Selling foreign property as a repatriated Australian expat – As an Australian expat, the prospect of repatriation often comes with a series of financial decisions, and selling foreign property is a significant aspect of this process.
Whether it’s due to career changes, family considerations or simply the desire to return home, understanding the degrees of selling foreign property is necessary to ensure a smooth transition.
The first consideration is taxation and understanding how the property will be taxed. Different countries have varying tax regulations and it’s crucial to be aware of any capital gains taxes, withholding taxes or other levies that may apply.
In most cases, if you purchased foreign property as an expat and then sell this property before returning to Australia and commencing tax residency, it is likely to fall outside of Australian tax.
This fact tends to edge many Australian expats to close up shop before recommencing their Australian tax residency.
What happens if I return as an Australian tax resident and sell my foreign property afterwards?
This will need to be reported to the Australian Taxation Office (ATO). If there was a capital gain, you may be liable to pay capital gain taxes (CGT) to the ATO.
Generally, there will be a deemed acquisition event on the property value from the date you recommenced tax residency.
Between that and the final tax outcome, many variables will come into play and therefore you should engage with a professional to determine the exact tax scenario.
What about the Main Residence Exemption (MRE)?
The MRE is a tax provision that allows Australian tax residents to exempt capital gains tax on the sale of their primary residence. This is one of the greatest exemptions a homeowner can rely on as CGT is exempt for the duration the property was considered a taxpayer’s main residence over the ownership period.
As we know, a non-tax resident of Australia cannot use this provision if they sell the property abroad except for some extreme life events occurring. Unknown to many, this exemption can may be applied to a foreign property sale, assuming the owners have recommenced tax residency. See below case study.
Australian Expat Case Study
Cathy recently repatriated to Australia, re-establishing her tax residency after an extended 8-year stint in the United States.
While residing in the US, she acquired a primary residence for USD$300,000 that served as her home until her return to Australia.
Anticipating her move back, Cathy proactively listed her property for sale. After a considerable period on the market, her US property successfully sold for USD$500,000 with the transaction occurring after her return to Australia.
Given that the property is located in the US, the primary authority overseeing its taxation is the IRS. Under their regulations, individuals are permitted to exclude up to USD$250,000 of the gain from their income, effectively resulting in Cathy having zero taxes owed to the IRS. Simultaneously, the sale of the property would be subject to examination and reporting by the ATO.
Thankfully, Cathy can explore leveraging the MRE to exempt herself from CGT on this particular sale event. By treating the US property under the Australian MRE, Cathy is able to exempt any CGT that may have been owed from the property sale.
One of the other major aspects to consider when selling foreign property is the impact of currency exchange rates. Fluctuations in exchange rates can significantly influence the final amount you receive in Australian dollars. Working with a reputable currency exchange provider or a financial planner can help you mitigate risks and maximize your returns.
The process of selling foreign property as an Australian repatriated expat involves complex considerations, each playing individual roles in the financial outcome.
The nuanced relationship of tax regulations, currency exchange rates and the active nature of international property transactions stresses the importance of seeking professional advice.
As with all tax, there are several conditions and exceptions not fully explained above. Therefore reach out to us, if your circumstances are similar to mirror Cathy’s or if you are looking for a second perspective on your current situation.