their ownership period.
A partial exemption is available if a dwelling is used to produce assessable income (for example, rental income) during the individual’s ownership period. However, under an “absence rule”, an individual who does not treat any other dwelling as their main residence can treat a dwelling as their main residence for CGT purposes while they are absent for up to six years even if it is rented out, or for an unlimited period where it is not rented out.
Until 5 December 2019, these rules applied to all individuals regardless of whether they were an Australian tax resident or an Australian tax non-resident. This exemption is no longer available for Australian tax non-residents.
A Few Exceptions
There are a few limited exceptions such as where the sale is a result of a “life event” relating mainly to health and family matters (eg. divorce, terminal illness etc) where the individual has been a tax non-resident of Australia for a period of six years or less. Also, for properties already owned on 9 May 2017, the new rules will not apply to disposals before 30 June 2020.
For more information, please read the following PwC update https://pwc.to/2E4hnKp and/or watch the following video.
A few key takeaways to consider:
It is recommended that you consult with your Australian tax adviser if you are unsure of your Australian tax residency status.
If you are considering selling your main residence, it is important to consider what your Australian tax residency will be at the date of sale (which is the contract date).
If you are an Australian tax resident at the date of sale, there are no changes.
If you are an Australian tax non-resident at the date of sale, the main residence exemption will likely not apply and the capital gain or loss on the disposal will not be exempt for Australian tax purposes (unless one of the limited exceptions apply).
If you intend to or are considering selling your property whilst you are an Australian tax non-resident and will be subject to CGT on the property, it is important that you keep and maintain adequate records of the cost base of the property. In addition, the costs of acquisition, elements of the cost base can include the cost of improvements and certain other costs of holding the property which have not been previously deducted such as rates, land tax, repairs, insurance premiums and any non-deductible interest on loans used to finance the acquisition of the property or capital expenditure. These are costs we find people often forget to retain or include in their CGT calculations.
Please note this advice is general in nature and specific advice should always be sought.
Elisia is a manager in PwC's Global Mobility practice in the Melbourne office. Her focus area is providing global mobility tax services to corporate Australia with a connection in tax planning and compliance for inbound and outbound employees from Australia.