Tax

CAPITAL GAINS TAX FOR NON-RESIDENTS

Will Capital Gains Tax for “Principal Place of Residence” be Expats next hurdle?

Here are 5 examples taken from the exposure Draft. (To read the full document please click the button below) –

Example 1 - Main residence exemption Denied

Vicki acquired a dwelling 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 Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 10 occurring on 13 November 2019.

Vicki was a foreign resident for taxation purposes on 15 October 2019. The time of the 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).

Example 2 - Main residence exemption applies

 Amita acquired a dwelling on 20 February 2003, moving into it and establishing it as her main residence as soon as it was first practicable to do so.

On 15 August 2020 Amita signs a contract to sell the dwelling and settlement occurs on 12 September 2020.

Amita used the dwelling as follows during the period of time for which she owned it:

  • residing in the dwelling from when she acquired it until 1 October 2007;
  • renting it out from 2 October 2007 until 5 March 2011 while she lived in a rented home in Paris as a foreign resident (assume the absence provision applies to treat the dwelling as her main residence);
  • residing in the dwelling and using it as a main residence from 6 March 2011 until 15 April 2012;
  • renting it out from 16 April 2012 until 10 June 2017 while she lived in a rented home in Hong Kong as a foreign resident (assume the absence provision applies to treat the dwelling as her main residence);
  • residing in the dwelling from 11 June 2017 until it was sold. The time of CGT event A1 for the sale of the dwelling is the time the contract for sale was signed, that is 15 August 2020.

As Amita was an Australian resident for taxation purposes at that time (as she had re-established her Australian residency) she is entitled to the full main residence exemption for her ownership interest in the dwelling as it is, or is taken to be, her main residence for the whole of the time that she owned it.

Example 3 - Partial main residence exemption Denied

Terry acquired a dwelling on 20 August 2010. On 13 November 2019 Terry signs a contract to sell the dwelling and settlement occurs on 11 December 2019. At this time he was a foreign resident. Terry used the dwelling as follows during the period of time for which he owned it:

  • renting it out from when he acquired the property until 5 June 2011;
  • establishing the dwelling as a main residence and residing there from 6 June 2011 until 17 June 2019; and Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 12
  • leaving the property vacant from 18 June 2019 until it was sold. From 19 June 2019 Terry resided in London.

Example 4 - Main residence exemption applies

Dwelling that is a main residence that was owned before 9 May 2017 is disposed of on or before 30 June 2019.

Samantha acquired a dwelling on 13 April 2013 moving into it and establishing it as her main residence as soon as it was first practicable to do so.

On 10 January 2019 Samantha signs a contract to sell the dwelling and settlement occurs on 7 February 2019. Samantha used the dwelling as follows when she owned it:

  • residing there until 15 September 2016; and
  • renting the property out from 16 September 2016 until it was sold (assume the absence provision applies to treat the dwelling as her main residence during this later period).

From 16 September 2016 Samantha resided in rented accommodation in Bahrain and was a foreign resident.

CGT event A1 for the sale of the dwelling occurs when the contract for sale was signed, that is 10 January 2019.

As Samantha held her ownership interest in the dwelling on or before 9 May 2017, she continued to own it until it was sold and it was sold before 1 July 2019 she is entitled to the main residence exemption under the transitional rule.

Example 5 - Partial Main residence exemption applies

Foreign resident beneficiary inherits main residence from a deceased person

Australian resident at time of death Con acquired a dwelling on 7 February 2001, moving into it and establishing it as his main residence as soon as it was first practicable to do so. He continued to reside in the property and it was his main residence until his death on 9 August 2017.

Jacqui, Con’s daughter, inherited the dwelling following Con’s death. Upon inheriting the dwelling, Jacqui rented it out.

It was not her main residence at any time. On 25 January 2021 Jacqui signs a contract to sell the dwelling and settlement occurs on 23 February 2021.

Jacqui resides in Buenos Aires and is a foreign resident for the whole of the time she has an ownership interest in the dwelling.

 Jacqui is entitled to a partial main residence exemption for the ownership interest that she has in the dwelling at the time she sells it, being the exemption that accrued while Con used the residence as his main residence (7 February 2001 until 9 August 2017).

She is not entitled to any main residence exemption that she accrued in respect of the dwelling (9 August 2017 until 25 January 2021). This is because she was a foreign resident on 25 June 2021, the day on which she signed the contract to sell her ownership interest, which is the day on which CGT event A1 occurred.

Note: Jacqui will need to apply section 118-200 of the ITAA 1997 to work out the amount of the capital gain or loss that she realises from the sale of the ownership interest in the dwelling. If Jacqui had instead sold the dwelling on or before 9 August 2019 she would have been entitled to a full main residence exemption. This is because the whole of the main residence exemption would have, or would been taken to have, accrued from Con’s use of the residence. This includes the two year period following Con’s death.

Please read the draft for more information and examples about beneficiary inheritance from the deceased, treatment of New Zealanders or foreigners owning Australian property as a tax resident, councils reclaiming some of your main residence land and property share ownership.

Its important to get good advice and understand the ramifications before selling your property as Capital Gains Tax may be deemed payable..

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Related Tag: Australian Property Investment

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