Aussie Expats Face Property Tax Changes
In a sad day for Australian expats across the world, the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019 has been passed by the Senate, and with no further barriers in its way, will now be in force. This means that Australians across the world will no longer be able to claim the Main Residence Exemption (MRE) on their property, with very few exemptions.
What does this mean for Australian expats?
This means that Australian expats who are already residing overseas and own property back at home that they previously lived in, or those Australians who are currently considering a move offshore in the short term, have some serious decisions to be made with regard to how they manage their property back home. The deadline is the 30thJune 2020, whereby if a property is sold after this date, the Main Residence Exemption will not be applicable to Australians residing overseas, however if it is sold prior to this, then you could still be eligible for the exemption.
Why was the Amendment introduced?
The stated rationale for this change to the Bill is to reduce pressure on housing affordability, which as we know has received a great deal of media coverage over recent years. It is difficult to see how this outcome will be achieved, and the Government has provided little by way of explanation as to the roadmap to this ultimate goal. Personally, I believe that it is far more likely that expats with property back at home will avoid selling their property while they’re offshore, which will in turn result in less properties on the market, and could in fact have the opposite effect on property prices, driving them higher. It is estimated that over 100,000 Australians will be impacted by this change, and many more over the years to come.
There will be a transitional period for the change. If you owned your Australian property prior to the 9 May 2017, and sell it prior to 30 June 2020, you will still be eligible for the Main Residence Exemption. If you sell the property after 30 June 2020, then the Main Residence Exemption will not apply, and capital gains tax could be triggered to as far back as the 20th September 1985, when Capital Gains Tax (CGT) was first introduced into the Australian tax system. Further, if you didn’t own the property on or prior to the 9th May 2017, you will not be eligible for the Main Residence exemption at all, regardless of whether you sell it prior to 30 June 2020 or not.
Please do take note that beyond 30 June 2020, if the property is sold by an Australian expat living offshore, then the capital gains tax liability will be calculated from the acquisition price of the property will no ability to apportion the main residence exemption. Not only is this incredibly punitive, it could also be an administrative nightmare to track down records of purchase prices, renovation costs and any other fees or costs involved that could reduce the tax liability. This will particularly be the case if the property has been in the family for years, which increases the burden on Australian homeowners.
Are there any exemptions?
There are a few minor exemptions to this amendment, which were pleasing to see, however certainly didn’t go far enough in reducing the impact of this punitive change. The key exemption is that if you have been a non-resident of Australia for less than 6 years, and have suffered a serious life event, you may still be eligible to claim the Main Residence Exemption. These key life events include the following:
- Terminal medical condition
- Death of a spouse of minor child
- Divorce or separation
What should Australian expats do?
Given the complexities of these changes, we would certainly recommend seeking qualified financial and tax advice to consider your options and doing so sooner rather than later. We know that many Australian property owners living offshore will be unaware that these changes have taken place and may be caught facing serious tax consequences beyond 30 June 2020. Seek the right advice and ensure this isn’t you.
To Your Financial Success!
Jarrad Brown is an Australian-trained and qualified Fee-Based Financial Planner with Australian Expatriate Group of Global Financial Consultants Pte Ltd providing specialist financial advice and portfolio management services to Australian professionals in Singapore. Jarrad Brown is an Authorised Representative of Global Financial Consultants Pte Ltd - No: 200305462G | MAS License No: FA100035-3
Australian Expatriate Group is a division of Global Financial Consultants in Singapore providing specialist advice to Australians living abroad.
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General Information Only: The information on this site is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision.
*Please note that Jarrad Brown is not a tax agent or accountant and none of the content outlined here should be taken as personal advice. You should consult your tax agent and financial adviser to review your current personal finances and financial goals to consider whether this strategy is appropriate for you.
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