Selling your Main Residence and Capital Gains Tax (CGT) Exemptions
As an Australian tax resident, if you sell a property that you consider, and have elected, to be your main residence, generally the entire sale of that property is exempt from capital gains tax (CGT) so long as you have not used that property to produce assessable income.
Specifically, a property is considered your main residence and is generally exempt from CGT if:
- you and your family reside in it
- your personal belongings are in it
- it's the address your mail is delivered to
- it's your address on the electoral roll,
- services such as gas and power are connected
Unfortunately, as of the 9th May 2017, as part of the crack down on foreign residents, the Federal Government restricted the utilisation of the main residence exemption for foreign residents. From this date, the main residence exemption is no longer available to someone who is a foreign resident at the time of the CGT event, subject to a transitional period.
The budget changes will apply to foreign residents as follows:
- for property held prior to 7:30pm (AEST) on 9 May 2017, the exemption will only be able to be claimed for disposals that happen up until 30 June 2019 and only if they meet the requirements for the exemption. For disposals that happen from 1 July 2019 they will no longer be entitled to the exemption
- for property acquired at or after 7:30pm (AEST) 9 May 2017, the exemption will no longer apply to property sales from that date.
Considering the above, if you are a foreign tax resident and not eligible to claim the main residence exemption, you will need to include the full capital gain in your income tax return to be assessed at foreign resident tax rates.
Foreign Resident Capital Gain Withholding (FRCGW)
In addition, foreign residents are also subject to foreign resident capital gain withholding (FRCGW) when selling property. Specifically, when a foreign resident sells their property, the purchaser is now required to withhold an amount from the purchase price and pay that amount to the Australian Taxation Office (ATO).
The changes the government have implemented will apply to contracts entered into on or after 1 July 2017 and are as follows:
- Applies to real property sales where the contract price is $750,000 or more (previously $2 million)
- The purchaser must withhold 12.5% from the purchase price and pay that amount to the ATO (previously the FRCGW rate was 10%)
So, if you are thinking about or are currently working overseas permanently and want to sell your property while you are overseas to free up some cash, it is recommended you seek advice before selling to ensure that you are making the right decision for you. We have an experienced team at BLG Business Advisers who are happy to assist you. Take this opportunity to get in touch with us online or by calling (02) 4229 2211.