CGT and the family home: Expats and foreign residents beware

If you are an Australian citizen working overseas but a non-resident for tax purposes, these new rules are likely to affect your main residence in Australia.

expatIf you maintain your main residence in Australia, you can use the absence rule to maintain the exempt status of your property just in case you decide to return to Australia. When you return permanently to Australia and decide to sell, you are likely to be able to access the main residence exemption (or a partial exemption). If you rent out your property while you are away, the absence rule allows you to treat the property as your main residence for up to six years. Be wary of exact dates here. One day the wrong way or a misapplication of the absence rule could make a significant difference to the tax you pay.

If you sell the property while you are a non-resident, once these new laws come into effect, you will not be entitled to the main residence exemption at all. Similarly, if you die while overseas, and your home is sold within two years of the date of your death, it's likely that your beneficiaries will not be able to claim the main residence exemption. 

Example from the legislation
Vicki acquired a dwelling in Australia on 10 September 2010, moving into it and establishing it as her main residence as soon as it was first practicable to do so.

On 1 July 2018 Vicki vacated the dwelling and moved to New York. Vicki rented the dwelling out while she tried to sell it. On 15 October 2019 Vicki finally signs a contract to sell the dwelling with settlement occurring on 13 November 2019. Vicki was a foreign resident for taxation purposes on 15 October 2019.

The time of CGT event A1 for the sale of the dwelling is the time the contract for sale was signed, that is 15 October 2019. As Vicki was a foreign resident at that time she is not entitled to the main residence exemption in respect of her ownership interest in the dwelling.

If you are uncertain of your position or the likely impact of these new rules on you, you should seek our advice on 02 6686 3000. Tax residency status is often complex and is not intuitive – it's important to get it right.

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