2020 Capital Gains Tax on Main Residence

2020 Changes to Capital Gains Tax on Main Residence.

From the 1st July 2020 there is a major change to Capital Gains Tax on some Australians Main Residence property.

It only affects those Australian Property Owners who are overseas, so not everyone should panic when they read some of the News Headlines.

One headline says: ‘Australian property owners living overseas have until the end of June to sell their homes if they want to avoid big capital gains tax bills.’

The Australian Tax Office [ATO] says:

Your ‘main residence’ (your home) is generally exempt from capital gains tax (CGT).
To get the exemption, the property must have a dwelling on it and you must have lived in it.
If you were not a resident of Australia for tax purposes while you were living in the property, you are unlikely to satisfy the requirements for the main residence exemption.
If you are a foreign resident when a CGT event happens to your residential property in Australia you may no longer be entitled to claim the main residence exemption.

These new changes relate to those Australian Property Owners who reside overseas, but claim a residence in Australia to enable them to get the “CGT main residence exemption” to avoid paying tax on the house (their main residence) that they plan to come back to, but decide to sell instead.

Prior to this change it was common, for some people who lived overseas, to claim their Australian Property as their Main Residence, and avoid paying Capital Gains Tax.

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The new rule effectively means that a person living and working overseas, but who retains a property in Australia, often rented out, will have that property treated as an Investment property, and taxed accordingly when sold.

Some reports say this is a Draconian policy, removing a tax exemption designed for Australian Residents, from those who are no longer Australian Residents.

How do you get around the problem?

If they owned the property on or before May 9, 2017:

They will be able to claim the CGT main residence exemption, if they sell their property on or before June 30, 2020.

If they wait and do nothing for years:

If they return to their home in Australia, and live there while selling it, then they will be Australian Resident again, and no CGT to pay. Even if this is in 2030, etc…

Some tax experts say that this may force those Australian property owners to return to Australia, become residents again so that they can claim the exemption for an Australian Resident.

Some say that it is only fair that ONLY a Resident gets the Residents exemption.

What of choose not to sell the property?

The Capital Gains Tax ONLY applies when you sell the Property.

If you keep it until you retire, and return to Australia when you retire, there is no issue. No sale of property = NO Capital Gains Tax.

However, as with all things, if you have used the property as an investment and claimed costs against rental income for tax purposes, there may be other tax issues, and of course policies change over time.

Remember, this tax exemption policy is intended to help Australian Residents. Not residents of foreign countries owning property in Australia.