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  • Foreign residents and main residence exemption

    There are special capital gains tax (CGT) rules you need to know if you're a foreign resident for tax purposes. These rules will impact you when you sell residential property in Australia.

    In the 2017–18 Budget, the government announced that foreign residents for tax purposes will no longer be entitled to claim the CGT main residence exemption when they sell property in Australia. The relevant Bill (original Bill) was introduced to the Parliament but it lapsed when the 2019 election was called.

    On 23 October 2019, a new Bill (which revised the original Bill) was introduced and if passed, you will no longer be entitled to claim the CGT main residence exemption unless, when a CGT event happens to your residential property in Australia, you were a foreign resident for tax purposes for a continuous period of six years or less and during that time one of the following life events occurred:

    • you, your spouse, or your child who was under 18 years of age, had a terminal medical condition
    • your spouse, or your child who was under 18 years of age, died
    • the CGT event involved the distribution of assets between you and your spouse as a result of your divorce, separation or similar maintenance agreements.

    This will apply to you:

    • when you use the exemption as a reason for a variation to your foreign resident capital gains withholding rate
    • when you lodge your income tax return
      • you must declare any net capital gain in your income
      • you can claim a credit for the foreign resident withholding tax paid to us.
       

    When the change will apply

    According to the new Bill, the change will apply to foreign residents for tax purposes as follows:

    • For property held prior to 7:30pm (AEST) on 9 May 2017  
      • the CGT main residence exemption will only be able to be claimed for disposals that happen up until 30 June 2020 and only if they meet the other existing requirements for the exemption
      • disposals that happen from 1 July 2020 will no longer be entitled to the CGT main residence exemption unless certain life events (listed above) occur within a continuous period of six years of the individual becoming a foreign resident for tax purposes.
       
    • For property acquired at or after 7:30pm (AEST) 9 May 2017  
      • the CGT main residence exemption will no longer apply to disposals from that date unless certain life events (listed above) occur within a continuous period of six years of the individual becoming a foreign resident for tax purposes.
       

    Note: This change will only apply if you are not an Australian resident for tax purposes at the time of the disposal, that is, when you sign the contract to sell the property.

    If you weren't an Australian resident for tax purposes while living in your property, you are unlikely to satisfy the current requirements for the CGT main residence exemption.

    If you are a foreign resident for tax purposes when you die, the changes will also apply to:

    • legal personal representatives, trustees and beneficiaries of deceased estates
    • surviving joint tenants
    • special disability trusts.

    See also:

    Last modified: 07 Nov 2019QC 55771