The Government surprised many tax practitioners recently by tabling legislation which is aimed at denying access to the CGT main residence exemption for individuals who are foreign residents (i.e., non-resident taxpayers for Australian tax purposes.)
This is the Government’s second attempt at introducing these changes.
Importantly, the restrictions to this popular and beneficial CGT exemption will apply to the taxpayers who are non-residents at the time of the relevant CGT event (i.e.,generally as at the contract date).
The proposed changes (if enacted) will potentially impact such foreign residents in the two ways outlined below.
1. Transitional rules for properties held before 7:30pm (AEST) on 9 May 2017
Firstly, for properties held prior to the 2017 Budget date night (i.e., before 7:30pm AEST on 9 May 2017), the CGT main residence exemption will only be able to be claimed, where otherwise applicable, for disposals that occur up until 30 June 2020.
Editor: This has extended the originally proposed transitional period by one year (which originally ended on 30 June 2019) reflecting the delay in the legislation being reintroduced into Parliament.
For disposals of such properties occurring on or after 1 July 2020, foreign residents will have no access to the CGT main residence exemption, unless specified ‘life events’ occur within a continuous period of six years of the taxpayer becoming a foreign resident. These ‘life events’ include:
- The terminal illness of the taxpayer, their spouse or a child under the age of 18 years.
- The death of a spouse or child under the age of 18.
- A transfer of the relevant asset as a result of a divorce, separation or similar maintenance agreement.
2. Properties acquired at or after 7:30pm (AEST) 9 May 2017
Secondly, for properties acquired at or after the 2017 Budget night, the CGT main residence exemption will not longer be available for non-resident taxpayers, unless the same specified ‘life events’ (as outlined above) occur within a continuous period of six years of the taxpayer becoming a foreign resident.