Expats Face CGT Hit on the Sale of Aussie Family Home
Expats face CGT hit on the sale of Aussie family home – Changes that will see more than 100,000 Australians working overseas lose capital gains exemptions on their local homes could encourage artificial behaviour or force prospective expatriates to sell to get around the new rules, tax experts have warned.
Under new laws to be debated in the Senate in August, the main residence exemption for foreigners will be scrapped.
Critics say the changes are “brutal” because they impose higher tax liabilities on the sale of family homes purchased and lived in by expats before they moved overseas.
They could also slow one of the few remaining hot-spots in the Australian property market created by cashed-up expats making the most of the falling Australian dollar and weakening property market to snap up prestigious properties costing upwards of $5 million, property advisers said.
“What is brutal is the loss of the CGT exemption even if you genuinely lived in your home most of the time you owned it,” William Buck tax services director Todd Want said.
The demise of the home ownership perk was part of wider measures to improve housing affordability announced in last year’s budget.
“This is an attack on principal residences. Just because we move overseas does not mean we are any less Australian. It is nuts,” said Christopher Koren, a director of buyers’ agent Morrell and Koren.
Angry expats are still lobbying for last-minute amendments.
“A more common-sense approach will be to either provide a partial apportionment of the main residence exemption for Australian expats or to provide a carve-out in the legislation excluding Australian citizens from the proposed changes,” Atlas Wealth Management managing director Brett Evans said.
“With the amount of submissions that have been made to Canberra … we hope that common sense will prevail.”
Supporters of the changes claim it will could stop gaming of the system by overseas residents and their families – speculating in the local property markets but spending most of their time overseas.
Under existing laws, any capital gain – or loss – from the sale of a main residence, which is typically the family home, is disregarded if it was the main residence during the ownership period.
It applies to apartments, caravans, houseboats or mobile homes.
The proposed laws will mean the CGT exemption will not be available “to any extent” if the individual is working overseas when the property is sold. Often those who work overseas will become a non-resident for tax purposes when out of the country.
“This is the case regardless of how long the individual has owned the dwelling, and regardless of how many years the individual has been an Australian resident during the period of ownership,” said Mr Want, who advises on property and tax residency.
For example, a couple buy a family home in 2010 and live in it for eight years before being seconded to New York by their US employer. While in the US they are considered by the ATO to be tax non-residents.
They decide to sell in January 2019 while still in the US and the deal is completed in November that year.
Under the old rules their main residence would have been exempt from capital gains tax.
Under the new rules they are considered foreign residents for tax purposes and the sale will attract capital gains tax. The gain over the entire period will be taxable at non-resident tax rates, with the 50 per cent CGT discount being available for the portion of the gain when the seller was an Australian tax resident.
Tax experts warn expatriate home owners seeking to avoid the tax could contrive circumstances by returning to Australia to oversee the sale of the property before return to their new domicile.
That is because the main residence exemption could still apply if the owner is resident at the time of the sale, even if they had been non-resident for most of ownership period.
Alternatively, many property owners planning to live overseas for extended periods will be forced to sell their homes before they leave the country, regardless of the market conditions.
Buyers agents claim the dollar pushing below 75 cents to the US dollar is fuelling interest among the cashed-up Australian expatriate communities of Singapore and Hong Kong, where their dollars are pegged to the greenback.
Britain’s departure from the European Union is also prompting many Australians who work in London to reconsider their options, including buying local property as a future bolt-hole.
Tougher tax laws are likely to reduce buyer interest or, in some cases, persuade some residents not to work overseas.
The article Expats face CGT hit on the sale of Aussie family home originally appeared as part of a interview with the Australian Financial Review.