Australia Cuts Capital Gains Tax Exemption
For decades, Australians living abroad have been able to claim the capital gains tax (CGT) exemption on the family home but new legislation states that this will no longer be the case. The Federal Government recently enacted its plan to change CGT arrangements for people living overseas.
At Montfort we have put the spotlight on the changes and how they may affect you:
CGT exemption for Australian expatriates had been available since 1985 and was applicable so long as the home was rented out for no more than six years at a time.
Now due to the CGT exemption being cut, potentially thousands of Australians will be hit with large tax bills if they opt to sell their property while resident overseas.
It is important to be aware that the new tax law will date back from the time the owner purchased their home and not the date when they moved abroad. Therefore, if you made a purchase in the late 1980s and decide to sell while residing abroad, you could face a large tax bill. Australian homes that were acquired before 20 September 1985 are unaffected.
At Montfort our tax experts recognise that every client’s situation is different and deciding whether to sell a property requires specialist tax advice. Numerous factors need to be taken into consideration – do you intend to return home, are you renting, what is the relative value of the A$ versus the currency of your resident country?
International Tax Consultant Jeff Bowman comments on the legislation and the complications it brings: “How to respond to the enactment of these changes to deny the main residence exemption for long term Australian expats is a challenge.
“Everyone’s situation is different and it is essentially a cocktail of a number crunching exercise to work out the Australian CGT at stake under all scenarios, i.e. sell now or later or not at all, as well as the relative value of the A$ against your new country’s currency. All this is then mixed with personal issues as well as any effect on future CGT exemptions available in the expat’s overseas country if they have bought a home there as well”.
“Do you intend to return to Australia or indeed return to that former home, need to raise cash for a desired new home abroad, or the feeling that you want to retain your former Australian home as a link back to Australia, especially if you are renting whilst living outside Australia. If your former home has development potential, perhaps it is better to do nothing.”
There is now only an exemption up until 30 June 2020 – typical the Australian Treasury picks a date that is at a time when some residential markets in Australia are at a low point- and for sales associated with “life events”.
Meanwhile, our experts are concerned that some Australian expats are unaware that the previous six-year temporary absence rule is on its way out. At Montfort, we can help advise expats facing this change in law. If you would like to arrange a consultation, please contact us today on 01483 202072.