Capital Gains Tax Changes for Foreign Residents
The House of Representatives has now passed the legislation detailing the changes proposed in the 2017-18 Federal Budget surrounding the CGT main residence exemption.
The legislation removes the entitlement to the CGT main residence exemption for foreign residents. Individuals who are foreign residents at the time a CGT event occurs to a dwelling (or for a compulsory acquisition as part of a dwelling) that was their main residence at some point in the past, will no longer be entitled to the CGT main residence exemption. This applies to CGT events happening at or after their announcement at 7.30pm, on 9 May 2017.
The changes do not apply for certain dwellings held before 9 May 2017 where the CGT event occurs on or before 30 June 2019. There are several transitional provisions impacting a variety of different situations including individuals and trustees of a special disability trusts.
The rules have a hard cut-off date and no apportionment of gain for periods when owners were tax residents. The rules do not consider history of residency, but rather focus on the tax residency status on the date of sale. As such, individuals becoming residents for a short period and those having been resident for a long time who are leaving face decisions impacting their main residence.
The time of the CGT event is important from a planning perspective in relation to disposals and this issue together with changes to sale contracts to address potential risk areas will need to be considered.
Should you have any questions about how these changes affect you please contact us or speak to your ESV engagement partner on 02 9283 1666.