[vc_row][vc_column][vc_column_text]Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019 has recently been passed by both Houses of Parliament and has received Royal assent.
First announced in the 2017–18 budget, the Bill denies non-residents the CGT main residence exemption for CGT events that happen on or after 9 May 2017, subject to an extended 30 June 2020 transitional date.
The amendments remove the entitlement to the CGT main residence exemption for foreign residents that have dwellings that qualify as their main residence. Therefore, any capital gain upon a disposal of a foreign resident’s main residence needs to be recognized.
The changes also remove the partial main residence exemption where it was the individual’s main residence for only part of the ownership period.
By way of example assume the following scenario (having regard to the Explanatory Memorandum to the Bill):
Terry acquired a dwelling on 20 August 2008.
On 13 November 2020 Terry signs a contract to sell the dwelling and settlement occurs on 11 December 2020. At this time, he was a foreign resident.[/vc_column_text][vc_column_text]Terry used the dwelling as follows during the period of time for which he owned it:
- establishing the dwelling as a main residence and residing there from when he acquired the property until 31 January 2010;
- renting it out from 1 February 2010 until 5 June 2011;
- restablishing the dwelling as his main residence and residing there from 6 June 2011 until 17 June 2019; and
- leaving the property vacant from 18 June 2019 until it was sold. From 19 June 2019 Terry resided in London as a foreign resident.
[/vc_column_text][vc_column_text]The time of CGT event A1 for the sale of the dwelling is the time the contract for sale was signed, that is 13 November 2020. As Terry was a foreign resident at that time, he is not entitled to the main residence exemption in respect of his ownership interest in the dwelling, even though he used the dwelling as his main residence for part of the time that he owned it.
Accordingly, a foreign resident selling their main residence will now be subject to CGT on the entire capital gain with no partial exemption or market value substitution rule allowed.
The following exception to this rule is available for certain taxpayers:
The Bill allows individuals who have been foreign residents for a period of six years or less to access the CGT main residence exemption if, during the period of that foreign residency, they undergo certain life events.[/vc_column_text][vc_column_text]A life event includes:
- a terminal medical condition to the foreign resident, their spouse or their child under 18 years of age;
- death; and
- divorce or separation.
[/vc_column_text][vc_column_text]Despite the intention to target foreign residents, the Bill denies Australian citizens living and working overseas the CGT main residence exemption even if they were a resident for a majority of the ownership period.
The Government had been asked to consider apportionment rules, but they were ultimately not implemented.[/vc_column_text][mk_blockquote font_family=”none”]Care should be given to the implication of these new rules should you be considering a move overseas.[/mk_blockquote][vc_column_text]Need help?
Are you considering a potential overseas transfer? Contact us to discuss the potential CGT implications and any planning opportunities that may be available.[/vc_column_text][/vc_column][/vc_row]
