Moving overseas? Your sale of main residence could attract Capital Gains Tax!

As a foreign resident, if you dispose of your house after 30 June 2019, you will now be hit with Capital Gains Tax (CGT).

That is the new tax clarification released by the Government’s Mid-Year Economic and Fiscal Outlook 2017-18 in December 2017.

In an Exposure Draft released last July for comments, the Government confirmed that it is planning to remove access to the CGT main residence exemption from 9 May 2017 for foreign. However, this will not affect Australian temporary residents.

Foreign residents who already hold property on 9 May 2017 will still be able to claim the main residence CGT exemption until 30 June 2019.

Who will be affected

The legislation proposes to apply to ‘foreign residents’, which, by definition, are those taxpayers that are not ‘resident’ for Australian tax purposes. It also applies to Australian citizens or permanent residents who dispose of their Australian main residence whilst being a foreign resident for Australian tax purposes.

Residency test when CGT event occurs

The test of residency is determined at the time a CGT event applies to a main residence. The most common situation where a CGT event occurs is when there is a sale of a property, particularly when the contract for that sale is entered.

Australian citizens or permanent residents leaving for overseas and becoming non-residents of Australia who sell their main residence, will be adversely impacted by these changes.

No apportionment

The Exposure Draft does not contain any apportionment of the main residence exemption, either based on days of ownership over the whole period of ownership as an Australian resident or as a non-resident for Australian taxation purposes. Accordingly, if an individual is a foreign resident at the time of the sale of the residence after 30 June 2019, full amount of CGT will be applicable.

Vicki’s example

  • 10 September 2010:

Vicki acquired a dwelling and moved into it, establishing it as her main residence.

  • 1 July 2018:

Vicki vacated the dwelling and moved to New York. Vicki rented the dwelling out while she tried to sell it.

  • 15 October 2019:

Vicki signs a contract to sell the dwelling.

As Vicki is a foreign resident on 15 October 2019, she is not entitled to the main residence exemption. This outcome is not affected by Vicki previously using the dwelling as her main residence.

What you need to do

If you are a foreign resident, you need to keep yourself updated until the proposed law change is passed by Parliament. After the new law is enacted, as a taxpayer you will need to review your position.

You will be asked for:

  • The date you bought the property and the date you sold it (or will sell it)
  • Other information depending on your particular circumstances – i.e. if you rented the property for a while, you’ll need to enter the period it was rented.

For Australian residents, comparative calculations and tax residency analysis may be required before accepting any assignment overseas.

If you would like to know more information, please contact our office on 02 9299 4520 to speak to one of the experienced business and tax advisers from Linton Advisory Group.

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