New legislation aims to deny foreign residents in Australia access to the main residence exemption (MRE). This CGT exemption allows a taxpayer not to pay tax on any gain made from selling their home if it was their principal residence.
What does this mean?
On 21 July 2017, the Government released draft legislation which proposes to deny foreign residents access to the CGT main residence exemption (MRE) and amend the foreign resident CGT regime.
This can significantly affect the value of your sale even if you are a not a foreigner – it can impact Australians who live overseas who are considered foreign residents for tax purposes. This is because under the MRE, currently your capital gain or loss from CGT on the sale your main residence is disregarded.
For example…
Jeremiah bought his two-bedroom home in Artarmon, Sydney in 2015.
As a reputed chef, he was given the opportunity to work in a prestigious restaurant in Tuscany, Italy. He left for Italy and rented out his Artarmon home.
After a number of years working there and renting an apartment, he is given a chance to manage his own restaurant. Jeremiah decides to sell his home in Artarmon in August 2019 and establish himself in the iconic Tuscan restaurant scene.
He is expecting to be exempt from the CGT on the sale, which is considerable. His Artarmon home is no longer his main residence. But he is surprised to find that he is considered a foreign resident at the time of the sale, and so is not entitled to the MRE.
How will this impact me?
Are you considered a foreign resident at the time of the CGT event? Then this change needs to be taken into consideration. You will be denied access to the MRE if your dwelling is held by an individual, if it was your main residence for any part of the ownership period, and if the interest on the home did not pass to you as a beneficiary in or trustee of a deceased estate.
Are you thinking of selling your Australian home? This change to the MRE for foreign residents may alter the timing of this decision, if not change the decision to sell altogether. To find our more, contact our reputed tax accountants.
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