30 June deadline remains for foreign residents to apply for the CGT main residence exemption

With EOFY tax deadlines looming and businesses preparing their routine reporting, it’s important to consider other measures and critical cut off dates that could affect you. If you’ve moved overseas and own a main residence in Australia, you have a very short window remaining to utilise the CGT main residence exemption on the sale of your property.

In late 2019, the Government passed new laws to remove the CGT main residence exemption for taxpayers where they are a foreign resident at the time they sell their main residence.

The law applies retrospectively to the sale of a main residence happening at or after 7:30pm (AEST) 9 May 2017.

However, the laws allow a transitional period for any properties acquired before this time on 9 May 2017. These transitional rules allow for the main residence exemption to be claimed by foreign residents where a main residence:

  • Was acquired at or before 7:30pm (AEST) 9 May 2017; and
  • Is sold on or before 30 June 2020.

Properties sold after 30 June 2020 by foreign residents will not be eligible for the main residence exemption unless certain life events apply. Broadly, a foreign individual will continue to be eligible for the main residence if they have been a foreign resident for less than 6 years and any of the following ‘life events’ apply during the period of foreign residency:

  • You or your spouse had a terminal medical condition;
  • Your child (under the age of 18 years) had a terminal illness;
  • Your spouse or child (under the age of 18 years) has passed away; or
  • The property was sold as a result of a divorce.

If you’ve moved overseas and unsure of when you’ll return.

Many Australian tax residents have relocated overseas to Asia Pacific and other countries for various reasons and many are uncertain whether they’ll return. We’ve found that people tend to hold onto their property until they can determine when and if they’ll return.

The biggest issue we come across with these rules is that people are unaware that they may be liable to pay capital gains tax. If you currently reside overseas and have a property in Australia that was your main residence, you will be subject to CGT if you sell after 30 June 2020 unless you are able to satisfy specified ‘life events’ outlined above. Even though the home may have been your main residence in Australia, the gain on disposal will be subject to full capital gains tax.

This means that you can face substantial tax liabilities if you’ve held the property for many years and experienced growth.

What actions can you take that will make a difference to potential taxes?

If the property was purchased prior to 9 May 2017 and was your main residence, you have until 30 June 2020 to sell it, or transfer ownership, and access the CGT main residence exemption.

It may be too late to prepare your property for sale, so you may consider the option to transfer ownership (again, prior to 30 June 2020) to crystalize your exempt capital gain. Stamp duty and other professional costs will have to be considered, however, it’s important to understand the full tax consequences and whether you need to take urgent actions now.

If you decide to hold onto your residential property but have plans to dispose of it in future, make sure you  understand all the tax implications including the foreign resident capital gains withholding rate and obligations. When looking at your projected sale transaction, factor in these additional costs so you have an accurate picture of all charges.

Other factors to consider:

  • If you owned a property prior to 9 May 2017 and moved overseas, consider whether you can sell your property prior to 30 June 2020 as the CGT exemption may still apply;
  • If you are an Australian resident and you are planning to move overseas, you should consider whether you should dispose of your Australian property prior to relocating due to the tax implications that may apply if you sell your Australian dwelling as a foreign tax resident;
  • If you’re relying on the CGT main residence exemption, ensure you kept accurate records of your main residence;
  • If you work for a multinational company, consider if you need to sell or transfer your property before accepting any permanent projects overseas;
  • If you are a foreign resident with a former main residence in Australia but intend to return to Australia in the foreseeable future, the CGT main residence exemption may be available once you have re-established your residence in Australia.

Insight tips from our Experts

Insight:

Ruby Cheung, Director, Business Advisory

If you feel you won’t have time to sell your property, consider transferring ownership before 30 June 2020. If you purchased prior to 9 May 2017 and used the house as your main residence, by taking this action, you’ll be able to apply for the CGT main residence exemption.

Insight:

Grace van Oort, Manager, Tax Services

Ensure you can show records on expenses relating to property purchases. The capital gain is calculated based on the original cost base – which includes the purchase price, holding costs and other improvements

30 June deadline remains for foreign residents to apply for the CGT main residence exemption

Ruby Cheung

Over the past 19 years Ruby has been helping Australian SMEs, individuals and in-bound foreign entities to grow and expand their business.She provides advice on business strategy and planning, accounting solutions, outsource financial management, IPO support, global compliance and governance, taxation and commercial advice.

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