The Government announced in the 2017/2018 Budget that they will be removing the main residence exemption for Capital Gains Tax purposes for non-residents of Australia.
The main residence exemption is when a property has been used as the owner’s main residence throughout the entirety of ownership or if it has been used partially for income producing purposes during this period.
Foreign residents who currently sell their main residence are entitled to apply the main residence exemption on the sale of the property or at least a partial exemption. If the draft legislation passes through government, then any residence sold by a non-resident will be subject to Capital Gains Tax in Australia. This will apply to Australian residents who work overseas and, for tax purposes, are considered non-residents.
There will be no apportionment of the main residence exemption over the ownership period, therefor the entire gain if applicable will be taxable.
If this announcement becomes legislation, transitional rules will be put in place for non-residents who sell the property before 30 June 2019 and owned the property during the period of budget night on 9 May 2017 and 30 June 2019.
The Capital Gain event will occur when the contract is signed. If the individual is a resident at the time of the event then the main residence exemption may apply. This potential change in legislation does not apply to temporary residents.
If you believe this may affect your current situation, please do not hesitate to contact us to discuss.