Main Residence Exemption Changes for Foreign Residents
5 March 2020
Deadline of June 30th 2020
The previously proposed changes to legislation for non-residents have now been enacted. This can have severe tax implications for former Australian residents who sell a former main residence while they are a non resident of Australia.
Old Legislation
Prior to the changes if you were an expat and classified as a non-resident for tax purposes your previous Australian main residence was eligible for the Capital Gains Tax (CGT) main residence exemption in the same way as if you were still an Australian resident.
Under these rules:
• A capital gain or loss from the sale of a house is disregarded if the house was your main residence throughout the ownership period
• You received a partial CGT exemption when your house was a main residence for only part of the ownership period or when the property was also used for the purpose of producing assessible income
• Could access a 6 year main residence absence concession
New Legislation
The new legislation removes the entitlement to the main residence exemption to those who at the time the contract for the sale of property is signed are:
• A foreign resident and have been continuously a foreign resident for more than six years; or
• A foreign resident who has not been a continuous foreign resident for more than six years and does not satisfy one of the below special conditions:
o Terminal medical condition affecting the person, spouse or children
o The sale occurred in relation to a matter involving the person and their spouse during the period of foreign residency such as divorce, separation or death
This means an individual who ceases to be an Australian resident for tax purposes won’t have the benefit of the main residence exemption for any period of their ownership of the property.
Impact
• If you are a foreign resident at the time of property sale you will generally not be entitled to the main residence exemption no matter how long you lived in the property
• No access to the 6 year main residence absence rule
• Only entitled to main residence concessions if fall into the special conditions listed above
• Issues with obtaining cost base records
Application Dates
The new legislation does not apply to properties purchased before 9th May, 2017 and contract date of sale signed before 30th June, 2020. Therefore there is a small window of opportunity left to still have access to the main residence concessions for non residents thinking of selling a property, but time is running out.
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