Changes in Capital Gains Tax (CGT) Laws for Overseas Residents

A change to the capital gains tax (CGT) exemption law for overseas Australian is having an impact on the local property market, with some foreign homeowners eager to sell before the change kicks in this June.

At the end of the 2020 financial year, non-resident Australians will no longer be eligible for a long-standing exemption from paying CGT when they sell their main residence. Due to how substantial this tax break can be, some are selling prior to the cut off in order to take advantage of the exemption.

What’s the law and how is it changing?

For over three decades, Australians living overseas have been able to avoid paying capital gains tax when they sold their family home (or main residence) so long as that home had been rented out for no longer than six years at a time. As of 30 June 2020, this exemption will be scrapped for non-resident Australians.

Under a controversial new tax bill passed in December by the Morrison government, non-resident Australian owners who sell their main residence while they are still living overseas will be required to pay tax on capital gains. This includes all capital gains achieved during the entire time that the property has been owned, not just the period during which owners have lived overseas.

Who is affected?

Thousands of expat Aussies could potentially be affected. The most recent available figures from the Australian Tax Office (ATO) show that there were 182,000 non-resident Australians registered with the ATO in the 2016-2017 financial year. The law will also apply to foreign nationals who purchase a home in Australian to live in while working here, which they sell once they’ve returned to their home country.

How is the change impacting the Sydney market?

The resulting tax bill can be a significant percentage of the total sales price, particularly given how Sydney’s property market values have surged in recent decades. So, it’s unsurprising that some overseas owners who stand to be affected are rushing to sell before the cut-off.

We have had a number of overseas residents contact us in regards to selling prior to the deadline. While this has brought a welcome variety of stock to the market, a spike in listings by expats could overwhelm demand and may also affect the rental market too once those properties have sold.

Can overseas owners still claim the exemption?

Non-resident owners can still apply for the main residence CGT exemption if they sell their property before 30 June 2020, and if the property was purchased before 9 May 2017. Couples who jointly own their main residence, but where one partner is a resident and one partner is a non-resident, should seek advice before the cut off.

Are there any exceptions?

The law has been amended since it was first proposed to allow for limited exceptions for certain ‘life events’, such as terminal medical conditions, death or divorce. However, these only apply where an individual has been a foreign resident continuously for less than six years. If you are unsure if the law applies to you, it’s best to seek legal advice sooner than later.

If you’re looking to buy or sell in Sydney’s eastern suburbs contact my team today.