Your ‘main residence’ also referred to as ‘principal place of residence’ (PPOR) is generally exempt from capital gains tax (CGT). To qualify for the CGT exemption, the property must have a dwelling on it which you must have lived in.
However, new laws effective from 9 May 2017 now mean that the CGT exemption for PPOR is no longer applicable to non-residents for tax purposes.
When CGT Exemptions Do Not Apply to PPOR:
If you were not a resident of Australia for tax purposes while you were living in the property, you are unlikely to satisfy the requirements for the main residence exemption.
If you are a foreign resident when a CGT event happens to your residential property in Australia you may no longer be entitled to claim the main residence exemption.
Effective Dates of Change in PPOR CGT Exemptions for Non-Residents:
The change in law applies to foreign residents for tax purposes as follows:
- for property held prior to 7:30pm (AEST) on 9 May 2017
- you can only claim the CGT main residence exemption for disposals that happen up until 30 June 2020 and only if you meet the other requirements for the exemption
- disposals that happen from 1 July 2020 are no longer entitled to the CGT main residence exemption unless you satisfy the life events test (refer to further information below).
- for property acquired at or after 7:30pm (AEST) 9 May 2017
- the CGT main residence exemption no longer applies to disposals from that date unless you satisfy the life events test (refer to further information below).
Note: This change only applies if you are not an Australian resident for tax purposes at the time of the disposal. Where you dispose of the main residence under a contract, the disposal time is the time you entered into the contract. Where you do not dispose of the main residence under a contract, the disposal time is the time of settlement. Therefore, if you are planning to move out of Australia, ensure that the contract is signed prior to leaving Australia.
If you were not an Australian resident for tax purposes while living in your property, you are unlikely to satisfy the requirements for the CGT main residence exemption.
If you are a foreign resident for tax purposes when you die, the changes also apply to:
- legal personal representatives, trustees and beneficiaries of deceased estates
- surviving joint tenants
- special disability trusts.
Special CGT Rules that Apply to Non-Residents for Tax Purposes:
A change in law on 12 December 2019 means if you are a foreign resident for tax purposes at the time you dispose of your residential property in Australia, you will not qualify for exemption from CGT unless you satisfy the life events test.
Life Events Test: You satisfy the life events test if, at the time of the disposal of your residential property in Australia:
- you were a foreign resident for tax purposes for a continuous period of six years or less and, during that time, one of the following must have also occurred:
- you, your spouse, or your child under 18, had a terminal medical condition
- your spouse, or your child under 18, died
- the CGT event involved the distribution of assets between you and your spouse as a result of your divorce, separation or similar maintenance agreements.
Foreign residents and main residence exemption
Foreign residents claiming the main residence exemption as a reason for the variation
Capital gains tax changes for foreign investors
Administrative treatment of retrospective legislation
Disclaimer: This blog post has been simplified to cover the common scenarios relating to CGT and PPOR owned by non-residents. This should not be construed as advice from Glint Accountants. Therefore, we encourage readers of this blog post to contact Glint Accountants for assistance with their specific circumstances.
Prefer to speak to someone about your investment property? Our director, Geraldine Lee, is a Fellow of CPA Australia with an investment property portfolio that includes residential and commercial properties interstate, locally and overseas. She is well-versed in the complexities of Australian taxation laws and how they apply to investment properties. Contact us at Glint Accountants to make an appointment to discuss taxes and deductions relating to your rental property, capital gains taxes, suitable structures for future property investments or even about re-financing your investment loan.