Foreigners New ATO Requirements: Changes to the special CGT rules affecting foreign residents for tax purposes selling residential property

ALERT! If you’re a foreign resident for tax purposes in Australia, special Capital Gains Tax (CGT) rules apply when you sell residential property.

Changes announced by the Federal Government in the 2017-18 Budget came into law on 12 December 2019. These changes mean that if you are a foreign resident for tax purposes at the time you sell your residential property will no longer be entitled to claim the CGT main residence exemption unless certain life events occur within six years of becoming a foreign resident (“life events test”). Employers will need to be prepared for the new ATO reporting requirements for employee wages and superannuation that will start to be effective from 1 July 2018.

Life events test

To satisfy the life events test you MUST, at the time of sale, have been a foreign resident for tax purposes for a continuous period of six years or less and during that period any one of the following events also MUST have occurred:

• You, your spouse, or your child under 18, had a terminal medical condition.
• Your spouse, or your child under 18, died.
• The relevant event was the distribution of assets between you and your spouse as a result of your divorce, separation or similar maintenance agreements.

You, therefore, need to consider this when you rely on the exemption for a variation to your foreign resident CGT withholding rate. 

ATO requirements

In your next income tax return:

• The net capital gain in your income MUST be declared; and
• The foreign resident withholding tax paid to the ATO can be claimed as a credit.

Effective date and time of change in the law

For property held by a foreign resident for tax purposes prior to 7:30 pm (AEST) on 9 May 2017 the CGT main residence exemption:

• May ONLY be claimed for sales until 30 June 2020 and provided the other requirements for exemption are met; and
• No longer applies to sales that occur from 1 July 2020 UNLESS the life events test is satisfied.

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Key points

• This only applies if you are NOT an Australian resident for tax purposes when you sell your residential property.
• If you sell pursuant to a Contract the relevant time of sale is the time you entered the Contract.
• If you DO NOT sell pursuant to a Contract the relevant time of sale is the time of settlement.
• You are unlikely to satisfy the requirements for the CGT main residence exemption if you were not an Australian resident for tax purposes while living on your property.
• The changes also apply to your legal personal representatives, trustees, and beneficiaries of your estate, your surviving joint tenants, and special disability trust if you are a foreign resident for tax purposes when you die.

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