Residential real estate as an investment has been an attractive option for both Australian residents and expats for decades, and I’m sure it will certainly remain an option to consider over the years to come. Whilst it can generate long-term capital growth and income returns, there are critical factors to consider when it comes to disposing of a residential property whilst you’re an Australian expat, or non-resident of Australia for tax purposes.
Australia’s residential real estate market is estimated to be worth approximately $9.6 trillion. To put this into perspective, the superannuation system, which is one of the most developed and widely utilised systems globally, is valued at approximately 1/3 of this. With the great Australian dream of owning your own property still ringing true for many, it’s no wonder that many turn to housing. For many households, their primary residence is also their main asset.
If you decide to sell your Main Residence, i.e. the property that you’re living in, while you’re in Australia as a tax resident of Australia, then in most circumstances, Capital Gains Tax (CGT) would not apply given the Main Residence Exemption. If this were an investment property, however, then taxes would apply at your marginal tax rate factoring in both the 50% discount and the main residence exemption if you lived in the property for some time.
Why is it different for Australian expats selling residential property in Australia?
It’s important to note here that Australian expats no longer receive either the 50% CGT discount, or the Main Residence Exemption, which is why it’s so important for expats to seek professional advice here.
The 50% GT Discount means that if you hold an investment asset, such as a portfolio of shares, or investment property, as an Australian tax resident for more than 12 months, then you would only need to pay tax on half of the capital gain. However, on 9 May 2012, this benefit was abolished for non-residents of Australia.
In relation to an investment property, this meant that if the Australian expat lived overseas prior to this date, they would receive a 50% discount for the period it was held prior to 8 May 2012, and any periods that they owned the property as an Australian tax resident after this date. This means that the CGT discount is going to be largely inaccessible for most Australian expats.
When it comes to the Main Residence Exemption, we also saw this abolished, however more recently on 12 December 2019, which meant that even if an Australian expat lived in the property, they were not eligible to claim the Main Residence Exemption as a non-resident of Australia.
The exemption typically allows an Australian tax resident to rent out their primary residence for a period of up to 6 years, which can be treated as exempt from CGT. This meant that Australian expats, prior to 12 December 2019, could move out of their family home in Australia, rent it out and sell it within the 6-year period, and still receive the full CGT exemption. There is some exception to CGT applying such as a death in the immediate family or court orders due to a marriage breakdown or otherwise, however broadly the CGT exemptions will not apply to Australian expats.
What tax rates actually apply?
The tax rates that would apply to a non-resident of Australia who is disposing of residential property in Australia are the non-resident rates, which as of this point in time are as follows:
Without the Main Residence Exemption (MRE) and the 50% Capital Gains Tax discount applying, this could be a significant deterrent from selling a property whilst overseas. Naturally, this does not mean that you simply shouldn’t ever sell a property whilst you’re living overseas, however, it does certainly highlight the need to seek professional tax advice on this matter.
What should Australian expats do?
If you do own residential investment property in Australia, or you’re planning to move into one of your current properties in Australia upon repatriation, it’s very important to seek professional advice as the timing of various tax events can be critical to get right. You may also find that there’s an alternative course of action that provides a more favourable tax treatment for you when it comes to planning for your repatriation to Australia.
Given the costs involved in both acquiring and disposing of Australian property, and the tax implications we’ve highlighted above, it’s important to seek advice from a qualified Financial Planning and/or tax adviser on these matters.
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.