Do you understand the new rules for foreign residents and main residence CGT exemption?

There are special capital gains tax (CGT) rules you need to know if you’re a foreign resident for tax purposes.

Cgt2These rules will impact you when you sell residential property in Australia.

The Australian Taxation Office has lots of information on their website to help you understand some recent changes that affect your taxation obligations when selling your home.

Here’s part of what they have to say:-

While no CGT is payable on your primary residence as an Australian resident, a change in law on 12 December 2019 means if you are a foreign resident for tax purposes at the time you dispose of your residential property in Australia, you will not qualify for exemption from CGT unless you satisfy the life events test.You satisfy the life events test if, at the time of the disposal of your residential property in Australia:

  • you were a foreign resident for tax purposes for a continuous period of six years or less and, during that time, one of the following must have also occurred:
    • you, your spouse, or your child under 18, had 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.

Consider this when you use the exemption as a reason for a variation to your foreign resident capital gains withholding rate.

When you lodge your income tax return, you:

1. must declare any net capital gain in your income

2. can claim a credit for the foreign resident withholding tax paid to us.

When the change applies

The change in law applies to foreign residents for tax purposes as follows:

  • for property held prior to 7:30pm (AEST) on 9 May 2017
    • you can only claim the CGT main residence exemption for disposals that happen up until 30 June 2020 and only if you meet the other requirements for the exemption
    • disposals that happen from 1 July 2020 are no longer entitled to the CGT main residence exemption unless you satisfy the life events test (mentioned above)
  • for property acquired at or after 7:30pm (AEST) 9 May 2017
    • the CGT main residence exemption no longer applies to disposals from that date unless you satisfy the life events test (mentioned above).

AustraliaNote: This change only applies if you are not an Australian resident for tax purposes at the time of the disposal.

Where you dispose of the main residence under a contract, the disposal time is the time you entered into the contract.

Where you do not dispose of the main residence under a contract, the disposal time is the time of settlement.

If you weren’t an Australian resident for tax purposes while living in your property, you are unlikely to satisfy the requirements for the CGT main residence exemption.

If you are a foreign resident for tax purposes when you die, the changes also apply to:

  • legal personal representatives, trustees and beneficiaries of deceased estates
  • surviving joint tenants
  • special disability trusts.

Note: This is not Financial or Taxation Advice, but was sourced from The Australian Taxation Office.  There are special capital gains tax (CGT) rules you need to know if you’re a foreign resident for tax purposes. Find out more at the ATO Website

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Ken Raiss

About

Ken is director of Metropole Wealth Advisory and gives strategic expert advice to property investors, professionals and business owners. He is in a unique position to blend his skills of accounting, wealth advisory, property investing, financial planning and small business. View his articles


'Do you understand the new rules for foreign residents and main residence CGT exemption?' have 2 comments

    Avatar

    July 26, 2020 Jose

    Hi Michael,
    My wife and I bought our first property in 2003, we lived there as our PPOR until 2008 and rented it out as we bought a new property that we are now using as our PPOR.
    we are now in a process of selling our first property, I know that we are going to pay CGT but I’m just not sure if that is to be calculated for the whole 12 years or 6 years.
    appreciate your response.

    Reply

      Michael Yardney

      July 26, 2020 Michael Yardney

      You can only claim the CGT exemption for one principal place of residence, and if you moved in 2008 into a new PPOR, your CGT calculation would start then

      Reply


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