Changes in CGT Exemptions for Non-Residents in Australia
Special rules on the implementation of capital gains tax (CGT) for non-residents have been proposed in the 2017/18 Budget. These new rules will apply to foreign residents when selling their ‘main residence’ or property in Australia.
A property is considered a ‘main residence’ if:
- You and your family reside in it.
- Your assets are held in it.
- It’s the main address indicated in your mail and bills.
- Utilities and services like electricity and gas are connected to the residence.
Factors like length of stay and purpose for residing are also considered in determining whether the property is your main residence.
Under the previous rule, both Australian residents and non-residents can claim CGT exemption, so long as the property is their main place of residence. Properties used for income-producing activities like renting are subject to certain limitations and are required to pass more stringent requirements to qualify for the exemption.
New Rules in Effect
The new CGT rules were finally approved last 05 December 2019, and non-residents must understand the revised provisions if they plan to dispose their property.
If you’re a non-resident, CGT exemptions may still apply, but you need to have been a foreign resident for tax purposes for a continuous period of six years. This, plus any of the following conditions listed below, must be satisfied to receive the exemption:
- You, your spouse, or your child who’s under 18 had a terminal condition.
- Your child who’s under 18 or your spouse died within the 6-year period.
- The sale of the property resulted from the distribution of assets due to divorce, separation, or lawfully similar maintenance agreements.
Properties acquired before 09 May 2017 may qualify for CGT main residence exemption if the sale is made before 30 June 2020. Additionally, you’re still required to satisfy the new CGT main residence conditions to get the exemption.
Sale of assets made from 01 July 2020 may still be considered for exemption, so long as you satisfy the abovementioned conditions, and the events occur within the six-year foreign residency for tax purposes.
If you happen to pass away as a non-resident for tax purposes, your property will still be subject to the new CGT ruling, and the changes will apply to the executor or beneficiary of the deceased estate.
Before the law was passed, there were questions about the 6-year absence legroom for non-residents. The new rule, though, states that non-residents who ceased to be tax residents within the 6-year period aren’t eligible for CGT exemption.
Take note that non-residential tax rates will be applied on the capital gains during the sale of the property. If you happen to qualify for exemptions, expect the discount to be less than half of what it used to be before the new ruling was enforced.
Australian Residents Aren’t Affected
The new law only applies to non-residents living in the country for tax purposes. If you’re not an Australian resident for tax purposes, you’re automatically disqualified in claiming CGT main residence exemption.
Australian residents need not worry about the changes in CGT exemptions. Temporary residents, like New Zealanders, will also not be affected by these changes.