If you live overseas but own property in Mosman or anywhere else in Australia, new legislation will have a massive impact on your decision to keep the property or sell it this year.
Take a look at what has changed and how the new rules will impact you.
New laws on Capital Gains Tax for expats in Australia
Previously, you would only pay Capital Gains Tax when you sold an investment property, not your main residence. This applied even if you lived overseas, so long as you didn’t rent the property out for more than six years, after which point you would lose your main residence exemption.
However, changes to this exemption now means the tax applies if you live overseas but decide to sell your home in Australia. This is the case regardless of having tenants living in the property or if it is vacant.
The change is set to bring in an estimated $581 million for the Federal Government as it backdates the capital gains to 1985.
If you are an expat and you want to sell a property you bought in the late 1980s, your tax bill will be calculated based on every dollar the property has risen in value by since then. Obviously, this could be very significant, particularly if you have a home in a suburb like Mosman.
The legislation also impacts people who came to Australia to work from overseas, purchased a property then returned to their homeland. Selling that property will result in a full CGT bill.
There are some exemptions. According to the ABC, “The Federal Government made some amendments to its original 2017 proposal that provide taxpayers with exceptions based on certain ‘life events’ such a terminal medical condition, death or divorce. “The hardship relief will only apply where an individual has been a foreign resident for a period of six continuous years or less, and only in very limited and unfortunate circumstances,” [KPMG tax partner Mardi] Heinrich said. It would also be available if the resident moves back into their home before putting it on the market, she said.”
Your next move
If you live overseas and own property in Australia but you do plan on coming back to live here permanently , these legislation changes are not cause for concern. The value of your home won’t change because you don’t live in it, nor will it be impacted by the CGT changes.
However, if you live overseas, own property and don’t have plans to return to Australia, or if you were thinking of selling to free up capital and invest elsewhere, now is the time to act.
The CGT changes will come into effect as of June 30, 2020.
This means that if you sell prior to this date, you will still be exempt from Capital Gains Tax.
When you consider that a Capital Gains Tax bill can run into the hundreds of thousands for a property which was purchased in the hundreds of thousands range but is now worth millions, it makes sense to consider your options carefully.
There is still time to list and sell your property if you wish to beat the deadline, however you do have to act quickly. Contact your accountant to discover if your property will be eligible for Capital Gains Tax should you decide to sell, and speak to your real estate agent so find out the best options for a rapid sale.