The rules around Capital Gains Tax for Australians living overseas are due to change on June 30 of this year. If you’re thinking of selling in the next few years, it may be financially wiser to act sooner rather than later.
What are the current rules around Capital Gains Tax?
At the moment, if you own a property in Australia, and you live in it as your main residence, you won’t pay any capital gains tax when you sell it. This ‘main residence exemption’ also holds for six years after you’ve lived in the property. After this time period, you will pay Capital Gains Tax on any profits you make when you come to sell. The ATO has up-to-date information on their website, too.
This main residence exemption has always applied to both Australian and overseas residents – meaning people who live overseas or are overseas residents for tax purposes.
What is changing?
After June 30, you will no longer benefit from the main residence exemption if you are an overseas resident.
So, should you sell your Sydney (or Australia-wide) property, even if you lived in it before you left, any profits you make on the sale are subject to capital gains tax. This legislation was passed late last year.
The only exemptions will be if the sale is due to a serious life event. This is, for example, the death of a spouse or child, or if it’s due to marriage breakdown which requires two property owners to divide their assets.
What’s more, you won’t only pay tax on the profits made after you moved overseas. You will pay tax on all profit made on the property for the entire time you have owned it. And this might be a lot if you bought your property more than five years ago.
The CGT discount is also reduced for overseas residents. Generally, any capital gains are subject to a 50% discount for owners selling an investment property in Australia. For overseas residents, this discount will be reduced, depending on how long you have been away for.
Another issue with the new rules that will affect some owners is lack of records. Generally, when you sell an investment property, you keep detailed records. This allows you to establish your property’s cost base and expenses, which will determine how much tax you pay on your capital gains when you sell. This means any costs associated with your property that can be used to reduce your capital gains, such as repairs and rates.
You may not have kept records as you were expecting a capital gains tax exemption. This will mean more paperwork and admin after the new rules come into effect.
What to do if you own property and live overseas
Whatever your situation, if you are an overseas resident who has a main residence in Australia, it’s worth considering your options.
If you want to continue to rent out your property for the long-term, or plan to live in it again when you get home, you don’t need to do anything. Maybe this will be the trigger to move back to beautiful Sydney!
However, if you were thinking of selling your main Australian residence anyway, perhaps to fund the purchase of a home overseas, it may be worth doing so before June 30 to avoid paying any capital gains tax. Read our blog on selling a property while living overseas to find out more.
If you are planning to stay overseas for a while and don’t know what your future plans are, it may be safer from a financial point of view to sell now rather than later. This is particularly true if you think you may need the money to buy in the future.
As well as talking to your accountant, feel free to give us a call if you want to find out more about selling before June 30 to beat the new legislation.