No more main residence exemption for foreign residents

By January 6, 2020 Tax

Until recently the main residence exemption (MRE) applied for foreign residents meaning that if you owned your home here in Australia and then moved overseas permanently it was still possible to have any capital gains you made on the sale of your home tax-free here in Australia. This is, generally speaking, no longer the case.

The main residence exemption (MRE) provides relief from capital gains tax that may otherwise have arisen on the sale of your home. There are conditions that need to be met, but for the typical homeowner this means you pay no tax on the gains made when the property is sold.

MRE applied not only to Australian tax residents, but also to taxpayers considered foreign residents, however this is no longer the case. So if you decide to move overseas and not sell your house before leaving (say, because you wanted to trial things overseas first, for example) and then you later sell the property at a time when you’d no longer be considered an Australian tax resident, then the property will likely be subject to capital gains tax here in Australia.

These changes have been made law as of December 2019, however there is a small window of time (30 June 2020) for certain property transactions to still be considered exempt from capital gains tax under the MRE. The following is taken directly from the ATO website:

  • For property held prior to 7:30pm (AEST) on 9 May 2017
    • the CGT main residence exemption can only be claimed for disposals that happen up until 30 June 2020 and only if they meet the other (normal) requirements for the exemption
    • disposals that happen from 1 July 2020 are no longer entitled to the CGT main residence exemption unless certain life events* occur within a continuous period of six years of the individual becoming a foreign resident for tax purposes
  • 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 certain life events (listed above) occur within a continuous period of six years of the individual becoming a foreign resident for tax purposes.

* ‘certain life events’ are limited to:

  • 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.

So, what does all this mean for you? If you own your own home and would currently enjoy the tax-free status the MRE affords, but are thinking of moving overseas then you should think very carefully about if/when you’ll sell that property. Failing to plan properly could result in a hefty and unexpected tax bill.

If the above has raised any concerns for you, why not get in touch today? We’d love to help.