No main residence exemption for foreign residents
Following announcements made by the Government in the 2017-18 Federal Budget the Government has introduced a Bill which seeks to remove access to the main residence CGT exemption for non-resident taxpayers.
The Bill is currently being considered by the Senate Economics Legislation Committee (with a report due 23 March 2018).
As a result of these changes a taxpayer will not generally be able to claim any exemption under the main residence rules if they are a non-resident at the time of the CGT event, even if they were a resident for some (or even most) of the ownership period. No apportionment applies, the exemption simply doesn’t apply at all if the individual is a foreign resident when the CGT event is triggered.
On the other hand, if the taxpayer is a resident of Australia at the time of the CGT event then the normal main residence exemption rules apply, even if they have been a non-resident for some or most of the ownership period.
Although the initial Budget announcement indicated that temporary residents would no longer be able to access the exemption, the legislation introduced to Parliament excludes temporary residents from the changes. This means that an individual who is classified as a temporary resident at the time of the CGT event can still access the main residence exemption as long as they are a resident of Australia at that time.
Special amendments are also being introduced to deal with deceased estate scenarios and special disability trusts. Under these rules the executor or beneficiary of a deceased estate is not generally entitled to the main residence exemption if the deceased individual was a foreign resident at the time of death (although there are some exceptions to this). The rules for special disability trusts are similar.
The amendments will generally apply to CGT events happening at or after 7.30 pm, by legal time in the ACT, on 9 May 2017 (i.e. Budget night 2017).
However, there are some transitional rules which broadly state that the amendments do not apply to a capital gain or loss from a CGT event that occurs to a dwelling on or before 30 June 2019 if the individual held an ownership interest in the dwelling at all times from immediately before Budget night 2017 until immediately before the CGT event happens.
Clients holding a main residence in Australia who are currently non-residents or planning to leave Australia need to be made aware of these changes so that they can weigh up their options and make a fully informed decision.