How does the CGT exemption work?
Currently, individuals are generally not subject to capital gains tax (CGT) on the sale of the home they treat as their main residence. If the home was used to produce income, or was the main residence for only part of the ownership period, then a partial exemption may be available.
Furthermore, if you move out of your home, but do not claim any other residence as your main residence, your original home can continue to be treated as your main residence:
For up to six years if it is rented out; or
Indefinitely if it is not rented out
This main residence exemption is currently available to residents, non-residents, and temporary residents for tax purposes.
What is the Government's plan?
The Government plans to remove the main residence exemption for non-residents. This plan was first announced this plan in the 17/18 Federal Budget, but was met with backlash. This time around, the reform has been reintroduced, in a modified form.
If this rule passes, a non-resident taxpayer would be unable to apply the main residence exemption to the sale of a property - regardless of whether they were an Australian resident for any period of time during the ownership period.
Who will this affect most?
Expats and non-resident individuals will be the most affected by this plan.
For expats, there is a proposed exception to this plan for certain situations. These situations require that:
The individual has been a non-resident for no more than six years; and
A specific life event has occurred during the period of foreign residency
These life events include terminal medical conditions suffered by the individual or immediate family members, the death of immediate family members, or a marriage or de facto relationship breakdown.
Non-resident individuals will likely experience significant impact if this legislation passes Parliament. These may include:
No full or partial exemption under the main residence rules;
Being taxed at non-resident rates;
The CGT discount being less than 50%;
Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019 is currently before the House of Representatives and is not yet law.
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