cgt

Australian expats and foreign investors to face tax reforms and CGT exemption lift

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Under the proposed housing affordability laws, Australian expats might see an increase in tax liability when they sell their Australian homes.

While living overseas and convert to non-resident, they could lose the CGT exemption on a home which used to be their main residence to give Australian buyers an opportunity to purchase properties.

The reform is part of the policy changes in property investment aimed to improve housing affordability. Currently, Australian residents are fully exempt from CGT on the sale of their main residence throughout the ownership period under the 6 year rule if certain conditions are met.. The capital gain is included in an individual’s taxable income and calculated as part of income tax.

Australian residents are also partially exempt if the house was their main residence for only part of the ownership period.

The absence rule  under the 6 year rule allows them to treat a home as their main residence for CGT purposes for an unlimited period of time as long as they don’t rent it out.

Meanwhile, Australians living abroad for work can qualify as non-tax residents, which removes their Australian tax liability while they live abroad.

However, the new policy will no longer grant them the absence rule or offer a partial exemption for the period when their home was their main residence.

Foreigners who live and own property in Australia, on the other hand, are exempt from CGT as long as they are not foreign residents when they dispose of the home.

There is, however, the new ghost house levy for foreign owners of Australian property in case it is unoccupied or available for rent for at least six months of the year.

Their non-final withholding tax upon disposal of a taxable Australian property has been increased to 12.5% of the sale value as well. Its threshold was also lowered to $750,000.

The proposed changes apply to properties bought from 9 May 2017 while those who have purchased their properties before that would have until 30 June 2019 to sell before losing the exemption.

Investors who own a home for over 12 months, which is not their main residence, get a 50% deduction on their CGT as well. However, non-residents are not entitled to the discount.

Others believe tax incentives are higher than incoming rent and that the housing affordability crisis will remain as long as the government does not reform the CGT exemption and negative gearing. However, some people believe the reform will only affect foreign investors who do not vote.

A fairer approach could be to tax the capital gain based proportionately on the period of non-residency of the ownership period, instead of just determining whether the person is a resident or not at the time of sale.

What can you do?

It is important to seek professional advice in navigating the different market conditions in Australia. Chan & Naylor does not sell properties so it remains unbiased. We would love to help you whether you are a beginner or seasoned property investor.

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Chan & Naylor Group has nationwide offices in Brisbane and Capalaba in Queensland, Melbourne and Moonee Ponds in Victoria, East Perth in Western Australia, and South West Sydney, Parramatta, Pymble, North Sydney, and Sydney in New South Wales.

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