Removal of CGT Main residence exemption for Australian expatriates – disastrous tax changes now imminent

Matthew Marcarian   |   25 Feb 2018   |   6 min read

As we reported in our blog last year – the Australian Government announced that it would remove the CGT main residence exemption for foreign residents.

It was said that this reform was being introduced as part of measures to address housing affordability in Australia. Due to other legislative priorities a bill to enact the change was not introduced and we had hoped that the Government would have taken the time to ensure grandfathering of all existing properties.

However the bill was re-introduced earlier this month as Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018, apparently unchanged after the exposure draft consultation period last year.

The Bill has now been referred to a Senate Standing Committee which represents the last opportunity to lobby for changes to be made to the Bill. Submissions close 5 March 2018.

What is the problem?

In trying to tighten our CGT laws, the Bill denies Australians living abroad access to the “CGT absence concession”. This existing concession gives many Australian expats the opportunity to retain the CGT exemption on their former home for up to 6 years, even if they rented their home out after they had moved overseas. This exemption will be removed.

Disastrously though, the changes seem to be more fundamental. The Bill, as drafted, denies even a partial CGT exemption by providing no CGT relief even for the period of time when the person had lived in their home before departing Australia. The Explanatory Memorandum to the Bill makes this alarming problem crystal clear (see Example 1.2 which is extracted below). We do not believe this was the Government’s intention.

The only way out under the draft Bill is that taxpayers seem to be allowed to move back into the property after returning to Australia (as a resident) and to then sell the home on a CGT free basis (assuming the absence exemption otherwise applies). This creates a tax-driven ‘lock-in’ effects which is likely to create significant issues for taxpayers and rather than assist housing supply could in fact create further supply constraints.

Does this apply to you?

If you are an Australian expatriate then the Bill provides that unless you sell your former home prior to 30 June 2019, you will be subject to CGT on the sale of the property if you sell it after that date while you are still a non-resident of Australia for tax purposes. Unfortunately, as currently drafted, the Bill would not even provide you with a partial CGT exemption to recognise the period of time that you lived in your home prior to your departure. To preserve your CGT exemption you would be left with the choice of either selling prior to 30 June 2019 or else keeping the property until you one day return to Australia.

The tightness of the 30 June 2019 deadline has seen concerns expressed in the Australian Financial Review recently about a fire sale in expat owned property. While predictions of a fire sale may not be true, it is nonetheless a highly unfair position to put home owners in and the Bill represents poor policy implementation.

Artificially ending the absence concession by using a ‘drop dead date’ on 30 June 2019 is highly equitable. It will mean that failure to sell by 30 June 2019 could mean that an Australian living overseas could be exposed to hundreds of thousands of dollars of tax, given the increases in Australian property over the last 3 years.

What should be done to fix this?

We strongly urge the Government to fix the Bill by ensuring that amendments are made so that:

  • all Australian expatriates who were already non-resident of Australia when the changes were announced on 9 May 2017, should continue to be able to access the absence concession regardless of where they reside; and
  • all persons should be able to access the partial CGT exemption for at least that part of the ownership period during which they lived in the property and were resident of Australia.

We believe that the flaws in this Bill are an oversight that will be rectified once these problems are better understood. In our experience most Australians living abroad who keep their home in Australia do pay taxes and continue to contribute to the Australian economy.

If the Government wishes to persist with the change of law to only permit CGT exemptions for those who are tax resident in Australia –  then they should ensure that they are fair to the thousands of Australians who have moved overseas (most of whom will return) but who have retained their former homes in Australia.

Final submissions are now being requested and we strongly recommend that interested parties make a submission on this inequitable change.

You can contact your local member of parliament and forward this blog.

If you are concerned about the unfairness of this change submissions can be made to.

Committee Secretariat contact:

Senate Standing Committees on Economics
PO Box 6100
Parliament House
Canberra ACT 2600

Phone: +61 2 6277 3540
Fax: +61 2 6277 5719
economics.sen@aph.gov.au

Extract from Explanatory Memorandum to the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018

Example 1.2 — Main residence exemption denied

Vicki acquired a dwelling in Australia on 10 September 2010, moving into it and establishing it as her main residence as soon as it was first practicable to do so. On 1 July 2018 Vicki vacated the dwelling and moved to New York. Vicki rented the dwelling out while she tried to sell it. On 15 October 2019 Vicki finally signs a contract to sell the dwelling with settlement occurring on 13 November 2019. Vicki was a foreign resident for taxation purposes on 15 October 2019. The time of CGT event A1 for the sale of the dwelling is the time the contract for sale was signed, that is 15 October 2019. As Vicki was a foreign resident at that time she is not entitled to the main residence exemption in respect of her ownership interest in the dwelling. Note:

This outcome is not affected by:

• Vicki previously using the dwelling as her main residence; and

• the absence rule in section 118-145 that could otherwise have applied to treat the dwelling as Vicki’s main residence from 1 July 2018 to 15 October 2019 (assuming all of the requirements were satisfied).

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US Market Entry Event – Brisbane – 27 February 2018

Matthew Marcarian   |   20 Feb 2018   |   2 min read

CST is pleased to be supporting a special event with Trade & Investment Queensland and Littler on Tuesday 27 February 2018.

We will provide essential information for Queensland businesses looking to expand to the United States.

The event will be held at The Precinct, Level 2, 315 Brunswick Street, Fortitude Valley QLD 4006.

A great panel of speakers will include Naomi Seddon from Littler, our own Peter Harper and Matthew Marcarian from CST. They will share their areas of expertise and  experiences in expanding to the U.S.A.

The event was a great success when it was last held in 2016 and we are looking forward to another excellent event under the auspices of Trade & Investment Queensland.  Naomi Seddon from Littler will provide valuable insights into US employment law, a critical area that many companies overlook when establishing their first US office. CST will provide answers to the top tax questions often asked by clients who are setting up in the USA.

With the U.S. Government announcing radically lower business taxes, Australian interest in expanding to the USA is even stronger than ever.

For further details please visit the website of the Trade and Investment Queensland and you can register for the event by clicking here.

Topics which will be covered will include;

  • The Trump Tax changes
  • Setting up a corporation or an LLC in the USA;
  • Immigration under the Trump Administration and what US visa options are available;
  • Engaging contractors in new markets
  • Sending employees to the USA and local hires
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Doing Business in the United States – Sydney Event – 21 February 2018

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CST is very pleased to be supporting a special event with NSW Trade & Investment and Littler on Wednesday 21 February 2018.

We will provide essential information for businesses looking to expand to the United States.

The event will be held at Sydney’s iconic MLC Centre – at the offices of NSW Trade, Level 48, MLC Centre 19 Martin Place.

A great panel of speakers will include Naomi Seddon from Littler, our own Peter Harper and Matthew Marcarian from CST, as well as Hugh Massie (DNA Behaviour), Ben Kerr (Eco Outdoor) and Bruno Mascart (Altios Australia). They will share there areas of expertise and their own experiences in expanding to the U.S.A.

The event was a great success when it was last held in 2016 and we are looking forward to another excellent event under the auspices of NSW Trade & Investment. Naomi Seddon from Littler will provide extremely valuable insights into US employment law, a critical area that many companies overlook when establishing their first US office. CST will provide answers to the top tax questions often asked by clients who are setting up in the USA.

With the U.S. Government announcing radically lower business taxes, Australian interest in expanding to the USA is even stronger than ever.

For further details please visit the website of the NSW Department of Industry and you can register for the event by clicking here.

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Expanding to the USA – Market Entry Event for Victorian Technology Companies – 15 February 2018

Matthew Marcarian   |      |   1 min read

CST is pleased to be sponsoring and presenting at a Littler and Trade Victoria workshop being held in Melbourne on Thursday 15 February 2018.

If you’re a Victorian digital technology company seeking to tackle the US market, or looking to grow your business and enter the market, or expand your existing activities in the region, Trade Victoria invites you to this exclusive half-day workshop.

Trade Victoria has partnered together with Littler and CST Tax Advisors to host an exclusive afternoon event aimed at providing essential information to companies looking to expand and enter the US market.

The event will feature a panel of experts and companies that have experienced the pitfalls and successes of expanding into a new market. You will also hear from other Victorian companies who have successfully taken their business to the US market, as they share their expert local knowledge and experience.

More about the workshop please visit the website of the Trade Victoria by clicking here – click here.

Interested parties are welcome to Register for the event by completed the following webform provided by Litter- we look forward to seeing you at the event.

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