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CGT main residence exemption no longer available for Australian expats

On 12/12/2019, the Federal Government passed the plan to change the CGT arrangement for Australian living overseas. Under the new law, the Australian expats are no longer able to claim the CGT exemption on their main residence in Australia. For those already held the property prior to 7:30am (AEST) on 9/5/2017, they will still have the CGT exemption, if the property is sold on or before 30/6/2020.

Expats, if you feel it is a painful hit to lose the CGT exemption, the way to calculate the capital gains is going to make you more painful. This change will date back from the time when you acquired the property, not the time point at which you left Australia. It means the earlier you bought the property, the more likely a huge capital gains will be made. Consequently, a huge tax bill. A potential problem is, for those having their properties purchased in late 1980s or early 1990s, it could be difficult for them to find adequate records to establish the cost base for CGT calculation.

Fortunately, there are exceptions. But unfortunately, these exceptions are too sad to take. If you were a non-tax resident for a continuous period of 6 years or less when the property being sold, and during that time one of the following occurred, you will still get the CGT exemption.

  • You, your spouse, or your child under 18, has a terminal medical condition

  • Your spouse, or your child under 18, died

  • The CGT event involved the distribution of assets between you and your spouse as a result of your divorce, separation or similar maintenance agreements.

On ATO website, it clearly says that this change only applies if you are not an Australian tax resident at the time of disposal (when you sign the contract to sell). So one solution might be, if possible, please come back to Australia, re-establish the status of Australian tax resident and the main place of residence, then, sell the property free from the CGT liability. The hidden cost is that you may have your life, your work, your family and your friends overseas, would you like to leave them behind and come back to Australia? Another risk is that the anti-avoidance rule might apply.

If you have any concerns on your situation, please feel free to contact Apple Accounting for a consultation. We are happy to help.

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