Foreign residents and main residence exemption

There are special capital gains tax (CGT) rules you need to know if you are a foreign resident for tax purposes. These rules will impact you when you sell residential property in Australia.

On 12 December 2019, tax law changes were passed based on which you can no longer claim the CGT main residence exemption, unless, when a CGT event happens to your residential property in Australia, you were a foreign resident for tax purposes for a continuous period of six years or less and during that time one of the following occurred:

•             you, your spouse, or your child under 18, had a terminal medical condition

•             your spouse, or your child under 18, died

•             the CGT event involved the distribution of assets between you and your spouse as a result of your divorce, separation or similar maintenance agreements.

This applies to you:

•             when you use the exemption as a reason for a variation to your foreign resident capital gains withholding rate

•             when you lodge your income tax return

–              you must declare any net capital gain in your income

–              you can claim a credit for the foreign resident withholding tax paid to the ATO

When the change applies

The change applies to foreign residents for tax purposes as follows:

•             For property held prior to 7:30pm (AEST) on 9 May 2017

–              the CGT main residence exemption can only be claimed for disposals that happen up until 30 June 2020 and only if they meet the other requirements for the exemption

–              disposals that happen from 1 July 2020 are no longer entitled to the CGT main residence exemption unless certain life events (listed above) occur within a continuous period of six years of the individual becoming a foreign resident for tax purposes

•             For property acquired at or after 7:30pm (AEST) 9 May 2017

•       the CGT main residence exemption no longer applies to disposals from that date

      unless certain life events (listed above) occur within a continuous period of six years

      of the individual becoming a foreign resident for tax purposes.

Note: This change only applies if you are not an Australian resident for tax purposes at the time of the disposal (when you sign the contract to sell the property).

If you weren’t an Australian resident for tax purposes while living in your property, you are unlikely to satisfy the requirements for the CGT main residence exemption.

If you are a foreign resident for tax purposes when you die, the changes also apply to:

•             legal personal representatives, trustees and beneficiaries of deceased estates

•             surviving joint tenants

•             special disability trusts.

Refer to ATO QC 55771

If you think this change may affect you, please contact our office to discuss your situation and tax outcome..