Expats to lose CGT benefits

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Australian property owners living and residing abroad would have to sell their properties before June 2020 to still take advantage of capital gains tax (CGT) exemption.

The Australian Labor Party recently expressed their support for the proposed law eliminating the CGT exemptions for Australians expatriates. Assistant Treasurer Michael Sukkar introduced redrafted legislation to Parliament last month, and a vote before Christmas is expected to seal the deal for the new tax rules.

The changes were first introduced during the 2017-2018 budget. After receiving backlash from the expat community, the federal government decided to put the changes on hold before the national election. However, Federal Treasurer Josh Frydenberg said the government will ensure that the changes will be put into place.

"This remains our government's policy. Our policy remains as it was pre-election," he said in recent reports.

Exceptions to the rules

KPMG tax partner Mardi Heinrich said the proposed law has exception provisions.

Apart from the transitional provision, which allows Australian expats to still be exempted prior to the implementation of the new rules, certain life events could help them be eligible for exemption.

"These circumstances are described as 'life events' and include a terminal medical condition or death. They also include a situation where the CGT event in relation to the property occurs in connection with a family law matter, such as in the event of divorce or separation or similar maintenance agreements," Heinrich said.

However, these events will only be considered if an Australian has been a foreign resident for a period of six consecutive years or less.

Furthermore, Heinrich explained that the changes would not permit pro-ration or appointment of capital gain, which could potentially enable partial exemption.

"Rather, the entire capital gain accrued over the full ownership period would be subject to Australian CGT, and the period that the property was held as an Australian tax resident is irrelevant.  Furthermore, there is no consideration of the six-year 'absence rule' in determining the taxable capital gain where the contract is entered into as a foreign resident," she said.

Expats unaware

In a report in The Australian Financial Review, Atlas Wealth Management managing director Brett Evans said many expats are not aware of the proposed changes.

"There will be a vast number of Australian expats who get caught up in these changes simply because they were not aware and were operating under the belief that the existing six-year temporary absence rule was still in effect," he said.

For H&R Block tax expert Mark Chapman, the changes could make matters confusing for property owners.

"You literally won't get the exemption at all, no matter how long you've owned the house, no matter how long you've lived in it as your main residence. But now the government has decided to bring it back again, so this is just creating even more confusion for foreign residents who have a main residence here," he told a separate report from News.com.au

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