Removal of main residence exemption for foreign residence

|by Jun Yang|Taxation and Compliance

Government has passed the bill to remove the main residence exemption for Australian non-resident. The bill is part of the Housing Tax Integrity Bill 2017 which was first introduced in the government budget 2017. The bill will affect millions of Australians who are currently working overseas and those about to embark the global assignment.

As we all know previously if you sell the property you live in, you are entitled to the exemption from capital gain tax. Most people currently working overseas own a property which is used to be their principle place can also rely on the 6-year absence rule for the exemption.

The new rule basically says at the time you sign the contract to sell your principle place, if you are not Australian resident, you are subject to the capital gain tax. There is no apportionment could apply.

There are two exceptions to this rule, the 1st exception applies to those overseas for less than 6 years when certain life events occur including terminal illness for themselves, their spouse and children under 18; death, divorce and separation.

The 2nd exception is that if you hold the property on 9 May 2017 and you are current foreign resident, you can sell the property before 30 June 2020 to claim the exemption of CGT. Any property purchased after 9 May 2017 has been automatically exposed to the CGT liability if the sale during the foreign residence period.

If you have read so far, you might ask, how about the scenario of coming back to Australia, selling the house then going back overseas. In that case, you need to be careful that you have genuine purpose of reclaiming the residence before the sale, otherwise, the anti-avoidance rule may apply.

In conclusion, if you are currently working overseas or about to leave Australia and you have principle place in Australia, please reach us for further consultation.

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