The Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018 was introduced to Australia’s House of Representatives on February 8, 2018, and passed through to the Senate.
This bill deals with the 2017 Budget announcement in regards to strengthening the capital gains tax rules so foreign investors pay their fair share of capital gains tax.
Initially, it was thought this would affect temporary residents such as students who buy a home to live in while studying, but under law, must sell it once their visa ends. Old tax laws allowed this to be tax-free as their residence, but the proposed changes mean they will now have to pay tax on this gain.
It Goes Further than That
The legislation as presented states that Australian expats who sell their previous family home while still living or have gone abroad will be subject to taxes on all the gains from the full length of the home ownership. This is despite their lawful and just entitlement to be tax-free on the family home previously. There are also some changes affecting property inherited while living overseas.
The Impact is Bigger than it Seems
Almost 100,000 Australians take up overseas work assignments, long-term, offshore living stints or forced relocations in a year. In addition, more than half of the population was born overseas, so there is a high likelihood that one of your estate’s beneficiaries may be living overseas at the time of your passing. You may feel that any Australian overseas deserves to pay more tax for whatever reason, and most politicians may even argue this point, but the fact is expat Australians already pay more taxes. There is no 50-percent, tax-free portion for any Australian investing in Australian property while living overseas.
Make Sure You Are in Australia if You Sell Your Property
To avoid this tax, all you would have to do is to sell the property after relocating back to Australia. It sounds easy enough, but those who experience financial hardship, illness or who just can’t choose their timing will be most affected. A Senate Review Committee has accepted submissions on proposed changes, and the SMATS Group has recommended that Australian citizens or Permanent Residents be excluded from these changes. However, these have been ignored to date. As such, it is important to reflect on the importance of the family home remaining tax-free and examine your options before this piece of legistation is refined to apply to all Australians.
From The Finder (Issue 292), June 2018
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