Australian expats face hefty taxes after capital gains tax exemption is scrapped

Pedro Gonçalves
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Australian expats face hefty taxes after capital gains tax exemption is scrapped

Thousands of Australian expats will be hit with capital gains tax as the Federal Government passed through the Senate its A$581m plan to change CGT arrangements for people living overseas.

The exemption for Australian expatriates has been available since 20 September, 1985, and was applicable so long as the home was rented out for no more than six years at a time. However, CGT tax exemption on their family home is to be scrapped under the approved changes.

It means that potentially thousands of Australians will be hit with capital gains tax if they sold their property while a resident overseas, and the tax bill will date back from the time the owner purchased their home, not the point at which they moved overseas.

It will also apply to foreign nationals who buy a home in Australia to live in while working here, which they then sell after returning to their home country"

The new tax bill will date back from the time the owner purchased their home and not the date when they moved abroad. For someone who purchased in the late 1980s, that could mean a hefty tax bill.

The bill will impact Australians who live abroad but who come to Australia for temporary periods. It will also apply to foreign nationals who buy a home in Australia to live while living in the country, which they will need to sell before moving back home.

Foreign residents who already held property on May 9, 2017 will be able to claim the CGT main residence exemption, if they sell their property on or before June 30, 2020.

The bill has attracted intense criticism from the tax profession since its inception, with many expressing concern over the retrospective impact in denying the main residence exemption as far back as 20 September 1985, when CGT was first introduced.

KPMG tax partner Mardi Heinrich said the policy measure's pathway through the parliamentary process had been "tortuous".

"It will also apply to foreign nationals who buy a home in Australia to live in while working here, which they then sell after returning to their home country," he told Australian news outlet ABC

"Furthermore, it will impact Australians who ordinarily live overseas and have their main residence overseas, but who come to reside in Australia for a temporary period."

The Tax Institute's senior tax counsel Bob Deutsch called it an "outrageous piece of legislation".

There are concerns that a high number of Australian expats are unaware that the previous six-year temporary absence rule is no longer applicable and would be caught out by the new rules.

 

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