Australia – Proposed CGT Main Residence Exemption Changes Could Be Dropped

Australia – Proposed CGT Main Residence Exemption Chang

This report covers proposed changes to Australia’s capital gains tax (CGT) main residence exemption that would impact Australian tax nonresidents.

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Australian expatriates can breathe a sigh of relief following comments from Assistant Treasurer Stuart Robert which indicate the proposed changes to the capital gains tax (CGT) main residence exemption in their current form, will not be legislated.1

The move follows intense lobbying and media attention from Australian expatriate groups on the controversial changes announced in the May 2017 federal budget. 

Speaking at the Taxation Institute conference on 15 March, the Assistant Treasurer indicated that the Coalition government would not be seeking to pursue the passing of the Bill2 which was introduced into Parliament last year.  (For prior coverage, see GMS Flash Alert 2017-132, 1 September 2017.)  The Bill is currently before the Senate, which is only scheduled to sit for two days prior to the expected calling of a federal election.  

WHY THIS MATTERS

The proposed changes would have potentially resulted in large capital gains tax bills for Australians selling their main residence whilst they are residing overseas.       

In Brief: Key Aspect of the Measure in the Bill

The Bill’s pertinent measure would have applied to the sale of all homes from 1 July 2019 onwards, removing the main residence exemption from capital gains tax where the property is disposed of while the individual taxpayer is a tax nonresident of Australia.

KPMG NOTE

Potential Impact of the Bill’s Measure

There would also have been adverse consequences for beneficiaries of the estates of expatriates who pass away overseas, and divorcing couples with Family Court settlements.  Of particular concern to many taxpayers was the way the legislation had been drafted, so as not to allow any pro-rating or apportionment for the part of the gain accrued while a tax resident.

Welcome News from Assistant Treasurer

The comments from the Assistant Treasurer are welcome, as taxpayers were looking for guidance from the government.  The comments have to some extent reduced the uncertainty since the announcement of the proposals in May 2017.  Many expatriates may have been weighing up the difficult choice between selling their main residence in advance of the 1 July 2019 start date to maintain the exemption, or to take the chance that the announced changes would not go ahead.

Next Steps

There may be something more official in the April 2 budget announcement confirming the comments made by the Assistant Treasurer.  It is still possible that a similar Bill (with some revisions) may be introduced in the future.

Important Reminder

Taxpayers should still be aware of the ‘6 year rule’ that remains in-force for property that is rented out and was previously occupied as a main residence prior to a move overseas, and seek professional advice before leaving Australia and becoming a nonresident of Australia for tax purposes. 

FOOTNOTES

1  In response to questions at the Tax Institute’s National Convention. See the report in AccountantsDaily (online): J. Lian, “CGT main residence proposal self-implodes,” (18 March 2019).

Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018.

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The information contained in this newsletter was submitted by the KPMG International member firm in Australia.

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GMS Flash Alert is a Global Mobility Services publication of the KPMG LLP Washington National Tax practice. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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