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The proposal in 2017-18 Federal Budget for stopping foreign residents from claiming CGT main residence exemption has passed by the Parliament before Christmas 2019 and takes effect retrospectively from 9 May 2017. Unless special circumstances applied, all foreign residents are not able to claim a full or partial exemption from CGT for the sale of their main residence. All foreign (non-tax) residents, including Australian expatriate, will be affected by the new rule.

Before that, all taxpayers (residents, foreign residents, temporary tax resident) are entitled to a CGT exemption when they sell their property as main residence.

Under new rule

The new rule, which comes into effect from 9 May 2017, excludes foreign resident from the CGT main residence exemption. The exemption will not be granted because you are an Australian tax resident for a period of time or will not be partially granted on a pro rata basis according to the time of your tax residency. The result of exemption will be determined on your tax residency at the time when you dispose your dwelling.

As mentioned, if you are an Australian tax resident when you sell your home, you will satisfy with the main residence exemption requirements even if you become a foreign resident while owing your main residence. For example, if you are an Australian expatriate working overseas and own a home in Australia. It is highly likely that you are still entitled to the exemption as long as you returned back to Australian and re-established your residency prior to selling your main residence.

Australian tax residents will not be affected by the new rule.

With some changes from the rule proposed in the 2017-18 Federal Budget including an extension of the transitional provision period, there are some other new exceptions.

Transitional rules applied before 30 June 2020

Transitional rules apply to foreign residents who satisfy the CGT exemption under the current rule. Foreign residents whose dwelling was held as at 9 May 2017 and disposed on or before 30 June 2020 are entitled to the exemption.  Therefore, if you own your home in Australia and live overseas, this would be your last chance to sell the property to be exempt from CGT tax.

Exceptions under the new rules

The same as other rules, the new rule has some exceptions. For example, if you are still qualified to access to the CGT exemption under the current rule and become foreign resident less than 6 years, exceptions will apply to you when the following “life events” occurred:

“Life events” refers to

  • The death of the individual’s spouse or the individual’s minor children
  • Diagnosis of a terminal medical condition of the individual, spouse or their minor children
  • Distribution of assets between the couple as a result of divorce, separation or similar maintenance agreements

When the above events occurred, you are still entitled to claim the CGT main residence exemption even if you are a foreign resident. 

However, you will lose CGT main residence exemption if you are a foreign resident for more than 6 years. That is, both you and your beneficiary are not entitled to CGT main residence exemption once the transitional period is over unless otherwise you become a tax resident at the time before you sell your dwelling.

Definition of Australian tax residency

Australian tax residency is hard to determine since it doesn’t have any quantitative criteria. Most people think they are tax resident as long as they’ve been living in Australia for more than 183 days which is wrong. In Australia, four residency tests have been placed to determine tax residency, namely resides test, domicile test, 183-day test and superannuation test. Each test is supported by many past cases and analysis always requires combining four tests and other multiple considerations together, which could be quite complex.

Need Help?

If you are unsure whether you are an Australian tax resident when you sell your home, or whether a life event exception could still apply, Pitt Martin Group can help you review and document your tax residency, weigh up timing, exceptions and withholding, and prepare for the capital gains tax that may apply.

As Sydney tax accountants, we assist expatriates with property sales, CGT withholding and practical residency advice.

Pitt Martin Group is a firm of Chartered Accountants, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group, Sydney tax accountants, is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.

Pitt Martin Group qualifications include over fifteen years of professional experience in accounting industry, Registered Australia Tax Agents, membership certification of the Chartered Accountants Australia and New Zealand (CA ANZ), certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.

This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.