Up until the change of law on 12th December 2019, Australians living overseas have been able to claim the capital gains tax exemption on their homes here in Australia. However on the 12th December 2019, the Federal Government introduced new changes leaving thousands of ex-pats possibly with a heavy tax bill, unless they sell their homes before June 30, 2020.
The measure has been debated about for many years, and when finally passed in December, this new law included a 6-month reprieve, so any Australians who owned a property on May 9, 2017, would be able to claim the CGT exemption as long as they sold it on or before June 30.2020.
So what happens if you don't sell by June 30, 2020?
The Tax Bill will date back from the time the owner purchased their home, not the point at which they moved overseas, therefore the tax bills could be significant.
Is there an exception?
Yes, unless you satisfy the life event test. A test that is quite specific and gloomy.
You satisfy the life events test if, at the time of the disposal of your residential property in Australia:
- you were a foreign resident for tax purposes for a continuous period of six years or less and, during that time, one of the following must have also occurred:
- you, your spouse, or your child under 18, had a terminal medical condition
- your spouse, or your child under 18, died
- the CGT event involved the distribution of assets between you and your spouse as a result of your divorce, separation or similar maintenance agreements.
When does this change apply?
The change in law applies to foreign residents for tax purposes as follows:
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- for property held prior to 7:30 pm (AEST) on 9 May 2017
- you can only claim the CGT main residence exemption for disposals that happen up until 30 June 2020 and only if you meet the other requirements for the exemption
- disposals that happen from 1 July 2020 are no longer entitled to the CGT main residence exemption unless you satisfy the life events test (mentioned above)
- for property acquired at or after 7:30pm (AEST) 9 May 2017
- the CGT main residence exemption no longer applies to disposals from that date unless you satisfy the life events test (mentioned above).
- for property held prior to 7:30 pm (AEST) on 9 May 2017
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- Note: This change only applies if you are not an Australian resident for tax purposes at the time of the disposal. Where you dispose of the main residence under a contract, the disposal time is the time you entered into the contract. Where you do not dispose of the main residence under a contract, the disposal time is the time of settlement.If you weren't an Australian resident for tax purposes while living in your property, you are unlikely to satisfy the requirements for the CGT main residence exemption.
Since COVID-19 Hit the world in Dec 2019, new restrictions have been put in place in all sectors. In real estate, open houses and auctions are now canceled, social distancing measures have taken over the world, causing a big downturn in the economy. The demand to purchase houses has come to a halt as many are scared of what's to happen in the future. In such a restricted and uncertain market, ex-pats are incredibly worried about how they can possibly sell their houses before the cut off period.
LOSE LOSE SITUATION
If ex-pats cannot make June 30 cut off then capital gains tax would be calculated on 50% of the capital gain, less expenses however even if they do try to sell before June 30 via an online auction or private sale, the property market has dropped so much, you would still financially loose out.
Therefore you need to work out whether selling your property at a lower price point would still be better than giving away 50% of the capital gain to CGT.
If you would like to find out more or are looking for a new accountant, please contact us at Dolman Bateman and one of our expert accountants will be able to help you.
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