Capital gains tax exemption changes expected to ignite expat property fire sale
Expat Sasha Vasiljkovic is about to put his property in the Melbourne suburb of Williamstown on the market.
He doesn’t want to sell but an impending Turnbull government change will deny him one of the most sacrosanct of Aussie home-ownership perks: the primary residence capital gains tax exemption.
So it’s either sell now or hold on and cop a big tax bill in the future.
“It’s a real kick in the teeth,” the Singapore-based supply chain executive said.
“Now I’m looking at buying something in Dubai and not looking to invest back in Australia. Why would I?”
As part of a housing affordability package in last year’s budget, the government announced it would deny CGT main residence exemption for foreigners.
Reaction was muted at first but expats slowly realised they, too, would be caught by the measure.
“Expats are being lumped in with foreign investors because the property owner’s [tax residency status is] the determining factor with no reference to the property owner’s citizenship,” Atlas Wealth Management managing director Brett Evans said.
He believes hundreds of thousands of expats are affected. “It’s created a lot of concern and apprehension amongst Australian expats,” he said. “Our conversations with clients are monopolised by this issue.”
There is some relief for people who owned properties at the time of the announcement on May 9, a category into which Mr Vasiljkovic fits.
They have until 30 June, 2019, to sell without being stung with CGT.
The “six-year absence concession” that allows a property to be rented for up to six years without losing its CGT-free status is also grandfathered until June 30, 2019.
So, too, is a provision that extended CGT-free status to properties left unrented.
Mr Evans anticipates a wave of sales in the lead-up to the mid-2019 grandfathering cut-off. He also expects most home owners heading overseas in the future will opt to sell.
“It’s odd because we want Australians to invest here,” he said. “And I would have thought the government should be encouraging expats to eventually bring their skills and experience home.”
Legislation to enact the change was introduced to Federal Parliament this month and is now subject to a Senate committee inquiry. People who return home to live in their property can regain CGT-free status after a period of time.
The measure is bundled up with the government’s housing affordability package, which puzzled some.
Following the original announcement, Tax Institute senior tax counsel Bob Deutsch described the policy as “confused” and called on the government to identify the “abuse” it was trying to address.
“We query ‘who’ this legislation is aimed at,” he said. “Amongst others, it seems for example that this measure has the potential to affect Australians who have lived here for, say, 50 years but take an overseas secondment for the last couple of years of their career.”
Mr Evans is urging the Senate to consider a transition period for Australian nationals. The change would also be fairer if CGT levies were proportionate to the period of time the owner used it as their main residence, he said. “This legislation goes way against the grain of what we would consider to be fair tax law,” he said.
A spokesman for the Treasurer said: “These changes to foreign investors buying residential real estate are part of a package estimated to add $600 million in revenue over the forward estimates.”
This article was part of a interview with the Australian Financial Review