Main Residence Exemption – Foreign Residents
Proposed reforms by the Australian Government are set to remove the CGT Main Residence Exemption for non-residents. The new rules apply to properties purchased after 9th May 2017. For properties purchased on or before 9th May 2017, the new rules will not apply to disposals until after 30th June 2019.
Individuals will not be entitled to the Main Residence Exemption when they sell their main residence, if at the time of disposal they are a foreign resident. This includes Australian citizens going overseas and becoming non-residents for Australian Tax purposes.
For example, an Australian resident individual who held a property as their main residence for 25 years decided to leave Australia for work purposes and subsequently became a non-resident. While the individual was overseas and a non-resident, the property was rented for two years and then sold. The capital gain made on the sale will not be exempt for Australian tax purposes under the Main Residence Exemption. There is also no consideration for the fact that the individual held the property as an Australian resident for 25 of the 27 years. The capital gain is calculated using the final proceeds less the original purchase price.
Foreign residents that have held Australian property prior to 9th May 2017 as their main residence have until 30th June 2019 to dispose of the property and take advantage of the CGT Main Residence Exemption. Individuals who are either foreign residents or could become foreign residents in the future should be aware of the tax implications should they decide to sell their main residence after 30th June 2019.
Contributed by Nathan Batty.