Proposed changes to the Australian Main-Residence Exemption – Act now to avoid a significant increase in the tax liability on the sale of your Australian Home.
As part of Federal Budget 2017, on 9 May 2017, the Government announced plans to withdraw the main-residence capital gains tax exemption from foreign-resident and temporary-resident taxpayers.
The exposure draft of the proposed legislation to effect these changes was released for consultation in July and the consultation period closed on 15 August 2017. We now await the response to the consultation feedback.
The following comments relate to the exposure draft, there may be further changes before the legislation is introduced to Parliament and again before enactment. The comments below focus exclusively on the issues that will impact a high proportion of our clients. The exposure draft also includes provisions relating to properties changing hands on the death of the owner or via trusts.
What is the impact of the proposed legislation?
The exposure draft, which if enacted will be effective from Budget Day, 9 May 2017, removes the main-residence exemption where foreign (not temporary – as announced) residents sell their Australian home.
Without the main-residence exemption, foreign-residents will face significantly higher rates of Australian tax when selling their Australian home.
Who will be affected?
Anyone who sells an Australian residential property that was their former home whilst non-resident in Australia.
In particular, this will apply to:
- Foreign nationals who acquired an Australian home whilst living in Australia before returning to their home country
- Australian nationals who are living temporarily abroad with the intention of returning to Australia in future
- Australian nationals who have permanently left Australia but retain their former home in Australia
Why? What is the purpose of the legislation?
The proposed change is part of the Government’s package of measures to seek to improve housing affordability in Australia. The measure aims to encourage people to sell their property when they leave Australia (either temporarily or permanently) and so increase the supply of properties on the market.
Transitional/”Grandfathering” Measures
The exposure draft includes some transitional measures for taxpayers who hold a property as at 9 May 2017, which currently qualifies for full or partial main-residence exemption. Under the proposed legislation, taxpayers in that situation who sell their property by 30 June 2019 will retain their main-residence exemption under the current legislation. By contrast, sales after 30 June 2019 by non-Australian-residents will not qualify for main-residence exemption at all.
So there is a limited window of opportunity for people affected to sell their property before losing the tax relief.
Summary
We will wait with interest to see the Treasury’s response to the feedback from the consultation on the exposure draft and whether this leads to changes in the proposed legislation. However, on the current announced proposals non-Australian residents will need to think carefully about whether to sell their Australian home.
For more information or advice please contact Joanne Lamberth at lamberthj@tax.uk.com
