Australian Home Owners Living Overseas: How you will be affected by the Capital Gain Tax Changes

Alice Hagen

What you need to know if you are classed as a foreign investor with an Australian property.  December 2019 saw the government pass through a plan to change arrangements for people living overseas who have been able to claim exemption from Capital Gain Tax (CGT) on their family home, which has been in place since September 1985. This has been on the basis if it was being rented out it was for no longer than a 6 year period.  

Seeing this law commence from July 1, 2020 will affect thousands of Australians. If you are a foreign resident for tax purposes at the time you dispose of your property you will not qualify for exemption. Meaning Australian property owners have until the end of June 2020 to sell their home and avoid a big CGT bill. The bill for some people may be extremely big as they will calculate the bill from when the home was purchased, not from when the home owners moved overseas.

An example ABC’s Mr Deutsch has given to put it into perspective as follows:

Elizabeth and Barry, who purchased a home in Melbourne in Elizabeth’s name on April 1, 1991 for $1.2 million. In January 2019, Elizabeth gets offered a senior position in a bank in England on an initial two-year contract but renewable by joint agreement.

She accepts and the couple leave for England in April 2019, while renting out the property on a one-year lease. The job turns out to be a perfect fit and Barry has also found a job in England, so the couple decide to stay there permanently.

On April 1, 2021, the Melbourne property is sold for $4.6 million.

As a result of the law, if Elizabeth is a foreign resident at the time of sale, which is likely on these facts, she will, quite absurdly, be denied the benefit of the main residence exemption.

He said her capital gain based on one of two ways of assessing it, would be $1.8 million ($4.6 million minus $1.2 million reduced by 46.67 per cent).

An alternative, he said, would be for Elizabeth to have come back to Australia and re-establish her Australian residency for the sole purpose of allowing her to sell her property free of a CGT liability, or at the very least a reduced liability.

The qualification for exemption from the CGT bill include the following life events the ATO outline in a recent article outlined below:

If, at the time of the disposal of your residential property in Australia:You were a foreign resident for tax purposes for a continuous period of six years or less and, during that time, one of the following must have also occurred:

  • You, your spouse, or your child under 18, had a terminal medical condition
  • Your spouse, or your child under 18, died
  • The CGT event involved the distribution of assets between you and your spouse as a result of your divorce, separation or similar maintenance agreements.

If you are in this situation and are wanting further advice on what your best options are at this time, feel free to add you details in below and we will get in contact!

Home Owners Living Overseas

Information for this blog post was sourced from:
https://www.abc.net.au/news/2020-01-02/australian-expats-face-tax-slug-cgt-main-residence-exemption/11836094
https://www.ato.gov.au/General/Capital-gains-tax/International-issues/Foreign-residents-and-main-residence-exemption/
https://www.ato.gov.au/General/New-legislation/In-detail/Direct-taxes/Income-tax-on-capital-gains/Capital-gains-tax-changes-for-foreign-investors/

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