Government plans to slug expats with capital gains tax if they sell their Australian home

Nassim Khadem
Jul 05, 2019, updated Jul 05, 2019

Expats may be leaving behind the tax exemption on their family home.

A $581 million Federal Government plan to change capital gains tax arrangements for expats has lapsed, but Treasurer Josh Frydenberg says the Coalition is committed to its policy change, which could affect tens of thousands of Australians living abroad

The Coalition Government’s May 2017 budget announcement to deny the main residence exemption for Australians who sell their homes while living abroad caused a stir after it was announced.

The proposed change was a retrospective denial of the exemption that goes as far back as September 20, 1985, when capital gains tax (CGT) was introduced.

For decades, Australians living abroad have been able to claim the CGT exemption on the family home. This exemption was available so long as the home was rented out for no more than six years at a time.

Tax back to time of purchase

However, under the proposed law change, Australians would have been hit with capital gains tax if they sold it while resident overseas — regardless of whether the home was rented out or left vacant — and the tax bill would have dated back from the time the owner purchased their home, not the point at which they moved overseas.

Expats living abroad had criticised the changes for being retrospective, and had been seeking tax advice on whether they should sell their homes to avoid being hit.

The Treasury Laws Amendment Bill 2018 had been stuck in the Senate since March last year.

The bill lapsed at the end of Parliament on July 1, meaning the proposals will not proceed in their current format.

ABC News asked Treasurer Josh Frydenberg if the Government proposals on the CGT main residence exemption will be revisited at some point in the future.

The Treasurer responded, “this remains our Government’s policy”.

He did not indicate when new legislation might be introduced, and whether there would be modifications.

Potential for new CGT bill

Labor’s former shadow treasurer Chris Bowen had been worried that people were being rushed to make big financial decisions, including whether or not to sell their home, on the basis of the law, which was supposed to have come into effect on July 1 this year.

Home for expats may not be so sweet. Photo: Getty

He wrote to Scott Morrison when Mr Morrison was Treasurer saying that, while he supported the measure in principle, he was concerned about the “unintended consequences” it would have on expats, because of its retrospective nature.

KPMG tax partner Mardi Heinrich said the proposed changes would have potentially resulted in large Australian CGT bills for citizens and permanent residents selling their main residence while residing overseas as a tax non-resident of Australia.

“Under transitional provisions [under the lapsed law], non-resident taxpayers would have been required to sell their main residence by June 30, 2019 in order to take advantage of the CGT main residence exemption,” she said.

Possible changes on reintroduction

Ms Heinrich said a new bill may contain some revisions or modifications.
“The law, if it is proposed again in some form, could be changed to not be retrospective, and to exempt the person from being taxed on the gain relating to the period in which they were a tax resident of Australia.”

Robyn Jacobson, senior tax trainer at TaxBanter, a national tax training provider, is still worried the tax could be back in the future without major amendments.

“There is still significant uncertainty because we are unclear of the timing of a reintroduced bill,” she said. “The form of the measures that would be reintroduced is uncertain. And we are unclear whether the dates where taxpayers might be affected would remain as originally proposed.”

Ms Jacobson said she would like to see the new legislation, if introduced, “softened” to not apply retrospectively for expats who lived in their Australian homes before they became non-residents.

“This would provide a fairer outcome for Australian expatriates,” she said.

The ATO would ideally also provide taxpayers with guidance, she added. “The prolonged uncertainty impacts on the preparation of 2018 and 2019 tax returns.”

Aussies become expats every two minutes

Atlas Wealth Management managing director Brett Evans said Australian Bureau of Statistics data shows that there is one Australian resident leaving Australia to live overseas every minute and 53 seconds.

He said his firm recently surveyed a sample of more than 3,000 Aussie expats and asked them if they owned a property back in Australia, to which almost 31.5 per cent replied they did.

“That’s why this potential change to the law could affect tens of thousands of expats,” he said.

The survey also asked the respondents whether they were concerned about the proposed change, and whether that would deter them from purchasing property in Australia. More than 45 per cent said it would.
– ABC