The principal residence CGT exemption & Australian expatriates
When the property is sold in Australia, the Captial Gain is calculated. The capital gain will be subject to Australian Capital Gains Tax (CGT). The capital gain is generally calculated as the sale price less the acquisition costs of that property and tax is paid thereon.
The Principal Place of Residence, CGT exemption is a vital exclusion to CGT on Australian property. Broadly, the principal residence CGT exemption enables you to disregard any gain on the sale of a property that was your home, allowing you to realise a tax-free sale.
Unfortunately, effective from 9 May 2017 and subject to transitional rules, the availability of the principal residence exemption was restricted by disallowing foreign residents, including expatriate Australians, access to this exemption. However, the ATO regulations permit a foreign resident to access the Principal Place of Residence, exemption if they've been a foreign resident for six years or less. The principal place of residence sale must be connected with a relationship separation, terminal illness, or death. Ordinarily speaking, since 2017, the principal residence exemption has been unavailable to anyone but Australian residents.
And to be specific, that is not Australian citizens, not Australian Permanent Residents but Australian tax residents.
But that is not to say that all hope is lost for expatriate Australians regarding a tax-free property sale, or part-there-of, under the principal residence exemption. Planning opportunities do still exist to minimise taxation.
An example of this;
Let's say you're an expatriate Australian. You've lived in your Australian property before departing overseas. You're now renting out that property, and you intend to resume your Australian residency within six years of your departure. You may still be eligible to access the principal residence exemption to entirely disregard any capital gain on the subsequent sale of that property.
Furthermore, suppose the principal residence exemption is not available to you in its entirety. In that case, you may still have access to the exemption on a pro-rata basis determined by the number of days you lived in that property, provided you resume your Australian residency before its sale.
Lastly, suppose you're an expatriate planning to return home to live in that property for the longer term. In that case, planning opportunities exist to restructure your property ownership to provide for a more significant tax benefit from the principal residence exemption from the time of your return to Australia. Restructuring property ownership is usually available if you initially own your Australian home under your name only. Depending on your circumstances, this may also be further assisted by stamp-duty relief on any restructure. Somewhat counterintuitively, it may also be more tax-efficient for any restructuring to be undertaken while you're a foreign resident and before returning to Australia.
Accordingly, although foreign residents, including expatriate Australians, are not strictly eligible to access the principal residence exemption, there are plenty of opportunities that may still allow expatriate Australians to benefit from the exemption, provided that proper planning is undertaken.
If you’d like some assistance with your taxation, reach out to Dean Crossingham,
The Expatriate always tries to make sure all information is accurate. However, when reading our website, please always consider our Disclaimer policy.
