Going, going, gone. Main residence exemption for non-residents is no longer.

17 January 2020

Contentious legislation recently became law that abolishes the main residence exemption for most individuals who are non-residents for tax purposes at the time when they sell their home.

Individuals who are Australian residents for tax purposes at the time they sell their dwelling, will not be affected by these measures (i.e. if you are an Australian tax resident at the time of sale you may qualify for the main residence exemption).

What has changed?

According to new law that was recently enacted,[1] most individuals who are non-residents for tax purposes at the time they sell their home (i.e. when they sign the sale contract), will no longer qualify for the main residence exemption.

However, the main residence exemption may still be available for such taxpayers:

  • who have been tax non-residents for a continuous period of six years or less; or
  • who have acquired their homes on or before 9 May 2017

Tax article 1.1.3.png

The table below provides an overview of some consequences when a non-resident sells their home:

Example No.

Residency status when selling home

Full / partial main residence exemption still available?

1

Non-resident for more than six years (regardless if certain life events happened or not)

• Possibly if home acquired on or before 9 May 2017

• No (if home acquired after 9 May 2017)

2

Non-resident for six years or less

• No (if certain life events did not happen)

• Yes (if certain life events happened)

What does this mean for you?

Whether an individual who is a tax non-resident at the time they sell their home (i.e. when they sign the sale contract) can qualify for the main residence exemption depends on:

a) whether the taxpayer has been a non-resident for six years or less at the time they sold the dwelling and certain life events occurred in that six years (“six years certain life events exception”)

b) for taxpayers that do not satisfy this “six years certain life events exception”, when they acquired their home.

How do you determine your tax residency?

For Australian tax purposes, individual tax residency is determined on a year-by-year basis (i.e. you can be a tax resident one year and a tax non-resident the next year) by applying the following four different tests:

1. Resides test

2. Domicile and permanent place of abode test

3. More than 183 days test

4. Commonwealth superannuation test

Speak to your Findex tax adviser about applying these tests to determine your tax residency.

Six years certain life events exception

The new legislation provides an exception for taxpayers who have been tax non-residents for a continuous period of six years or less when the dwelling is sold and certain life events occurred during this period of tax non-residency.

Examples of such certain life events that may provide an exception include:

  • Taxpayer’s spouse or child under 18 had a terminal medical condition (i.e. two medical practitioners certified that the illness will likely result in death within 24 months of this certification)
  • Taxpayer’s spouse or child under 18 dies
  • Divorce or separation (and asset distribution)

For example, if the taxpayer has been a tax non-resident for six years or less when they sell their home and the sale happened because of a court order under the Family Law Act 1975 (i.e. because of a divorce), the taxpayer would qualify for the main residence exemption.

When was the home acquired?

If the “six years certain life events exception” does not apply to your circumstances, it is important to determine when the home was acquired.

Set out below is a brief summary of the tax consequences for homes acquired either:

  • on or before 9 May 2017; or
  • after 9 May 2017

Homes acquired on or before 9 May 2017 (and no “six years certain life events exception”)

  • For homes acquired on or before 9 May 2017, the availability of the main residence exemption would depend on when the tax non-resident individual sells their home
  • For homes sold on or before 30 June 2020 (i.e. interim period), such tax non-resident sellers would still qualify for the main residence exemption
  • For homes sold after 30 June 2020, such tax non-resident sellers would not qualify for the main residence exemption

Tax article 1.3.3.png

Homes acquired after 9 May 2017 (and no “six years certain life events exception”)

For homes acquired after 9 May 2017, a tax non-resident seller cannot claim the main residence exemption when they sell the home.

As shownbelow, such a situation can have significant consequences for taxpayers who have used their home as a main residence for a significant amount of time but when they sell their home they are a non-resident. Here the taxpayer would not qualify for any (i.e. not even partial) main residence exemption.

Tax article 1.2.3.png

How can Findex help you?

This new law can have a profound effect on individuals who sell their homes when they are non-residents for tax purposes and do not qualify for the “six years certain life events exception”.

Please speak to your Findex adviser if you own property in Australia and are thinking of going to work or live overseas for a period of time.

We can help you navigate your international tax as well as potential main residence issues you may have.

[1] The Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Act 2019 received Royal Assent on 12 December 2019.