The impact of these changes could be very expensive for you, especially if you have owned the property for a considerable time.
Australian Tax Advisor Steve Douglas of SMATS Group explains more about what the rules mean for expats outside Australia…
Back in the May 2017 Federal Budget, the Australian government announced a change to exclude foreign residents from any entitlement to capital gains tax free portions on their former Australian family home, if they sold it while living outside of Australia.
This was vigorously opposed by the SMATS Group and Austcham HK, who argued this would harshly impact expatriates, especially if they were forced to sell the property for unexpected reasons, such as death or divorce. So, the legislation lapsed.
Unfortunately, new Prime Minister Scott Morrison’s Liberal Government passed amended legislation in December 2019 that offers some concessions for “life events”, but still negatively affects expatriates who sell a former residence while living abroad.
When do these new property tax rules start?
The implementation period starts 1 July 2020. It is important to note the changes only affect you if you actually sell a property – and only if the sale occurs while you are living permanently outside of Australia.
Can I do anything to reduce my potential tax burden?
Be mindful of the 12.5-percent Foreign resident capital gains withholding tax retained at settlement, when a property with a
value of A$750,000 is sold by anyone living outside of Australia. This is not an actual tax – it’s an advance provision held pending the lodgement of your tax return and actual tax calculation, after which any overpayment is refunded or underpayment is required. It is possible to vary this at settlement if the actual tax estimate can be calculated, and you make a formal application to reduce it.
The impact of these changes could be very expensive for you, especially if you have owned the property for a considerable time. We strongly suggest you seek professional assistance prior to sale, and have a quick capital gains tax estimate prepared, as the tax cost may greatly impact your decision to sell or keep a property.
The key details of the new tax rules are explained below, and there is an implementation period starting 1 July 2020.
Options to consider
Remember, whilst living overseas you will only be entitled to the capital gains tax free residence concession if you sell your property before 30th June 2020, or after you return to live in Australia. So it pays to consider your options:
Australian Tax Advisor
Steve Douglas is the Co-Founder and Managing Director of Australasian Taxation Services (ATS). ATS provides specialist taxation services for anyone looking to invest in Australian property, including Australian expatriates living overseas. Areas of specialisation include the Australian taxation aspects of property investment, as well as expatriate and migration planning.
From The Finder (Issue 302), March 2020
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