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Implications of scrapping the CGT Main Resident Exemption
Friday, June 29, 2018

The recent announcement by the Turnbull government to scrap the Capital Gains Tax (CGT) main residence exception for foreign residents was a change no analyst would have predicted. The ATO’s definition of a foreign resident is anyone who does not reside in Australia for more than 183 days of the year, which groups in most Australian expatriates. This creates some major concerns to expats whom have built a property portfolio over the years, however does this have a profound impact that the industry proclaims?

 
The existing CGT main residence exception allows an Australian expat to sell their main resident (home) without paying CGT. The ATO have allowed up until the 30 June 2019 for expats to sell their home without CGT being payable. Industry leaders have projected an influx in sales of expat homes prior to 2019 to coincide with the CGT deadline. There is a fundamental error in this assumption that expats are not planning to move back into their Australian home, many that would still contain family possessions.
 
The following needs to be considered:
 
1.  Are you planning to move back to Australia?
2.  Are you intending to move into your Australian family home, upgrade or downgrade?
3.  What is your intended time frame for the above?
 
An expat who plans to move back into their family home in four years has no reason to be concerned. Upon returning to Australia, the property will become their main residence and hence if the property is to be sold in the future no CGT is payable.
 
Compare the above scenario to someone who plans to upgrade their home, or has no plans to return. If the home is sold prior to 30 June 2019 no CGT is payable, hence maximising the available funds to purchase a home in the future whether it be within Australia or abroad.
 
Anyone living abroad who have concerns should speak to their accountant to understand how this potential change will impact them. Discussing their residency intentions and time frames with their accountant can minimise tax implications.

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