Non-residents will no longer lose access to the main residence exemption - for now

1 - What happened?

On 11 April 2019, Scott Morrison called the Federal election to be held on 18 May 2019. This action caused Parliament to be dissolved and all Bills that have not yet passed both Houses of Parliament, to lapse.

One example of such a lapsed Bill is the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018 that proposed to limit the availability of the main residence exemption to only individuals that are tax residents of Australia at the time of sale of a dwelling (for these purposes the time of sale will be when the sale contract is signed).

If, after the election, the Government chooses to proceed with the ideas expressed in this lapsed Bill, these ideas will have to be introduced in a new Bill.

2 - How does this affect you?

This Bill (if it did not lapse) would have removed access to the main residence exemption for non-residents (for tax purposes) on the sale of their dwellings;

  • on or after 1 July 2019 in respect of dwellings acquired on or before 9 May 2017; and
  • after 9 May 2017 in respect of dwellings acquired after 9 May 2017.

Therefore, the lapsing of this Bill is a welcome development for expats who own dwellings in Australia - and because of changing circumstances - decide to sell these dwellings while they are living overseas.

Such expats no longer need to be immediately concerned whether they would lose access to the main residence exemption when they sell their dwelling because, through living overseas, they may have become non-residents of Australia for tax purposes. Note, tax residency is not the same as residency for immigration purposes and is determined based on four tax law tests (i.e. resides test, domicile and permanent place of abode test, 183 days test and Commonwealth Superannuation test).

Under the law as it currently stands, it does not matter whether an individual who sells a dwelling is a resident or non-resident of Australia for tax purposes at the time of sale, any individual (regardless of tax residency status) that sells a dwelling they used as their main residence can ignore either;

  • the whole of the capital gain (if dwelling was used or deemed to have been used as main residence for the whole ownership period); or
  • a part of the capital gain (if dwelling was used or deemed to have been used as main residence for only part of the ownership period).

3 - How can Findex help you?

We trust you found this tax snapshot useful to alert you about some of the most recent changes in the Australian tax landscape affecting property transactions. If anything in this tax snapshot triggered your interest or you are likely to be affected by these changes, please contact your Findex adviser.

We have considerable experience advising on property transactions and look forward to discussing any property related issues with you in more detail.

Through our Tax Advisory team across Australia, we can help you identify your exposure to any risks in property transactions and identify steps to take to help manage such exposure.

Our Family Office Model means regardless of the location or service offering of your key relationship manager, we can access the right Tax Advisory expertise for you.