The Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018 was put forward on 8 February 2018, aiming to remove the entitlement to the CGT main residence exemption for foreign residents from 9 May 2017 — the date of the federal budget announcement. The current law allows foreign residents to access the CGT main resident exemption in the same way as Australian residents.
A grandfathering arrangement will apply for properties acquired on or before 9 May 2017, with the change taking effect for these properties from 1 July 2019.
The main residence exemption allows individuals to disregard a capital gain they make on the sale of a property established as their main residence.
While the proposed legislation may be targeted at foreign investors, Nexia national tax director Roelof van der Merwe says it will have a far reaching impact on Australian citizens who have moved overseas for work and are no longer deemed as an Australian tax resident by the ATO.
“Your tax residency gets determined year by year, so for example if I get a secondment to go to the US, and I've owned my home for 20 years and go for 2 years to the US, those 2 years I'm a non-resident for Australian tax purposes and if I sell my main residence, I lose my main residence exemption,” said Mr van der Merwe.
“If I sell it before the 30 of June 2019, even if I’m overseas and I’m a non-tax resident, [there will be] no problems. However, if I sell it after 1 July 2019, then there will be no main resident exemption; I have to pay tax on my profit.
Mr van der Merwe added that the proposal will lead to considerations by individuals who are either foreign residents or who foresee becoming foreign residents, to sell their main residence before 30 June 2019 in order to benefit from the transitional rules.
“I'm no economist but I think there will be a property Armageddon. Before the 1st of July 2019, I assume a lot of people will dump supply and there will be an oversupply of property on the market and push down the house prices.”