Did you know that if you leave Australia to live overseas for a few years there may be significant consequences if you sell your former main residence in Australia?
The timing of the sale may be key to reducing the capital gains tax payable.
In the 2017 Federal Budget, the Australian Government announced that foreign residents will no longer be entitled to claim the main residence exemption when they sell property in Australia.
If the law is passed and you are a foreign resident when you dispose of a former main residence in Australia you may no longer be entitled to claim the main residence exemption.
It is proposed that the change will apply to foreign residents as follows:
- For property held prior to 7.30pm (AEST) on 9 May 2017, the main residence exemption will only be able to be claimed for disposals that happen up until 30 June 2019 and only if they meet the requirements for the exemption. For disposals that happen from 1 July 2019 they will no longer be entitled to the exemption
- For property acquired at or after 7.30pm (AEST) 9 May 2017, the main residence exemption will no longer apply to disposals after that date.
This change will only apply if you are not an Australian resident at the time of the disposal – ie the date of the contract of sale.
If you are a foreign resident when you die, the changes will also apply to:
- Legal personal representatives, trustees and beneficiaries of deceased estates
- Surviving joint tenants
- Special disability trusts
As noted, the legislation to give effect to the above has not yet become law; the Bill that gives effect to this change – the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018 – has been the subject of a referral to the Senate Economics Legislation Committee.
We will report back here when more information about this matter becomes known to us.
In the meantime foreign residents remain subject to Foreign Resident Capital Gains Withholding requirements.
These provisions affect vendors disposing of certain taxable property under contracts entered into from 1 July 2017 where the contract price is A$750,000 and above (a previous threshold of A$2 million applied from 1 July 2016 to 30 June 2017).
The FRCGW withholding tax rate is 12.5% (previously 10%).
bdh Tax invites you to contact us if you are not resident in Australia and are planning to sell a property in Australia – we will be pleased to have a free initial discussion about your capital gains tax position in Australia and how we might help.
If you are leaving Australia to live overseas and have other investment assets the deemed disposal rules resulting from CGT Event I1 may apply to you – in this regard please see our earlier blog.