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Australia to deny non-residents main residence CGT exemption

Thursday, 31 October, 2019

Australia's federal government has tabled a Bill to prevent foreign and temporary tax residents claiming the main residence exemption from capital gains tax (CGT).

Legislation to remove the exemption was first put forward in May 2017, and was on its way through parliament when the 2019 election was called. As a result, it lapsed and had to be reintroduced in the new session.

The original Bill specified that the measure was to apply from the date of its announcement (9 May 2017). Properties held prior to this date would be grandfathered until 30 June 2019.
Following a consultation, the government also amended the change to the main residence exemption to ensure that only Australian residents for tax purposes can access the exemption. As a result, temporary tax residents who are Australian tax residents will not be affected by the measure.

The resurrected Bill, introduced on 23 October, sets new commencement and grandfathering dates. Grandfathering is extended from 30 June 2019 to 30 June 2020, so properties held by foreign and temporary tax residents before 9 May 2017 will only be eligible for the CGT main residence exemption if they are sold by 30 June 2020 and satisfy the other requirements for the exemption.

Some extra concessions are also included in the new Bill. Foreign owners' disposals from 1 July 2020 can claim the exemption if certain life events (such as death, terminal illness, or divorce) occur within six years of the individual becoming a foreign resident.

In the interim period, the Australian Tax Office (ATO) is accepting provisional tax returns as lodged during the period before the proposed law change is passed by parliament. Past year assessments will not be reviewed until the outcome of the proposed amendment is known, but taxpayers will need to review their positions after the new law is enacted. Tax shortfall penalties will not be applied and late payment interest will only be charged at the base rate.

The ATO already has a ready-made collection method in the form of a 12.5 per cent withholding tax applied by purchasers when a residential property is sold for more than AUD750,000 on or after 1 July 2017. Purchasers must withhold 12.5 per cent of the purchase price and pay it to the ATO, unless the vendor can produce a clearance certificate proving their Australian tax residence status.