After 30 June 2020, foreign residents will generally not be able to access the capital gains tax (CGT) main residence exemption. There is no apportionment based on the number of days of non-residency or the value of the property at the time of non-residency: the main residence exemption will simply not apply.
Foreign residents should consider whether they want to take advantage of the main residence exemption before the 30 June 2020 deadline.
Is it too late to apply the main residence exemption?
After 30 June 2020, the main residence exemption will not be available to an individual who is a foreign resident at the time the CGT event occurs.
The main residence exemption may still apply if a foreign resident sells their property before 30 June 2020 – and the property was purchased before 9 May 2017.
Couples who jointly own their main residence, but where one partner is a resident and one partner is a non-resident, should seek advice before the 30 June 2020 deadline.
Who is a foreign resident?
Whether an individual is a foreign resident at a point in time is complicated and will depend on their particular circumstances.
For example, a person may be a resident of Australia if:
- they have returned to live permanently in Australia; or
- they no longer have a permanent place of abode outside Australia (despite not having moved back to Australia).
In some cases, whether an individual is a foreign resident will also depend on how the ‘tiebreaker test’ in a double tax agreement between Australia and another country applies to their circumstances.
Practical issues for foreign residents who cannot access the main residence exemption
One practical issue for foreign residents selling their former main residence will be gathering the records to substantiate the cost base of their property. In addition to the purchase price of the property, the cost base may include:
- interest payments
- the cost of maintenance, repairs and renovations.
Many people may not have considered retaining these records because they related to their main residence and they expected to apply the main residence exemption when disposing of the property.
Foreign residents will also need to calculate the CGT general discount when they dispose of the property. The general discount (which is 50% for residents of Australia) is reduced based on the amount of time that the individual has been a foreign resident while owning their property.
Are there any exceptions?
There are limited exceptions where an individual, their spouse or child has had a terminal medical condition or where an executor is administering an estate of a foreign resident.
However, even these limited exceptions only apply where that individual has been a foreign resident (continuously) for less than six years.