Main residence exemption abolished for non-residents and other tax issues to be aware of when moving overseas
On 12 December 2019, a law change means non-residents can no longer claim the Capital Gains Tax (CGT) main residence exemption unless, when a CGT event happens to their 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 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.
The change applies to foreign residents for tax purposes as follows:
- For property held prior to 7:30pm (AEST) on 9 May 2017
- the CGT main residence exemption can only be claimed for disposals that happen up until 30 June 2020 and only if they 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 certain life events (listed above) occur within a continuous period of six years of the individual becoming a foreign resident for tax purposes
- 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 certain life events (listed above) occur within a continuous period of six years of the individual becoming a foreign resident for tax purposes.
Other Issues to be aware of when moving overseas
The abolition of the main residence exemption is one of a number of changes have been made to tax legislation that have significant implications to Australians becoming foreign residents for tax purposes. In my experience, I think its fair to say that a lot of non-residents are not aware of these rules meaning they are either building up tax liabilities they are not aware of, or alternatively, missing out on some of the concessions still available.
The following is a summary of other changes that non-residents need to be aware of:
50% CGT Discount
Up to 8 May 2012, the CGT discount of 50% was available to foreign resident individuals who were subject to CGT on taxable Australian property. For assets acquired after 8 May 2012, the discount is generally not available to foreign and temporary resident individuals (including beneficiaries of trusts and partners in a partnership).
However, for assets acquired before 8 May 2012 and sold after this date there is an ability to claim a portion of the discount under either the apportioning method or the market value method.
We have found instances where non-residents were not aware of this and as such did not initially claim their portion of the CGT discount. Amending their returns to claim the discount has saved them over $150,000.
From 1 July 2017, anyone living overseas and earning above the minimum repayment threshold is required to make loan repayments on their HECS/HELP debts - just as they would if they were living in Australia.
From that date, if you are a non-resident with a HECS/HELP debt you need to report your worldwide income and submit the details to the ATO by 31 October each year so that your loan repayment can be calculated and paid.
We have had a number of new clients who were not aware of this requirement and has resulted in them needing to go back a number of years and repay their debts. As data-sharing of tax information between countries becomes more sophisticated we believe this will be an area where ex-pats living overseas will be caught out and forced to repay the debts along with fines and penalties for non-compliance so best to get it sorted now and not put your head in the sand hoping it will go away.