Media Release: Government Blasts Aussie Expats
The focus this week has been on the announcements made in Tuesday's Federal Budget, but Tax Services Australia can reveal that combined with budget changes announced in the 2012 Federal Budget, 5 years ago, will be devastating for many Australians living and working overseas.
Until 9 May 2017, Australians who lived and worked overseas on temporary assignments, often hold onto their family home in Australia. Typically they rent it out to help fund the mortgage whilst overseas.
Then after 2 years, or 4 years, they return to Australia and re-occupy their home, and can continue to claim the property as their home for tax purposes (the 'main residence exemption').
Budget Paper Number 2, hidden on Page 27 advises that it will deny "foreign and temporary residents access to the CGT main residence exemption".
Founder and principal of Tax Services Australia, Darren Hooper says "Aussies who leave Australia acquire a home from Budget night and then become non-resident, lose their main residence exemption".
Combined with the budget change 5 years ago, the consequences are worse. "Not only do Aussie expats lose the main residence exemption prospectively, but they also cannot access the general 50% CGT discount".
The 2012 budget changes changed the tax law to prevent foreign residents from accessing the general 50% CGT discount, that is generally available where an investors holds an asset for more than 12 months.
This discount is not accessible to non-residents from 8 May 2012.
"People did not care about losing the discount. Well advised Australians could leave the country, knowing they could return to Australia and return to their home within the 6 year absence rule, and not compromise their main residence exemption."
Mr Hooper says "Now, by losing that exemption, being non-resident also means they also lose the CGT discount - they have to pay full tax on the family home".
Further dependent on the legislation yet to be drafted, is the 'ghost tax levy' might hit the home too. "If a couple head overseas and leave their university attending children in the family home, the home-owner couple will not be able to claim the main residence exemption, won't be renting the property, won't be able to access the 50% CGT discount, and might also be hit with the 'annual charge on foreign owners of underutilised residential property', which is billed on Page 27 of Budget Number 2 as a housing affordability measure. It's hard to see how this is helping Australians keep their 'castle'".
Non-residents will lose their main residence exemption, will have full tax payable on the capital gain, might have to pay the ghost house levy. "And if the property happens to be sold whilst non-resident, they will be exposed to non-resident rates of tax".
"That's a quadruple whammy."
"And after returning to Australia, the ATO will have a hard time tracking down the capital gain if the property is sold 5 or 10 years down the track, or after the property passes to the next generation. The ATO has a hard enough time tracking down interest income - how are they going to trace these property movements, across decades?"
Tax Services Australia suggests the Government may have intended to take away CGT benefits from temporary workers and 'foreigners' but not long-term residents and citizens and voters, and should distinguish between properties that are truly vacant, and those used by families, including children whilst the parents enjoy an expat opportunity.