Implications of Proposed 2020 Removal of CGT Main Residence Exemption
The reintroduction of a tax bill has provided a little clarity surrounding the ability for foreign or non-resident taxpayers to claim the capital gains tax (CGT) main residence exemption for properties they own in Australia, but will more exemptions be forthcoming?
What is Main Residence Exemption?
The main residence exemption allows taxpayers who have nominated a particular residential property as their main residence to sell their property without incurring CGT. This has historically applied to non-residents who, at some stage, have lived in a residential property and have continued to nominate that property as their main residence, despite actually residing overseas.
Why Remove the Exemption?
The coalition government announced in the 2017 federal budget that, as part of a commitment to make housing more affordable, they will remove the main residence exemption for non-residents. The measure was proposed to apply from 9 May 2017 (being the date the Federal Budget was handed down). However, a concession was proposed for holders of existing properties, so that the main residence exemption could still apply to non-residents who sold their property on or before 30 June 2019.
This concession has now been extended to properties sold on or before 30 June 2020. In addition, if a non-resident sold the property due to a major life event such as divorce, or death of a family member, the concession would apply as long as the period of non-residency has been 6 years or less
The initial Bill was passed by the House of Representatives, though the Labor opposition did note that, while they supported the measure, they did not see the measure doing enough to address the affordability issue.
When the Senate Standing Committee on Economics reported that it supported the policy of the initial Bill in addressing housing affordability, it noted reservations around the retrospective application of the legislation back to 9 May 2017.
The re-introduced Bill will have the same reservations attached to it.
The Bill must now be debated in the House of Representatives, and if passed then debated and passed by the Senate. This could leave very little time from the passing of the Bill to when taxpayers must take action in order to fall within the concessions granted.
The Likely Impact for Property Owners
The proposed deadline for the removal of the main residence exemption for non-residents is 30 June 2020 is fast approaching, creating significant uncertainty for property owners and their advisors.
The advice to taxpayers to date has generally been to sell properties prior to 30 June 2020. While there is strong opposition to the retrospectivity of the bill, it may be passed in its current form with the impact date being 30 June 2020. This does not leave a long lead time to arrange for the sale of a property.
Non-resident property owners should seek early advice on the potential tax impact of losing the main residence exemption in order to make a swift, fully informed decision about whether to sell their property in the event that the Bill is passed.