Yahoo Finance Thinking of moving overseas? You’ve just avoided a tax bombshell
When the Federal Election was called last week, any government legislation that had not yet passed through Parliament was automatically abandoned.
Amongst the measures that were thrown on the scrap heap was a controversial tax hit that could have cost Australians moving overseas a fortune in tax.
Back in 2017, the government announced that it would scrap the ability for foreign residents to claim the exemption from Capital Gain Tax that is available in relation to the family home.
The main residence exemption, as it’s called, allows taxpayers to avoid CGT where they sell the house in which they live.
In the absence of the exemption, we would all face a hefty CGT bill every time we moved house, particularly in a time of rising house prices.
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How it would have affected you
To restrict the exemption to Australian residents and exclude those who don’t actually live in Australia – might seem reasonable enough but groups of expat Aussies soon spotted a flaw because as well as targeting foreigners who were buying up Australian real estate (the actual target of the new law), the measure would also impact Australian citizens, who may have lived here from birth, whose only crime was to decide to move abroad.
The way the measure worked was to deny the exemption in its entirety to anyone who was a non-resident at the date they sold their property.
That means that if an expat Aussie, who might have moved overseas for work, decided to sell their family home whilst they were overseas, they would be denied CGT relief on the sale, even though they may have lived in the house for years before they moved abroad. A potentially enormous CGT bill could be the outcome.
The measure actually came into partial effect back in May 2017 but anyone who already owned a property at that date was exempted from the impact of the measure until 1 July 2019, the date the new law was to come into full effect.
Government backed off
Despite protestations from groups representing the real estate industry and expat Aussies, the government pressed on with the move but – perhaps recognising that it wouldn’t get through Parliament – they appeared to back away from it in recent weeks.
With the calling of an election last week, the measure lapses, meaning that in effect it never existed.
Foreign residents – expat Aussies or otherwise – are fully entitled to the main residence exemption, just as they used to before the government announced the new measure.
Good news or bad news?
Of course, that’s good news for expats who might have faced a big tax bill but not such good news for expats who might have sold their old main residence already to avoid the impact of the new tax.
Sure, they won’t now pay CGT, but with property prices falling rapidly across Australia, they might also have lost thousands of dollars by selling into a falling market.
And the future of the measure itself?
Well, in its current form, it’s dead but that doesn’t mean that whoever wins the election might not choose to resurrect it in future. Watch this space.
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