How will the proposed capital gain tax changes in June 2019 affect property owners financially?
Since the Australian Federal Budget talks in May 2017, Australian expats have been living under a cloud of fear that they may become taxable on their former Australian residence. However, the proposals only affect anyone that actually lived in their Australian property prior to relocation overseas. If you only ever rented your property, then these changes will not affect you.
How do these changes affect the expats’ tax-free status on Australian homes?
The current law allows those that did live in their property at any stage, a tax free entitlement for the period actually lived in the property; plus a potential further six years tax free whilst rented; and then the calculated taxable amount on a pro-rata basis with any other proportionate period as to when the property was rented being taxable.
However, if the current proposed changes go through, the full period of occupation will be taxable regardless of how long or short that may be (if the property is sold whilst the owner is living out of Australia). For example, if you had lived in the property for 20 years in Australia, then moved overseas and sold the property after leaving Australia, the entire gain on the property would be taxable. The proposed changes don’t apply if the property is sold prior to 30th June 2019 or if the property is sold once you have returned to Australia and are living there as a tax resident (but not necessarily in the same property).
SMATS Group and Austcham Hong Kong have been successful in holding up the passing of this legislation and we are pleased to say that the laws presented to the Senate formally lapsed recently on the calling of the Australian Federal Election. The Liberal party has publically stated that they would be reviewing these changes, while the Labor Party has called for Expats to be removed from the proposed rules. We had hoped to see the Treasurer announce that these changes were being dropped in the April 2019 Federal Budget, but that didn’t occur so even though it is likely we may not see these changes come into law, the threat remains until a more concise announcement occurs.
What are the possible steps that I can take in response to these changes?
• Don’t sell if you have never lived in the property, as the changes won’t affect you.
• Don’t sell until at least you return to Australia and are living there as you would not be put at a disadvantage this way.
• If you have lived in the property for extended periods of time before moving abroad, then selling prior to 30th June 2019 is a real option for you. Especially if you were likely either going to sell the property sometime soon while still living overseas, or you think the law might be passed.
• If you want to keep the property as an investment but may want to sell it while still abroad, transfer the property to a Family Trust. This realises the tax-free gains, retains the property in a tax-effective vehicle and potentially frees up the equity for your next family home if you intend to upgrade. There is a stamp duty cost of approximately 5 percent. However, that may be more cost effective than a large Capital Gains Tax charge.
Australian Tax Advisor, Steve Douglas
Steve Douglas is the Co-Founder and Managing Director of Australasian Taxation Services (ATS). ATS provides specialist taxation services for anyone looking to invest in Australian property, including Australian expatriates living overseas. Areas of specialisation include the Australian taxation aspects of property investment, as well as expatriate and migration planning.
From The Finder (Issue 298), May 2019
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