Login
iscover
Late last year, the government made changes to capital gains tax (CGT) and has set a date in stone for Australian expats to come home or sell up, or be charged CGT.
Aussie expats abroad with property back home have had this news sprung on them and did not realise the time was ticking for them to sell their home to avoid a massive tax bill, REB reported last month.
To clear the air, in a recent video, The Agency’s James Ledgerwood sat down with Bell Partners Accountants’ Darren Morris to explain the new legislation.
“Effectively, the six-year main residence exemption was applicable for expats that went overseas and rent out their properties within a six-year period; they were then able to sell that tax-free,” Mr Morris said.
However, if expats do not sell their property before 30 June 2020, then 100 per cent of the capital gain will be taxable, he said.
The new rule only applies to the person’s principal place of residence when they moved overseas and will not impact investment properties.
“Investment properties are still under the same capital gains regime as usual. They should still be eligible for the 50 per cent general discount if they’ve held it for more than 12 months,” Mr Morris said.
The 30 June 2020 date is firmly planted in stone, and there are only a few exemptions.
“You either have to have a spouse that is terminally ill or a dependant child under the age of 18 that is terminally ill or has passed away, or as part of a marriage breakdown,” he said.
The deadline only applied to people who bought property before 8 May 2017; those who purchased after that date have already missed out on the CGT exemption.
Mr Ledgerwood put forward a hypothetical example of a couple who purchased a home in Sydney back in 2005 for $1.4 million, but they moved overseas and settled in Singapore where they found permanent roles. In 2022, they decide they are not returning to Sydney and sold their home for $3.8 million.
Under the old rules, they will not have to pay any tax, but they will be taxed on the full capital gained, which is $2.4 million, Mr Morris said.
They would get to hold onto the money for more than 12 months, and as tax residents, they would be eligible for a 50 per cent discount.
However, in this example, they are not tax residents and would have to pay tax on the full amount.
“So, that’s $1.2 million each, and it’s probably about $550,000 in tax each,” Mr Morris said.
One strategy expats might want to consider is returning to Australia to recommence their tax residency to get around this loophole, he said.
“I would suggest you tread very carefully on that practise, not saying that you can’t do it, but the Tax Office, I’m sure, will be having an eagle eye on those sorts of practises.”
Newsletter
