WARNING FOR AUSTRALIAN EXPATS, who have a family home in Australia they might want to sell in the future.
I received this information from Angelo, a reader of the blog who keeps in touch with tax issues relating to Aussie expats. You might already know of this new ruling but if not it is a potentially devastating blow to retirees living abroad. Angelo published this as a comment on my post relating to the inequities applying to Australian expats HERE but I thought the topic was so important I would make it a stand-alone post.
Why we are the target of the Australian government in so many ways is a complete mystery. You’d think they’d want to get rid of us expensive oldies to other countries wouldn’t you.
I am no tax expert and this scenario doesn’t apply to me so I publish it purely as something that might require your further research if the situation described applies to you. For all others this post has little meaning other than to make you eternally grateful you aren’t an Australian citizen. I have pasted the entire email from Angelo below. Make of it what you will and I take no responsibility for its accuracy or application to your situation (you can tell that I am an ex-public servant can’t you):
Hi Tony and Tony’s followers, I just thought that I would see if there are any Non Residents here living in Thailand who have their principal place of residence back home in Oz, why, because I am delivering very bad news, that said, if there are some Non Residents living here in Thailand who have their principal place of residence back in Oz, they might get wind of this and sell up in time before the new changes come into effect on 1 July 2019, therefore saving potentially hundreds of thousands of additional capital gains tax $’s. I have copied and pasted an email that I received this morning, and whilst it is lengthy, the long of the short of it is to scroll down to Example 1, it will knock you off your feet, to add, the capital gains tax will be 45% as of the date you purchased your principal place of residence and there will be no usual 50% capital gains tax discount if you held it for more than 12 months as an investment, i.e. rented it out, and the 6 year rule won’t apply as well, this is the kick in the guts when you thought you had something to fall back on. So please have a read, its educational and if you know of someone who has their (principal place of residence) back in Oz and is a Non Resident or not, please tell them about this change which comes into effect on 1 July 2019.
Copied and pasted extract of an email below which was sent to me today, and if this post is going to save you a few bucks, send me a carton of San Miguel light…lol and it will make the effort all worth it for me.
But before you read the copied and pasted email, just remember to run it by a qualified accountant before you sell up.
You’re probably busy doing what you do best so we won’t keep you long.
Recently you reached out to us about your Australian taxes and since the 2018 Australian financial year just ended, we think now’s the perfect time to let you know about a bunch of recent tax rules that have the potential to affect you.
I’m Shane Macfarlane, the founder and tax advisory partner of Expat Tax Services. My goal is to update you about new and recent Australian tax rules that may affect you and many other Australian expats living and working around the globe. By providing you with valuable information about these rule changes over the coming few weeks, you’ll be able make timely decisions so that you’re not caught unawares and so that you’re not slugged with high Australian taxes unnecessarily because of a lack of planning.
And this week, we start with a look at some harsh new rules seeking to scrap the main residence capital gains tax exemption on the sale of your family home!
Main residence CGT exemption to be scrapped – Australian government lays siege to expat family homes!
Your family home has always been your castle, but with recent changes to Australia’s capital gains tax main residence exemption for non-residents, your castle is under serious attack by the Australian Taxation Office (ATO).
Public policy in Australia has always been that Australians should not have to pay tax on any capital gains made on the sale of their family home (providing certain criteria were met).
However, for Australian expats and non-residents generally, that’s about to change!
Back in early 2017 we warned our clients about the Australian government’s 2017/2018 budget proposal to scrap the main residence exemption for Australian expats (and other non-residents) with a harsh new rule slated to kick in from as early as 9th May 2017.
Basically, the new rule means that if you sell your family home while living overseas as a non-resident, you may be taxed on every dollar your home has increased in value since the day you purchased it.
Under the old rules, 100% of those gains would have been totally tax-free!
Worse still, your gains will be now be subject to tax at Australia’s punitively high non-resident tax rates of up to 45%.
A small window of hope
Although these harsh new rules apply from 9th May 2017, the Australian government has applied a grace period for existing properties, but only until 30th June 2019.
So if you’re like the majority of our clients and you own a family home back in Australia, there’s still hope because you will have a small window of opportunity to sell your home prior to 30th June 2019.
After that date, if you are a non-resident, the main residence capital gains tax (CGT) exemption on the sale of your family home will be abolished, regardless of whether you are an Australian citizen or not!
Now, it might seem like 30 June 2019 is a long way off, but remember that real estate markets can be seasonal.
How will your property perform in the summer, autumn and winter of 2018/19?
If your property will do better in the spring – there’s only one season left to go!
How will this affect me?
We feel that these new rules are inherently harsh and unfair as we believe that it will force many long-term Australian expats into making a major life and financial decision much earlier than planned.
For example, we believe many Australian expats will be forced into:
1. selling their family homes much earlier than planned (before 30th June 2019)
2. cutting short their overseas expatriate role and returning home to Australia much earlier than planned; or
3.deferring the sale of their family home until they eventually return to Australia, even where this is not convenient.
Additionally, these new rules are so punitive for non-residents that overseas and Australian employers may find it more difficult to hire and relocate Australians to work overseas.
It’s also worth noting that given recent increases in Australian property price over the last few years, particularly in Sydney and Melbourne, Australian expats may have accrued significant gains in Australian property.
Here a couple of case studies to explain further
Example 1 – CGT applies
Sarah acquired a dwelling on 10 September 2010 for $200,000. As soon as practicable she moved in.
On 1 July 2018 Sarah got a job in New York and moved out but unfortunately she could not sell her property in time before she left Australia to take up her new role.
On 1 August 2019, while resident in New York, she signed a contract for the sale of her house at a sale price of $1,200,000.
The whole profit (totalling $1,000,000) on the sale is subject to capital gains tax at Australia’s non-resident tax rates of up to 45%. Had she sold the property before 30 June 2019, the whole of the profit would have been tax-free.
It doesn’t matter that the house was Sarah’s main residence for the vast majority of the time that she owned her home, CGT applies on the full amount of the gain.
Example 2 – CGT doesn’t apply
Jessica bought her home in February 2003 and moved straight in.
She sells the house in 2020, but between those two dates she spent considerable periods overseas, and when she did so, she rented her house out.
From October 2007 until March 2011 she lived in a rented apartment in London.
She came back and lived in her house from March 2011 until she went to Hong Kong until 10 June 2017. While she was in Hong Kong she rented her house out.
When she came back in 2017 she lived in her house until she sold it in 2020.
There is no CGT on the sale because at the time Jessica is resident in Australia.
What this means for you
If you’re an Australian expat, contemplating an overseas posting, or if you run a company that has employees overseas, then it’s important to understand how these new rules introduced into parliament will affect you.
In fact, we believe more than 90% of our expat clients will need to consider, sooner rather than later, whether or not to sell the family home.
If you think you fall within that 90%, we highly recommend that you book a tax consultation with us at (below) page to learn how these changes may affect you.
Book an Appointment
Because when someone is laying siege to your castle, to be forewarned is to be forearmed.
What’s up next week?
Next week, we’ll take a look at how recent tax changes to Foreign Resident Capital Gains Withholding Tax will impacts expats who are considering selling their Australian property.
If you have any questions in the meantime, please hit the reply button and drop me a line.
Until next week,
Shane Macfarlane CA, FTA, B.Bus. | CEO & Founder
Wherever you are, whatever you do . . . we’ve got your Australian tax needs covered
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The photo was borrowed from a very nice YouTube slideshow of tradition Australian house, which you can find HERE.
Thank you Angelo.