Foreign residents (also known as non tax residents) of Australia will soon have to pay tax if they sell their own homes at a profit.
This change, announced in the 2017-18 Federal Budget, potentially affects all property owners from 9 May, 2017 in two broad categories.
The first is those who sign a purchase contract for a property after 7.30pm on 9 May, 2017, and sell that property as a non tax resident of Australia. These people will need to calculate whether a capital gain has been made and pay tax accordingly. This will apply regardless of your tax residency status when you bought the property.
For example, if you are a tax resident of Australia when you buy the property, but then move overseas and become a non resident, the CGT calculation will apply if you sell while a non tax resident. And there is no pro-rata available between your time as a resident and non resident for tax purposes.
The second are foreign residents for tax purposes who owned their own homes prior to 7.30pm, 9 May, 2017. These people will be able to access the old CGT free tax exemption rules until 30 June, 2019. From 1 July 2019, the new CGT rules on sale of your own home will apply to this group.
As with any change to tax laws, there can be a lot of twists and turns in relation to applying these new rules in practice. Some of the key points to remember include:
• Your tax residency and your citizenship status may not be the same. In other words, even if you are an Australian citizen, you may be a non resident for tax purposes.
• If you are a tax resident when you buy your own home, but then become a non resident, you may still be caught if sell while a non resident.
• The rules do not allow you to apportion the gain between the time you have been a resident and non resident.
• There are no concessions for non residents currently accessing the six-year tax free absence rule, apart from the grandfathering for sales up to 30 June 2019.
• However, where an individual returns to Australia and resumes Australian tax residency, they may still be able to claim main residence exemption.
If you own a principle place of residence (your own home) in Australia and you are already a non resident for tax purposes, or planning to become so, then you should seek some specific advice from a taxation specialist in relation to your situation.
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