Selling Australian Real Estate As An Expat? You might want to reconsider your timing – In this post we look to provide an overview of the Australian Capital Gains Tax (CGT) landscape when it comes to disposing of Australian real estate (residential property) as a Non-resident for tax purposes.
It aims to act as a refresher for Australian expats and highlights the limited accessibility to CGT concessions and how timing of sale can be crucial.
What some may not know is that both concessions have since been abolished for non-residents and only available in a very limited capacity with careful planning.
Main Residence Exemption
This legislation was abolished for Australian expats on 12 December 2019 and is no longer available to non-residents disposing of a previous main residence while overseas.
This means if sold while overseas as a non-resident, even the number of days lived in the property while a resident for tax purposes would not be exempt under the rule.
There are certain exceptions where the rule can still apply in extreme life events, such as a death in the immediate family, or if under a court order the property is disposed of as part of a relationship breakdown.
Generally, the rule can only be used in a limited capacity if the individual has since returned to Australia and resumed Australian tax residence again.
The six-year (temporary absence) rule: Prior to the abolition of the MRE, Australian expats were able to dispose of their previous main residence property within the first 6 years of renting it out, and still be afforded a full CGT exemption.
While this is no longer the case, the rule could still be utilized by those who have since resumed Australian tax residence.
50% CGT Discount
This piece of legislation was abolished for Australian expats from 9 May 2012 and can no longer be used in full to discount capital gains from the sale of property where there is a period of non-residence after 8 May 2012.
Rather, an apportionment measure is applied so that the 50% CGT discount is only available for periods the property was held prior to 9 May 2012, and periods after 8 May 2012 where the individual was an Australian tax resident.
This rule applies different to the MRE rules in that it can still be accessed as a non-resident, however only in a limited capacity. The MRE on the other hand cannot be accessed as a non-resident.
Where the MRE is not available, the 50% CGT Discount rules can apply. There are various calculations methods used in determining the assessable capital gain over the ownership period and may also require valuations being done as of 8 May 2012.
Timing Is Everything for Australian Expats Selling Real Estate
Australian expats who may only be several months out from returning to Australia should keep in mind the interactions of the above two CGT concessions when it comes to timing the disposal of their property.
Australians about to depart Australia on an expat stint should also keep the above considerations in mind when buying property prior to leaving.
It’s important to note that the specific formula workings for the above two CGT concessions are quite complex when there is a period of non-resident ownership, and therefore it is recommended you don’t make assumptions on your own calculations and should always seek professional advice.
Once the assessable gain is determined, there are also various strategies to look at reducing the capital gain with superannuation.
You should speak to a licensed Financial Adviser to assess the suitability for such strategies.