Tax Q&A: Can foreign residents claim CGT exemption

By Contributor | 14 Mar 2019

Question: We bought our home in 2007 and lived there until the beginning of 2014, at which time we moved to Singapore for my partner’s work. I have stayed a resident for tax purposes since we left; however, he did not, so he is a non-resident for tax purposes. How does the change in law affect us, since we are both Australian citizens?

We don’t know at this stage if we will ever live in that property again, but we would like to know the taxation scenario outcomes so we can decide whether we need to sell or just keep it. We obviously don’t want to lose the CGT exemption, but I am unsure whether my partner still qualifies after 30 June 2019.

Thanks so much, Livia


Answer: Your main residence is generally exempt from capital gains tax (CGT). You can treat the dwelling as your main residence for up to six years if it is used to produce income, or indefinitely if it is not used to produce income, as long as you do not identify another property for exemption.

In the 2017/18 budget, the government announced that foreign residents would no longer be entitled to claim the main residence exemption when they sold property in Australia. If the law is passed and you are a foreign resident (or a non-tax resident), you may no longer be entitled to claim the main residence exemption when a CGT event happens.

For property held prior to 7:30pm (AEST) on 9 May 2017, you will only be able to claim an exemption for disposals that happen up until 30 June 2019, and only if they meet the requirements for exemption. If you weren’t an Australian tax resident while living in your property, you are unlikely to satisfy the current requirements for the main residence exemption, as citizenship is not the test. If you are a foreign resident when you die, the changes will also apply to your legal personal representatives, the trustees and beneficiaries of deceased estates, surviving joint tenants and special disability trusts.

Foreign residents will no longer be entitled to claim CGT exemption when they sell property in Australia

You have advised that “we bought” and “we moved”, which looks to be at odds with your statement that even after moving to Singapore you remained an Australian tax resident. Residency has several tests, including the 183-day test and the domicile test, which requires you to have a permanent home in Australia and not just residency.

The domicile test usually applies where an Australian resident goes to work or travels overseas for an extended time. In your situation, you may fail the ‘resides’ test as you have been away for a lengthy period. Your absence would raise doubt as to whether you have been residing in Australia during the time when you set up some form of abode in Singapore. Unless there are other significant factors, such as family and financial ties remaining in Australia, you may not pass the resides test.

However, you may have a domicile in Australia (unless you choose to change it), and therefore the domicile test may apply. The most important consideration will therefore be determining if you have a permanent place of abode abroad.

Need to know
- Foreign residents are no longer exempt from CGT on sale of their property.
- Mere citizenship does not satisfy the CGT exemption requirements.
- The resides and domicile tests determine residency status.

Ken Raiss
is director of Metropole
Wealth Advisory


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