Legislation to deny non-residents CGT main residence exemption not proceeding
Australian expatriates can now rest easy, at least for the time being, as the Bill proposing changes to the capital gains tax (CGT) main residence exemption has now lapsed.
The Treasury Laws Amendment Bill 20181 had been stuck in the Senate since March 2018 and included changes that would have denied the CGT main residence exemption for non-residents on sales occurring on or after 1 July 2019. It would have also applied to a relevant CGT event occurring before that date in relation to a dwelling acquired after 9 May 2017.
The Bill lapsed at the end of Parliament on 1 July 2019, meaning the changes will not proceed in their current format.
The lapse follows intense media attention and lobbying from Australian expatriate groups on the changes since the May 2017 Federal Budget announcements.
Why this matters
The proposed changes would have potentially resulted in large Australian capital gains tax bills for Australian citizens and permanent residents selling their main residence whilst they are residing overseas as a tax non-resident of Australia. Under transitional provisions, non-resident taxpayers would have been required to sell their main residence prior 30 June 2019 in order to take advantage of the CGT main residence exemption.
Potential for a new Bill
Whilst there is no longer any draft legislation before Parliament proposing changes to the CGT main residence exemption for non-residents, taxpayers should be aware that the previous proposals may be revisited at some point in the future through the introduction of a new Bill that may contain some revisions or modifications compared to the previous Bill.
Taxpayers should be reminded that the current legislation does still allow a taxpayer that previously occupied their main residence to be absent from that property (e.g. whilst working overseas) and still gain access to the CGT main residence exemption. This should be the case even where the property is used to derive rental income due to the application of the ‘6 year rule’, which allows a taxpayer to derive rental income from their main residence for a period of up to 6 years whilst still accessing the CGT exemption on sale. Taxpayers should seek professional advice in this regard before leaving Australia and becoming a tax non-resident.
1 Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018.