Capital Gains Tax

Capital Gains Tax and Australian Expats.

What happens regarding Capital Gains Tax when you are an Australian Expat living overseas. You previously had a principle place of residence, however you have decided to do a stint outside of Australia. What happens if you decide to rent out the home while you are working overseas.

Capital Gains Tax And The 6 Year rule.

There are many considerations to take into account when it comes to Capital Gains Tax, so make sure you consult your own tax expert. We are only here to give you an overview.

In the normal scenario, when your principle place of residence becomes a rental property and starts to generate you an income, the property will become subject to Capital Gains Tax (CGT). There is however a ‘6 year temporary absence’ rule in place with the ATO.

Normally a rental property becomes subject to Capital Gains Tax from the day it first becomes a rental income producing property. However, while you are overseas, under the ‘6 year temporary absence’ rule you can continue treating what was your residential property as your main residence for that period.

This means that your main residence will be Capital Gains Tax free (i.e. exempt from capital gains tax) for up to six years after it first becomes income producing. As a side note, this only applies so long as you don’t purchase another principle place of residence in the meantime. You can only have one principle place of residence according to the tax man.

Does This Capital Gains Tax Ruling Apply to Australian Expats?

The government proposed a raft of changes removing the ‘main residence exemption’ and the 6 year temporary absence rule. This was aimed at obtaining the full Capital Gains Tax on all Australian Expats or non-residents who sold their previous place of residence whilst living as Expats. Meaning if you became an Australian Expat you would receive no exemptions. Any sale of your previous residential property resulting in a profit could result in a large Capital Gains Tax bill. This proposal created a lot uncertainty in the market. The result was many Australian Expats sold their properties before the changes took hold.

Even worse, the proposal never allowed for the time you lived in the property before becoming an Australian Expat. The Capital Gains Tax would have been calculated from the date the property was purchased. No allowance would have been made for how long an Australian Expat had lived in the property as their main residence. Not very Australian!

Get To The Point, Does The Capital Gains Rule Apply To Expats?

Both parties of politics thought the changes to the Capitals Gains Tax exemptions was a good idea. Both sides were pushing to get the bill over the line when introduced to parliament. With the 2019 Federal Election being called, all bills not yet passed into law automatically lapsed. Meaning the tax amendment bill containing the change had to be re-started. Yay! For now, you are safe. However this may not be the end of it. The proposed changes could still be re-introduced under a new draft bill at any time. Keep in contact with your tax professional for any changes. Pretty important you’re on their email list to make sure you see if anything more appears in this space.

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