Main Residence Exemption Update for Australian Expats
We have been keeping a watchful eye over the last few months as we get closer to the release of the 2018/19 Budget to be announced in the coming days. Our primary concern amongst other things is the Main Residence Exemption (MRE) which at the moment looks to be abolished for Foreign residents and Australian Citizens who are declared Non-Residents for tax purposes. Welcome to our Main Residence exemption update for Australian expats.
To catch up on this topic we recommend reading these previous articles:
The amended bill which targets housing affordability is set to raise a collective $570m in revenue over the next five years. This figure is for abolishing the MRE. However, there are other proposals outlined in the Bill, but this is our primary concern for Australian Expats.
Due to the retrospective nature of the changes the bill was referred to the Senate Economics Legislation Committee who on the 23rd of March, after receiving a number of submissions, recommended that the bill be passed and put before the Senate.
The amended Bill is currently before Senate and despite the significant amount of consultation from industry experts, there seems to be no change with regards to the legislation nor an amendment or increase in the transitional period. These types of legislation should act prospectively not retrospectively as it challenges the general rule of law.
The consultation period was an eye opener for many politicians, with SMATS Group an international accounting firm stating that the Bill should be amended to allow Australian Citizens and Permanent residents to still qualify for the MRE rules regardless of their overseas domicile. SMATS was able to submit a petition of 1357 in support for the proposed amendment.
CST Tax advisors, another reputable international accounting firm, also provided a submission explicitly focusing on the removal of the partial main residence exemption as well. The idea of living in a property for 15 years and moving overseas and selling within a month of being domiciled abroad, means all the gains from the 15 year period become taxable whereas previously it would have been tax-free.
The National Affordable Housing Consortium (NAHC) suggested that the removal of the MRE may have a negative effect by discouraging such individuals who will be impacted from selling their properties at all. Thereby reducing housing stock and not necessarily have a positive impact on renters.
Other consultations suggested that it will strongly impact Australian companies that are based in overseas domiciles from sending their employees abroad. Therefore, becoming an Australian expat may not seem as attractive if individuals hold property prior to leaving. The amended legislation is set to impact just over 100,000 Australian expat homeowners, who will have to look at whether to sell their properties prior 30 June 2019 or hold until back in Australia.
It is crucial in understanding the proposed legislative amendment and the following attempts to summarise it:
- It will impact Foreign Residents, Permanent Residents and Australian Citizens declared as Non-Residents for tax purposes.
- If you sell your main residence after the 30 June 2019 while you are abroad, you will incur capital gains tax on the total gain from the day you purchased it.
- If you sell your main residence after the 30 June 2019 whilst you are abroad, you will not be able to utilise the partial MRE.
- If you choose not to sell the property but move back into the property at a later date and establish it as your main residence again, then you will revert to the previous criteria. Whereby it can be rented for a six year period, and the MRE will apply, anything over six years will attract capital gains tax using the relevant apportionment factor.
We now turn our attention to the May Budget announcement which will hopefully provide further clarity or some noteworthy surprises. It is crucial that you review your financial circumstances, both on potential tax consequences or whether you can improve your current situation. Atlas Wealth will be holding several webinars after the release of the Budget to provide further updates, to attend please click here: 2018 Australian Budget Webinar.