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Capital Gains Tax main residence exemption denial to non-residents proposal

CGT main residence exemption denial to non-residents

Daniel Hodgson and Ablean Saoud provide a concise overview of the current state of play on the proposal to deny the CGT main residence exemption to non-residents.

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Proposals announced in the 2017 Federal Budget sought to deny the capital gains tax ('CGT') main residence exemption to non-residents from July 2019. However, the Bill effecting this change has yet to be passed, and as a result, there has been much media debate on the potential impact for Australians residing overseas as non-residents.

This article provides a concise overview of the current state of play and the range of possible outcomes, so that impacted taxpayers can make an informed decision regarding their property.

  • The Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018 ('the Bill') is currently before the Senate, having been passed by the House of Representatives. In March 2018 the Senate Economics Legislation Committee had recommended that the Bill be passed.
  • The Bill proposes to deny the CGT main residence exemption, where the owner is a non-resident at the time of the 'CGT event'. The most common CGT event would be the disposal of a dwelling at the date of entry into the contract for sale. It could also include the deemed disposal of a foreign main residence when a taxpayer ceases Australian tax residence.
  • The Bill does NOT propose to deny or restrict the main residence exemption in the circumstances where the taxpayer is an Australian tax resident at the time of the CGT event, regardless of whether the taxpayer has been a non-resident for some portion of their period of ownership of the dwelling (i.e. to be clear, if you are currently a non-resident of Australia but you resume your residency prior to entering into a contract for the sale of your main residence, your entitlement to the main residence exemption should not change due to this new law).
  • The Bill, if passed in its current form, would deny the CGT main residence exemption for non-residents on sales occurring on or after 1 July 2019. It would also apply to a relevant CGT event occurring before that date, in relation to a dwelling acquired after 9 May 2017. The last possible date for a House of Representatives and half-Senate election is 18 May 2019. For this to occur, Parliament would need to rise in April, causing the lapse of any Bill that had not yet been passed by both chambers.
  • There are only two scheduled Senate sitting days (2 and 3 April) remain between now and the time when Parliament would be expected to rise for an 18 May election. It is reasonable to expect that only those Bills which are highest priority for government would be tabled for debate on 2 or 3 April, given that this timing coincides with the handing-down of the 2019-20 federal budget.

To continue reading further on the possible outcomes for this proposed legislation, log on to KPMG Tax Now.

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