capital gains tax exemptions

No More Property Capital Gains Tax Exemptions for Expats?

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Capital gains tax exemptions for Australian expats who want to sell their homes may no longer be available after June 30, 2020.

The government is pushing ahead with the changes to capital gains tax (CGT) on main residences, announcing a deadline for sales for Australians who live and work overseas if they want to avoid what real estate and expat groups have been calling a tax slug.

Budget papers show the change is worth $581 million and will affect up to 100,000 people. For decades, Australians living abroad have had no problems claiming CGT exemptions on the family home. But the federal government’s plan may soon change that.

No More Capital Gains Tax Exemptions

If the proposed changes will go ahead, if you live and work abroad and you sell your house, no matter how long you’ve owned it or how long you’ve lived in it, you can no longer expect any capital gains tax exemptions from the government.

The change, which was shelved before the election and thought never to surface again, was introduced again as redrafted legislation by the Assistant Treasurer Michael Sukkar.

Mr. Sukkar said the bill will not affect Australian tax residents. As for foreign residents, if the bill is passed, they will just have to make a big decision between now until June 30 of next year.

Excluded Foreign Residents

The proposed change provides for certain exclusions. Foreign residents who acquired their homes in Australia from May 9, 2017, will not be eligible for main residence capital gains tax unless they have been overseas for no more than six years continuous and the capital gains tax event occurs at a time of a “life event” or junctures like terminal illness, death and marriage, or relationship breakdowns. In such cases, capital gains tax will not be denied.

Related:  12 types of Capital Gains Tax events

The Capital Gains Tax Exemption Change Was Retrospective

Tax watchers called the change a retrospective denial of the exemption that dates as far back as when the capital gains tax commenced in September 1985.

It was described as unfair especially since it does not recognise the period an expat lived in his home as his main residence. Instead, the tax treatment will be based on the residency status at the time the property was sold and not their use of the property or residency status throughout the period of property ownership.

To determine the capital gain, expats will have to calculate the cost base back to when they first acquired the property. And because capital gains for the main residence is not taxable, this may prove to be problematic as taxpayers may have already disposed of their home’s tax records.

The capital gains tax is anywhere up to 45 per cent depending on the individual’s income.

The potential changes in the capital gains tax exemptions may also negatively impact the property market, particularly since it’s still in the early stages of recovery.

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