Non Resident CGT Changes

Just out of Parliament House. The proposed law change to strip the main residence exemption when someone departs has been withdrawn and is now subject to review.

I believe someone finally realised it was a piece of bad law that would hurt a load of legit aussies unfairly.

Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018 [and] Foreign Acquisitions and Takeovers Fees Imposition Amendment (Near-New Dwelling Interests) Bill 2018 – Parliament of Australia

Quote : Advisory firms and the Australian expat community have expressed reservations about this adjustment to the absence rule

 

Nice!

 

Hi Paul, thanks for the update.

Is this just for the rule of absence (6 year rule) if it was main residence?

Are they still removing the other CGT exemption of 50% discount if owned for more than 12 months?

While this looks like good news I'm wondering what it means in terms of CGT if I moved out of my house 7 years ago, rented out somewhere else (in Oz) and have now moved oversees and need to sell my property.

Cheers
Matt

 

No its was the 6 year rule and all past main residence use too !! Once you departed it basically ignored all CGT exemptions from the past. That was the unfair issue. The 50% CGT discount was stripped years ago for persons who are non-resident. That not going to come back. It basically means for the prorata time after departure those days are 100% taxed. Only a person who owned some property at 08 May 2012 who was non-resident on that date could choose a valuation as a alternative to quarantine part of the gain as safe for the 50% discount . That law may also affect you if you are a temp foreign resident who bought after that date.

You may have just saved some tax. The proposed law change would have meant the main residence, the 6 year absence rule would have both been stripped IF the property as sold even a day after departure in most cases. There was a supposed grandfathering but it was pretty limited.

You need to check this law change has actually been fully killed off and seek advice so no mistakes occur. You will face some CGT.

 

Thanks Paul, much appreciated.

Just sent you an email @PFI in regards to 'Seeking Advice'.

Cheers
Matt

 

Thanks for this Paul, just to clarify, as it stands if I am an Aus citizen and I move overseas I do not qualify for the 50%cgt discount during my time abroad is this correct?

So If i have an investment I purchased 3 years ago (never lived in it) but have lived in Aus ever since then I move overseas tomorrow and sell in 3 years time I can claim the 50% cgt discount for the first 3 years but not for the 3 years I lived overseas.

I will be seeking specific advice on this in a few months to make sure I go down the right path. Just trying to get a basic understanding.

Thanks!

 

yes

 

To clarify...

In 2012 all non-tax residents (ignore citizenship) lost the 50% CGT discount on property or indirect property interests (eg unit trust). However the absence rule allowed a limited exemption for NO CGT to apply.

The new proposal sought to expand this and prevent the main residence exemption/s from also being utilised. The Government argues that is was allowing tax free ownership for non-taxpayers who were largely investors. A fairly logical position.

I havent seen any response from Govt yet but I may imagine some law change WILL still occur. However, perhaps this could be deferred until an election. Then reintroduced. However it may well water down the retrospective elements IMO - Who knows. I would think a law that recognises past residency and past main residence exemption that terminates on the date of change in tax residency makes a bit more sense. That would quarantine all past exemptions but leave the taxpayers liable for CGT (without discount) for the period after residency changes.

I believe the Bill (which was in its second Senate reading and very close to approved) was withdrawn as a Senates Estimates Committee chaired by Penny Wong ripped into the Finance Minister concerning adverse impacts for "expats". The ALP was believed to oppose the Bill as a result and the Govt didnt want the adverse media that was to follow. I am waiting for the Committee transcripts to issue to confirm that. The Tax Institute are watching the issue. They were strong in advising Penny Wong on the problems with the proposed law I believe.

One of the complications is how accurate and diligent taxpayers are in determining when residency does change. Many get it very wrong. They could seek to minimise tax by making false assumptions.

One further issue for Govt is that property and shares are strangely non-aligned. Penny Wong was very critical on this issue and engaged in a public stoush in the estimates hearing with the Finance Minister. Non-residents pay no CGT on listed shares and securities if they own under 10% of the entity. However all Australian property is taxed but sometimes exempt and the proposed law change seems to harms certain groups like expat citizens and past taxpayers. There is a risk that this issue could be altered in the future and a withholding system introduced for shares...New Govt or post election. Penny Wong didnt say it but she alluded to it.

 

So they are going to "fix" the fact that expats pay double the CGT on property compared to residents by making them also pay much more tax on shares? Absolutely fantastic idea! Lets look at the effect of this.

Unfortunately for Australia, the very simple solution would be for expats to take all the money out of Australian shares (ie Australian companies) immediately and take it to invest in overseas shares instead.
Australian shares comprise an almost insignificant 2-3% of the words shares by market cap so this wouldn't matter in the least to expats, but those companies would have less people investing in them and therefore less capital flowing in (from overseas too), and the result on the economy is obvious.

I'm quite sure those at the wheel can't figure out this chain of thought through to the end, much like they seem unable to figure out that making it harder and harder to invest for your retirement with the planned franking credit change will be attracting more people to rely on the pension, also with a similarly terrible result on the economy.

Actually with these people behind the wheel, it makes me wonder if I should just reduce exposure to Australian companies now, because the results of these clowns is going to hit the whole economy, and as the last US election has shown, the uneducated masses determine who gets into power, not whoever is actually better for the country.

 

So they are going to "fix" the fact that expats pay double the CGT on property compared to residents by making them also pay much more tax on shares? Absolutely fantastic idea! Lets look at the effect of this.

No. The 2012 changes were specific on that issue and the attitude is that when a person chooses to be a non-resident taxpayer they should lose some of the tax benefits available otherwise to taxpayers. The benefits are lessening housing affordability for residents...Thats their story. Not unlike duty and land tax changes which seek to discourage people who arent resident from holding property. One of the hangovers after 2012 was that a departing owner could still choose a limited absence exemption (6 yrs for rented property and indefinite for non-rented property provided it was their home previously). This element of the law change is likely to re-appear. The main residence absence exemption is now used by non-resident investors more than any time in its history. Value was estimated at $150m pa which will grow with time. I guess the $150m is better spent here. The value of the lost 50% CGT discount was assessed in 2012 to be $8b a year by this time. They wont be handing that back.

The planned franking credit change (a backflip to the past practice) would not affect non-residents as franking credits are unavailable to them in any event. Likewise at present, no CGT. One of the biggest investors in listed securities is super funds. They will also be unaffected unless its a 100% pension fund.

 

Hi Paul - thanks for following up on this. Very close to my heart as I am about to kick off the sale of my property because of the intended law.

Is there some formal notification that the law is not being progressed? From what I can see, the timetable set out a second reading in the senate in mid-March. Given that this is relatively late in the legislative process, I'd like to avoid a scenario where the changes are voted in.

 

I have been waiting. There is a package of bills that the Coalition want as a package and its part of this.

 

Any update on this? This bill is still on the Senate Bills list and sitting re-commences next week. During the last sitting (last two weeks in June) it was on the Senate Order of Business (the dynamic red) each day but it looks like they didn't get to debate it before the adjournment on 28th June.

 

It has been tabled to be reintroduced as the bill must pass both houses again. No changes or issues are evident but who knows

 

Hi Paul,

I have a question.

In the case of my cousin:

- Has Australian PR visa but moved overseas since 2010.

- I am not sure when his PR visa expired, i think it was a few years after 2010 and i believe his income tax residency status in 2012 would be non australian.

- Bought his house in 2003 and lived in there for 4, 5 years then rented out until now

- If he were to sell the house now, would he be qualified for the CGT discount? I worked on the worksheet provided by ATO, it worked out to be eligible, but i am just not that confident...

Much appreciated

 

Hasnt lived in australia since 2010 ?

His PR visa expired around 2010 to 2012 ?

Does he have a house in australia ?

Does he visit often ?

Where does he work and live ?

Where is his family ?

 

Sounds like a non-resident for tax and therefore no discount?

 

According to ATO site: CGT discount for foreign resident individuals, i think it works out to be using a market value for the year 2012, and see what's the gain up to that year getting 50% discount, but from 2012 onwards they all are fully taxable? Thats my understanding...

 

Follow each step on the cgt calculation guide. Its pretty simple to follow.

 

I was stuck at last page 48, 49, 50. Not sure what it means by discount capital gain.