Aussie Expat Property Owners Still in Canberra’s Firing Line
Last year when The Australian Federal Budget was released it announced a key legislature change which is set to have an everlasting impact on whether Australian expats keep their Australian main residences or sell before moving overseas and unfortunately there has been no improvement for Aussie expat property owners.
The key points of the Exposure Draft which will affect Australian expat property owners include:
- The Capital Gains Tax (CGT) main residence exemption will be denied from 7:30 pm (AEST) as at the 9th of May 2017 for foreign residents (including Aussie expat property owners).
- There will be no apportionment of the Main Residence Exemption (MRE) taking into account the number of days of ownership over the whole period of ownership.
- Properties held by those who were an Australian expat as at the 9th of May 2017 will be grandfathered until the 30th of June 2019.
On the 8th February 2018, we saw parliament convene for the second reading of the draft legislation by MP Scott Morrison in the House of Representatives chamber and it was disappointing to hear that there were no amendments to the original draft legislation despite receiving a number of submissions in their consultation period.
After the second reading, and the debate being closed, the bill was reviewed by the Senate Standing Committee for the Scrutiny of Bills who raised some concerns with special focus on the retrospective nature of when the bill is to be enacted and that it has been 9 months since its introduction. Their comments include:
The committee has a long-standing concern about provisions that apply retrospectively, including provisions that back-date commencement to the date of the announcement of particular measures (i.e. ‘legislation by press release’), as such an approach challenges a basic value of the rule of law that, in general, laws should only operate prospectively. The committee has particular concerns where legislation will, or might, have a detrimental effect on individuals. Generally, where proposed legislation will apply retrospectively, the committee would expect the explanatory materials to set out the reasons why retrospectivity is sought, and whether any persons are likely to be adversely affected and the extent to which their interests are likely to be affected.
The committee also notes that…. Retrospective application or commencement, when used too widely or insufficiently justified, can diminish respect for the rule of law and its underlying values. In outlining issues around this matter previously, the committee has accepted that some amendments may apply retrospectively when legislation is introduced. However, this has been limited to the introduction of bills within six calendar months after the relevant announcement. In fact, where taxation amendments are not brought before the Parliament within six months of being announced the bill risks having the commencement date amended by resolution of the Senate. The committee notes that, in this case, the bill was introduced almost nine months after the Budget announcement on 9 May 2017.
The bill has now been referred to the Senate Economics Legislation Committee for inquiry and a report will be published by the committee on the 23rd of March 2018.
As the bill has been read for a second time, and debate has closed, the next step is for a third reading of the bill which is normally a formality. Once this has occurred the bill has passed the House of Representatives it will be referred to the senate. In the senate the bill also goes through three readings.
If the Senate does proceed with the enacted legislation and adds a provision for an amended transition period, this will provide much-needed relief for Aussie expat property owners to look at some effective tax planning and some Australian expats might want to consider selling their former main residence to avoid such a tax charge and invest in a more tax efficient manner.
In summary everything is still proceeding, and we look forward to reading the Senate committees report on the 23rd of March at which point we will provide another update for Australian expat property owners.
It is just a matter of time before the draft legislation is enacted, and at the very least the Senate should seek to amend the transition period, so the legislation applies prospectively rather than retrospectively.
If you are unsure of your circumstances, please make sure you speak with a qualified financial planner and accountant to make sure you plan correctly ahead of the new rules being enacted.
Disclaimer – The above commentary is general in nature and should not be construed as tax or financial advice. Please consult a licensed tax accountant and financial adviser to determine whether the above information is suitable for you.