Foreign and temporary tax residents will not be able to claim the CGT main residence exemption from budget night 2017 (7:30pm AEST on 9th May 2017). However existing properties held prior to this date will be allowed an extension until 30th June 2019 to still claim the main residence exemption.
Previously Foreign and temporary residents were able to utilise the absence rule in the CGT main residence exemption provisions to claim the main residence exemption on an Australian property.
They could previously use the exemption up to 6 years if they were renting out the property, or indefinitely if they are not deriving income from the property, which many left empty in City high rise apartments.
Foreign buyers could buy a property in Australia, claim the main residence exemption, and all the capital gains were tax free indefinitely.
Now these taxpayers will be subject CGT on the sale of real property that they claim as their main residence.
Affected foreign and temporary residents will need to consider selling their property by the 30th June 2019 to avoid paying any CGT on the increase in value.
However, it remains to be seen whether partial relief will be available to those who have been residents of Australia for part of the period they owned the property and whether this change will apply to Australian residents whom are classified as a foreign resident for part of the ownership period.
Generally, a full exemption should be available if the following conditions are met:
The taxpayer is an individual who is selling a dwelling or an ownership interest in a dwelling;
The dwelling has been the taxpayer’s home for the entire ownership period;
The dwelling has not been used to produce assessable income; and
The dwelling is situated on land that is 2 hectares or less.
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