The Australian Federal government has recently passed tax legislation to remove the ability of foreign individual residents (for tax purposes) to claim the capital gains tax (CGT) main residence exemption.
The key implications are summarised as follows:
- Generally if the individual owner(s) of an Australian property is a foreign (tax) resident when they enter into a contract of sale, they will no longer be able to claim the CGT main residence exemption, even if they treat that property as their only principal place of residence.
- However, where the property was owned prior to 9 May 2017, the CGT main residence exemption would be available (either in full or in part) if it is sold on or before 30 June 2020 (under transitional measures). A full exemption could be available when the property has been rented out for less than 6 years provided any other requisite conditions are also satisfied, otherwise a partial exemption may be available.
- Where a property is sold by a foreign resident post 30 June 2020, the new law will not take into account any prior period of their Australian residency nor main residency period.
- The only exceptions to the new law apply in very limited cases of terminal illness, death or divorce/maintenance agreements AND such life event occurs within a continuous period of 6 years of the owner becoming a foreign resident.
If the above changes are likely to affect you and you would like more information on what you can do, please do not hesitate to contact one of our Partners (Mark, Greg or Justin) or Tax Director (Melanie) on +61 2 9221 7022 or at firstname.lastname@example.org.