Foreign Residents and Ex-pats to lose the Main Residence CGT Exemption

Dec 6, 2019

The bill which expired before the last election to remove the main residence exemption for foreign residents was re-introduced with some minor amendments and has now passed parliament. A foreign resident is anyone who is not a tax resident of Australia and can therefore include Australian citizens. The rules have retrospective impact and came into affect from the 9th of May 2017. There is however a transition period for foreign residents who purchased their property before the 9th of May 2017. These people are able to sell their home on or before the 30th of June 2020 and still be eligible for the Main residence exemption.

After the 30th of June 2020 any foreign resident who sells property will not be eligible to claim the main residence exemption unless they have been a foreign resident for less than six years AND a major life event occurs AND they purchased their property after the 9th of May 2017. A life event is:

  • where the individual, their spouse or their minor children die or are diagnosed with a terminal medical condition or
  • if the individual has a divorce or separation from their spouse.

Unless one of these life events occur and you have been a foreign resident for less than six years, any property sale made while you are a foreign resident will not be eligible for the main residence exemption after 30 June 2020.

The effect of this new rule is that for a main residence of a foreign resident, which could have been purchased 30 years ago while they were a resident of Australia, tax will now be payable on the entire gain if it is sold while the person is a non-resident. If the person were to become a resident again before the property was sold then the main residence exemption can still apply.

To make matters worse, foreign residents are generally not eligible to claim the 50% Capital Gains Tax discount. This can potentially double the amount of taxable gain. Also as the tax is calculated at non-resident rates, the minimum tax rate is 32.5% from the first dollar of gain.