Publications - Property & Development
Changes to Capital Gains Tax:
Removal of the Main Residence Exemption for Foreign Residents for Tax Purposes from 30 June 2020
Capital Gains Tax (CGT) applies to all assets in Australia (including real estate, such as your family home) acquired on or after 20 September 1985. Any properties acquired before this date are not subject to CGT.
There are a number of circumstances where you may be able to claim an exemption to paying CGT. One such exemption is the “Main Residence Exemption”, which applies to any profit that you make when you sell a residential property which you are living in, or have lived in. In those circumstances, that profit is not considered to be a capital gain (excluding any period that you used the property to earn rent or run a business, or where the property is on more than 2 hectares of land) and CGT is not ordinarily payable.
The “Main Residence Exemption” has been available to Australians living overseas who sell their main Australian residence. From 30 June 2020, however, Australian citizens living overseas will no longer be eligible to claim this exemption and, unless they are able to claim a “Life Event Exception” (discussed below), they will need to pay CGT if they sell their main residence in Australia.
The Application of the “Main Residence Exemption” from 30 June 2020
If you are an Australian citizen living overseas (or any other foreign resident for tax purposes) thinking of selling your main residence in Australia, you may want to fast track those plans to avoid missing out on claiming the “Main Residence Exemption” to CGT.
Foreign residents for tax purposes (including Australian citizens) who held main residence property as at 7.30pm (AEST) on 9 May 2017 will only be able to claim the CGT “Main Residence Exemption” if they sell their property on or before 30 June 2020.
For property acquired at or after 7.30pm (AEST) on 9 May 2017 which is sold after 30 June 2020, foreign residents for tax purposes (including Australian citizens) will no longer be able to claim the CGT “Main Residence Exemption”.
It is important to note that the recent amendments to CGT also apply to:
- Australians who ordinarily live overseas and have their main residence overseas and are foreign tax residents but who come to reside in Australia for a temporary period and buy a home here to reside in; and
- foreign nationals who buy a home in Australia to live in while working here which they then sell after returning to their home country.
“Life Events Exceptions” to CGT for Foreign Residents for Tax Purposes
Where you a foreign resident for tax purposes, there are still some limited circumstances where you may be able to claim a “Life Events Exception” to CGT. These exceptions are only available to people who have been foreign residents for a period of 6 continuous years or less at the time the asset in question is sold, and are limited to the following scenarios:
- You, your spouse, or your child (under 18 years of age), has a terminal medical condition.
- Your spouse or child (under 18 years of age) dies.
- The CGT event involves the distribution of assets between you, as a foreign resident, and your spouse because of your divorce, separation or similar maintenance agreements.
If you move back into your Australian home before putting it on the market you may still be able to claim the “Main Residence Exemption”, however, it is important to note that the Australian Taxation Office states on its website that if you have always been a foreign resident for tax purposes it is unlikely you will be able to meet the requirements to qualify for the “Main Residence Exemption”.
Where can I find more information?
The ATO has a number of useful resources regarding the “Main Residence Exemption”, and CGT more generally, on its website available at https://www.ato.gov.au/General/Capital-gains-tax/.
If you would like assistance or advice selling or purchasing property in Australia, or if you have any questions about the recent changes to CGT, please contact us by clicking here or by calling one of our lawyers.