Law

Dec 2018 3 Minutes

Recent Tax Changes for Property Owners Leaving Australia

The Federal Government has passed some changes and proposed more changes to the tax law that may adversely affect Australian property owners who have already left Australia or are leaving Australia and cease to become Australian residents for tax purposes.

Firstly, new legislation is currently proposed to remove the entitlement to the Capital Gain Tax (CGT) main residence exemption for foreign residents effective 1 July 2019. Under the current rules, foreign residents can utilise the ‘absence rules’ to retain their main residence exemption for up to 6 years if the property is rented out or for an indefinite period of time if the property is not earning any rental income.

If the proposed legislation is passed by the Parliament, foreign residents will no longer be entitled to the main residence exemption. Under the proposed change, if an individual is a foreign resident for Australian tax purposes at the time the main residence is disposed of, the individual will be subject to CGT for any capital gain realised on the sale of the property. The residency status in earlier income years will not be relevant. Further, there will be no partial main residence exemption available regardless of the past use of the property.

The proposed change will be particularly relevant for Australian ex-pats who cease to become Australian residents for tax purposes but still maintain their main residence in Australia after 30 June 2019. If the property was acquired after 8 May 2012, then the 50% CGT general discount will not be available. If the property was acquired on or before 8 May 2012, then a partial CGT discount may be available.

Secondly, changes have been made to apply a foreign resident capital gains withholding (FRCGW) tax to foreign residents disposing of certain taxable Australian property. This will be relevant where the property has a market value of $750,000 or more. If the FRCGW rules apply, the purchaser will be required to withhold an FRCGW amount at the rate of 12.5% from the purchase price and remit the amount to the Australian Tax Office (ATO).

The amount withheld will generally be deducted from the purchase price at the settlement of the property transaction. The foreign resident vendor will be entitled to a credit for the amount paid to the ATO upon the lodgement of the Australian tax return and on assessment.

In light of the changes above, property owners who have already left Australia or are planning to leave Australia should assess their situation and seek tax advice to avoid unnecessary adverse tax consequences.

If you have any queries on the subject, please call Walker Wayland and speak with Ariane.