Selling one's home without the main residence exemption can mean a substantial tax bill. The capital gains tax (CGT) main residence exemption (the exemption) is available to all Australian residents.
- disregards a capital gain or loss for income tax purposes when a person disposes of property that was their home
- applies for the period the property was treated as the person's main residence
- is no longer available to foreign residents.
Measures to restrict the exemption to Australian residents were announced in the 2017/18 Federal Budget to reduce pressure on housing affordability.
One of the measures is to deny a foreign resident access to the exemption on the sale of their Australian home.
Concessions were made to the original announcement to allow an individual who was a foreign resident for not more than six years at the time of the CGT event and who meets the life event test to be eligible for the exemption.
The Treasury Law Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019 became law on 12 December 2019 and is effective retrospectively from 7:30 pm (AEST) on 9 May 2017.
Transitional provisions allow the exemption to apply where a foreign resident sells a home that was acquired before 7:30 pm (AEST) 9 May 2017, and the CGT event happens on, or before, 30 June 2020.
The changes will impact many foreign residents who have a home in Australia or those departing Australia permanently or for an extended period. This is an important consideration for any clients who own an Australian home.
They should seek tax advice to understand and consider their options (financial advisers cannot provide tax advice).
This paper discusses the limited circumstances in which the exemption may be available to a foreign resident.