As of 30th June 2020, there will be changes to the Capital Gains Tax laws for our expats. On 9th May 2017, the Australian Government presented the Federal Budget, unveiling a host of changes aimed at reducing the impact on housing costs and putting “Australians first for Australian accommodation.”
The Federal Budget proposed that international and provisional tax residents would henceforth not be immune to capital gains tax (CGT) upon the selling of their principal residential property effective from 7:30 pm (AEST) on May 9, 2017. This regulation was, however, made open to an exemption for current assets owned on the above date and sold on or before June 30th, 2020.
Overseas inhabitants, who are Australian citizens as well as residents holding primary households, need to understand how such reforms would affect their conditions.
Some Background to the Capital Gains Tax
Before leading up to the Federal Budget disclosures in May, both residential and non-residential taxpayers had access to waivers to the CGT principal residence taxation charges, which usually allowed an exclusion from the country’s CGT in respect of a residential property that was deemed to be the principal residence of a tax-paying citizen. The waiver tended to be valid for a period of a maximum of six years, unless a homeowner relocated away from their principal home and instead obtained gains through renting it out to other parties.
The above choice proved common among itinerant workers who pursued a work placement abroad and were an Australian non-resident citizen for taxation reasons. Those taxpayers who granted a rent of their principal home in Australia while on their work placement abroad could still have access to the waiver if they ceased using their principal home to earn revenue until the end of the aforementioned six-year period.
What the CGT Entails
On 21 July 2017, the Australian Treasury issued a draft, disclosing the specifics of the law proposing to abolish the principal residence waiver for overseas residents to the CGT.
It contained the following proposals:
- The Draft recommends that during the transaction for the selling of the land, access to the CGT principal residence waiver be withdrawn for all persons who are not residing citizens for Australian taxation reasons.
- This latest law would also extend to Australian nationals or permanent citizens and residents who are disposing of their primary Australian residency because they are an overseas ex-pat.
- The suggested retrospective provisions would authorize international residents access to the CGT principal residence waiver such that the instance of the sale of property takes place on or prior to 30 June 2019, and also that the property’s ownership involvement was retained in the duration beginning prior to 7:30 pm (AEST) on 9 May 2017 and concluding before the actual selling to take place.
- For all such persons who are not eligible for the aforementioned transitional requirements, withdrawing the right to the CGT principal residence waiver would require higher tax expenses involved with buying and selling principal residences, along with a modification in how they can report the benefits and file for their tax returns.
- Companies should disclose these modifications to their workers so that they acquire the appropriate guidance to help ensure that workers who perform a secondment abroad are not left out unexpectedly and therefore having to pay Australian CGT unfairly at their principal residence. While it depends on the condition of the person, the preparation may require postponing the beginning of their overseas secondment.
Bear in mind: If you happen to be a resident of an overseas country for taxation reasons in the occurrence of your death, the amendments may extend to legitimate family members, trustees, creditors of the former’s properties, special disability trusts or shared owners.
A compromise in the new proposal is that only if an international resident was not living overseas for a sustained duration amounting to more than six years and any one of these following requirements are fulfilled, an international resident may qualify to use the principal residence waiver:
- The individual’s legal partner or underage child had a fatal health issue during the whole or periods of time of his or her international residence.
- The individual’s legal partner or underage child expires at the time of his or her international residence.
- The individual’s CGT related selling of the primary residence has been the consequence of a dissolution of the marriage between the individual and a legal partner (or former partner).
Why is CGT a concern for expats?
The main concern is that very few individuals have maintained accurate accounts of land purchasing expenditures that could extend back to at least the later period of the 1980s. The concern is that the legislation is focused on the initial price base when estimating the CGT rates.
This encompasses not only the initial cost, but the expense for the acquisition, the holding expenditures and the upgrades and developments made to the house. Numerous people have not kept the CGT related documents to sort out every expense basis sufficiently. Owing to which, most taxpayers will be subject to unjust and unfairly huge amounts of taxation charges for CGT.
It is also of concern that not just the residential properties, but individuals will be charged CGT of non-residential properties as well.
If you are relying on the discounts on CGT rates to help you, it should be of further concern to you that in some cases the discount rates will be lower than 50% or in certain instances nil.
If You Require Assistance
Expats owning Australian real estate that was their principal residence must obtain counsel before transferring the ownership rights of their properties so that they may gain the opportunity to consider the consequences of CGT as there may be a horde of concerns for you to individually take care of given the short window of time. Individuals may yet have strategic resources to explore including utilizing the interim time until 30 June 2020.
Since every case is distinctly nuanced, counsel and strategy on taxes must be tailored to the situations of each taxpayer. This requirement could perhaps only be successfully fulfilled by legal representatives with several years of experience and efficiency. All these reasons for your apprehensions come to an end when you choose Platinum Lawyers for seeking legal advice and for the drawing of contracts as best suited to your advantage.
Please call Platinum Lawyers to discuss your property and the implications of Capital Gains Tax on your individual situation.
CALL (02) 8084 2764