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Main Residence CGT Reforms for Expatriates

In the constantly shifting landscape of Australian legislation and tax reforms, it can be tricky to keep up – even if you’re living here. But what if you move overseas?

Aussie expats who sell their former family home are generally entitled to some or all of the Main Residence Capital Gains Tax (CGT) exemptions on offer to permanent Australian residents.  However, under the Morrison Liberal Government, new legislation removes this exemption for non-resident taxpayers, which impacts expatriates significantly.  So – what’s changed, and how might this new legislation affect you? Let’s take a look…

Previous Legislation

Under the old rules, a ‘family home’ would be eligible for the Main Residence CGT exemption irrespective of your residency status.  In some instances, this exemption can apply up to six years after vacating the property.  This is still available for expatriates as long as they acquired the property prior to 9 May 2017 and sell it before 30 June 2020.

What’s Changed?

For properties acquired after 9 May 2017, the main residence CGT exemption will not apply if the property is sold whilst living overseas as a non-resident for tax purposes.  There are a few exceptions that provide non-residents access to the Main Residence CGT exemption, if certain life events occur. To be eligible, the following must occur within six years of ceasing to be an Australian tax resident:

• The taxpayer, their spouse, or any children under the age of 18 are diagnosed with a terminal illness; or
• The taxpayer, their spouse, or any children under the age of 18 pass away; or
• The property is sold or transferred in accordance with a formal family divorce or separation agreement.

If the above situations do not apply to your current circumstances, then we would recommend a review to ensure you are not caught out by the new rules.

Situations to Consider

Whether you’re looking to sell your former family home while you’re living overseas; thinking about acquiring another property as a potential residence on return to the country; or you feel you’re unlikely to sell in the near future, there are some things to consider.

You intend to sell your former family home sometime during the period you live overseas: Bring forward the sale to before 30 June 2020 or wait until you return to Australia permanently. Weigh up the potential benefits or drawbacks of early or deferred sale by asking an accountant to provide an estimate of the CGT liability if sold while living overseas where no exemption applies. This should take into account market risk, opportunity and requirements you may have for the sale proceeds.

You want to acquire another property as a potential residence on return and sell the former family home to assist with the purchase. Assess your borrowing capacity and lending options in relation to purchasing the new property. Having a discussion with a finance broker can help you determine the possibility of being able to buy a new property without needing to sell the old one. It may be more advantageous to buy now, and sell the existing property upon returning to Australia, as a CGT exemption may apply.

You do not foresee the need to sell the former family home for any reason. If there is no great rush to sell the family home, you may as well do so once you have returned to Australia permanently, as this will likely unlock the main residence CGT concession available for tax residents. As outlined earlier, the only way you may be able to benefit from these concessions whilst still overseas is if one of the three life events occur within six years of leaving the country.

The MP+ Difference

Navigating the tricky waters of Australian Tax, CGT, property and everything else that comes with it can cause some serious headaches. The Tax team at McKinley Plowman have years of experience and up-to-date knowledge of these complex landscapes to ensure that no matter what you’ve got on the horizon, your asset sales and acquisitions can be undertaken in the most tax-effective way possible. Give the team a call today on 08 9301 2200 or visit www.mckinleyplowman.com.au/contact-us/ to book a free, no-obligation consultation to see how we can help you.

written by:

Steven Lisle

Tax Manager Steven Lisle has been part of the McKinley Plowman team since 2007, and in that time has built his repertoire upon delivering industry leading, up-to-date international and Australian tax strategies and consulting services. Steve's clients enjoy the optimised tax outcomes he provides them, especially where complex structures could otherwise lead to significant tax obligations.