From 30 June this year, the general exemption from capital gains tax (CGT) for a principal place of residence will be lost to foreign tax residents.
It is a change to the status quo that has been in place since CGT was introduced in 1985, with an intent, as stated in Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018, to “… stop foreign tax residents from claiming the main residence capital gains tax (CGT) exemption when they sell property in Australia from Budget night 2017.”
The change will apply to foreign owners of property as follows:
- for property held before 7:30pm (AEST) on 9 May 2017, the 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 exemption will no longer apply to disposals from that date.
The poll: And its result
To gauge the viewpoint of both ordinary taxpayers and also Tax & Super Australia members on this change in taxation for non-resident property owners, we conducted a poll over the last quarter of 2018.
The poll stated the following position: “A proposed law change will restrict non-residents from claiming exemption from CGT upon sale of a principal place of residence”. It then asked for readers’ opinions on three positions regarding that statement — that it is “fair”, that it is “not right”, or that the change in treatment “needs more thought”.
The results were as follows:
- Fair — 55%
- Not right — 21%
- Needs thought — 24%.
A number of outcomes have been flagged since the measure was announced and subsequently digested. Among them is the possibility that an Australian residing overseas may inadvertently overstay and be therefore deemed to be a foreign resident for tax purposes. They would therefore find that a quite significant tax obligation accrues from the sale of their main Australian residence.
Also there is a possible implication with the interaction of the absence rule, with foreign residents potentially being put in a position of no longer having access. However previous Australian residents who resume residency will hopefully have access to the absence rule even over the time they were not residents. If you have a client in this position, applying for an ATO ruling may be prudent.
Another implication is that employees offered an extended offshore assignment by their employer may need to consider if their tax obligations may be negatively affected by the new rules. Either their main residence may need to be sold before they become non-residents for tax purposes, or the sale may need to be delayed until they return (assuming the absence rule, mentioned above, will still have relevance). Indeed the subsequent tax position may be an important factor in their decision to take up the offer of an offshore assignment or not.
Another outcome in the above situation could involve cost reimbursement implications for an employer, should an employee find themselves with greatly increased tax obligations brought about by selling a property while assigned overseas.
Next poll is open
Our current poll has to do with tackling the black economy, an issue on which Tax & Super Australia has made a submission to government on behalf of its members (download a copy from here).
The five proposals used in the poll are drawn from the above submission. Take our poll at the top right of this web page.
Is no property CGT exemption for non-residents a good move? Is no property CGT exemption for non-residents a good move? Is no property CGT exemption for non-residents a good move? Is no property CGT exemption for non-residents a good move? Is no property CGT exemption for non-residents a good move? Is no property CGT exemption for non-residents a good move? Is no property CGT exemption for non-residents a good move? Is no property CGT exemption for non-residents a good move? Is no property CGT exemption for non-residents a good move?