Foreign Residents to be excluded from CGT Main Residence Exemption

Your main residence or basically 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. 

You’re eligible for a full main residence exemption if the dwelling:

  • has been the home of you, your partner and other dependants for the whole period you’ve owned it
  • has not been used to produce assessable income. (that is, you’ve not run a business from it, rented it out or flipped it)
  • and, is on land of two hectares or less.

Before, you can claim the exemption whether you’re Australian resident or a foreign resident for tax purposes. That includes Australian citizens, permanent residents and New Zealand citizens who are not a tax resident of Australia. But with the recent 2017-18 Federal Budget the rules has changed. From 9 May 2017 the Government removed the entitlement to the CGT main residence exemption for foreign residents that have dwellings that qualify as their main residence. Therefore any such capital gain or loss arising upon disposal of a foreign resident’s main residence will need to be recognised.

Time, Date and What to consider 

The rule will affect CGT events occurring after 7:30pm ACT time on 9 May 2017. Although most CGT events will be straightforward disposals of property, the amendments will apply to all CGT events affecting dwellings. This includes compulsory acquisitions and deceased estates.

Transitional provisions are included as section 118-110 of the Income Tax (Transitional Provisions) Act 1997 to grandfather the exemption for dwellings acquired before 7:30pm ACT time on 9 May 2017, and sold on or before 30 June 2019. These properties will continue to be exempt from CGT under the existing provisions until 30 June 2019. However, if the dwelling is sold after 30 June 2019 CGT there will be no relief available.

These new rules will need to be considered carefully by foreign resident owners of Australian residential property. If you have left Australia and kept your home as an investment, you may now be hit with Capital Gains Tax. The CGT liabilities at stake in these circumstances could be material given the significant increase in house prices in Australia over recent years.

For a deeper discussion of how this issue might affect you or your business, please contact us on 02 4732 3844 or visit www.judgeaccountants.com.au.