IMPORTANT! Foreign Residents and your Main Residence Exemption Entitlement

As a general rule, for Australian tax residents, your ‘main residence’ (your home) is generally exempt from capital gains tax (CGT). To get the exemption, the property must have a dwelling on it and you must have lived in it.

Generally, a dwelling is considered to be your main residence if:

• you and your family live in it
• your personal belongings are in it
• it’s the address your mail is delivered to
• it’s your address on the electoral roll,
• services such as gas and power are connected.

Implication for Foreign Residents

In the 2017–18 Budget, the government announced that foreign residents for tax purposes will no longer be entitled to claim the CGT main residence exemption when they sell property in Australia. The relevant Bill (original Bill) was introduced to the Parliament but it lapsed when the 2019 election was called.

On 23 October 2019, a new Bill (which revised the original Bill) was introduced and if passed, you will no longer be entitled to claim the CGT main residence exemption unless, when a CGT event happens to 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 life events occurred:

• • • you, your spouse, or your child who was under 18 years of age, had a terminal medical condition
    • your spouse, or your child who was under 18 years of age, 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.

WARNING! CGT main residence exemption will no longer available to a person who has been a foreign resident for more than six years, even if such a “life event” happens to that person during their period of foreign residency.

When the change will apply

According to the new Bill, the change will apply to foreign residents for tax purposes as follows:

• • • For property held prior to 7:30pm (AEST) on 9 May 2017
      • the CGT main residence exemption will only be able to be claimed for disposals that happen up until 30 June 2020 and only if they meet the other existing requirements for the exemption
      • disposals that happen from 1 July 2020 will no longer be entitled to the CGT main residence exemption unless certain life events (listed above) occur within a continuous period of six years of the individual becoming a foreign resident for tax purposes.
  • • For property acquired at or after 7:30pm (AEST) 9 May 2017
      • the CGT main residence exemption will no longer apply to disposals from that date unless certain life events (listed above) occur within a continuous period of six years of the individual becoming a foreign resident for tax purposes.

TIPS! This change will only apply if you are not an Australian resident for tax purposes at the time of the disposal, that is, when you sign the contract to sell the property.

We strongly suggest clients with properties in Australia who require to live/work overseas, to consult to us at Cloud8 Accounting & Taxation for their potential CGT implications.

Simplify booking an obligation appointment with the link below:

https://calendly.com/cloud8accounting