Removal of the main residence CGT exemption for foreign residents

On 23 October 2019, the Federal Government introduced the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019, which proposes amendments to remove access to the CGT main residence exemption for foreign residents in relation to CGT events happening from 7:30pm (AEST) on 9 May 2017.

Who is foreign resident?

A foreign resident is an individual who is not a resident of Australia for taxation purposes, that includes Australian citizens and permanent residents who are foreign residents. Individuals who are Australian tax residents at the time of sale of a main residence will not be affected by this measure.

What has changed?

A change in law on 12 December 2019 means if you are a foreign resident for tax purposes at the time you dispose of your residential property in Australia, you will not qualify for exemption from CGT unless you satisfy the life events test.

You satisfy the life events test if, at the time of disposal ( also referred to as a “CGT Event”) of your main residence 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 must have also occurred :
  • You, your spouse, or your child under 18, had a terminal medical condition
  • Your spouse, or your child under 18, 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.

When does the change apply?

The change in law applies to foreign residents for tax purposes as follows :

• For property held prior to 7:30pm (AEST) on 9 May 2017
  • You can only claim the CGT main residence exemption for disposals that happen up until 30 June 2020 and only if you meet the other requirements for the exemption
  • Disposals that happen from 1 July 2020 are no longer entitled to the CGT main residence exemption unless you satisfy the life events test ( mentioned above)
• For property acquired at or after 7:30pm (AEST) on 9 May 2017
  • The CGT main residence exemption no longer applies to disposals from that date unless you satisfy the life events test ( mentioned above ).

Note : This change only applies if you are not an Australian resident for tax purposes at the time of the disposal. Where you dispose of the main residence under a contract, the disposal time is the time you entered into the contract. Where you do not dispose of the main residence under a contract, the disposal time is the time of settlement.

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