Australian expatriates have been taken on a wild ride over the past few years when it comes to the tax treatment of their homes here in Australia. Will capital gains tax apply when the house is sold, or won’t it? In 2017 the government told us yes, in 2019, no. Now it is clear that the Morrison government is pushing ahead with changes to the capital gains tax exemptions on main residences. And if you’re an Australian living abroad with a main residence here in Australia, expat capital gains tax changes affect you.
If you sell an asset, such as your home, you will usually make a gain or a loss (known as capital gains and capital losses). This is the difference between what it cost you to buy the home, and what you received when you sold it.
If you make money this is a capital gain and you are required to pay tax (capital gains tax or CGT) on that income unless you fall under one of the CGT exemptions.
Most personal assets are exempt from CGT, and this includes your home (main residence exemption). So, generally when you sell your home, you aren’t required to pay any tax on the gain that you make. This is tremendously important, because for most homeowners, the family home is their biggest asset.
Until now, the ATO has applied the main residence exemption to the main Australian residences of Australian expats too, as long as the home was sold within six years of moving overseas. This is set to change as of June 2020, when the government’s proposed capital gains tax changes could take effect.
Of course, the bill still needs to be debated in parliament. But if it’s passed it could mean that if you are living or working overseas when you sell your family home, you may no longer be entitled to claim the main residence exemption to CGT. Even more importantly, it is possible that the ATO could tax you on the entire increase in value since you bought your home, not just since you left Australia. And for many Australian expats, this could be a very significant amount of money.
The Morrison government has announced a later starting date for these new proposed changes – pushing back the original start date to June 2020. So, you have until then to beat the changes and sell your home under the existing rules. Still, this is a short timeline and many Aussie expats are feeling the push to decide the right course to take now.
Being prepared will help minimise both the worry and the tax bill. Speak with your financial advisor to find out the tax implications for you, and the best way (and timing) to make sure that you take advantage of all the options available to you.
Then speak with your real estate agent and with us, your mortgage broker. We can help you understand your position. When tax changes are passed you will be well armed and able to act quickly.
Selling your family home can be a long process. And as an expat, capital gains tax changes will affect you. Getting all the information before the bill is passed will ensure the process is smooth and efficient, and help you retain as much of your income as possible.
If you’re an Australian expat worried about proposed Capital Gains Tax changes, get in touch. We’d love to help you make sure you know where you stand and how to achieve the best outcome going forward.
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