Exemption to some non-residents selling their former Australian home after June 2020

We have addressed in previous blogs and our newsletter that former Australian residents selling their former family home will pay tax on the whole gain if the property is sold after 30th June 2020 whilst they are still living overseas.  There is no reduction for the period it was their family home.  There is however an exemption to some non-residents selling their former Australian home after June 2020; but hopefully those circumstance don’t eventuate.

Former Australian tax residents who have lived overseas for less than 6 years can claim an exemption for what are referred to as life events.

Life events include such things as:-

  • Being diagnosed with a terminal medical condition by the individual or a family member.

  • The death of certain family members.

  • A marriage or de facto relationship breakdown.

We should add that it doesn’t matter whether one still holds an Australian passport.  Residency for tax purposes is a separate concept.  Whilst there are numerous considerations, the basic position is that one ceases to be a resident of Australia for tax purposes once one has lived overseas for two years or more.

If a former home is sold by an Australian now living overseas and there is no life event exemption, then:-

  • The whole gain will be taxable – there is no reduction for the period in which it was the family home.

  • The capital gains tax general discount of 50% is not available to non-residents. In other words the whole gain is taxable.

  • Tax is payable from the first dollar at 32.5% as non-residents do not receive the tax free threshold nor the 19% marginal tax rate.

  • Under the new non-resident property withholding tax, 12.5% of the proceeds must be remitted to the ATO – meaning only $1,750,000 from the sale of a $2,000,000 property will be received at settlement; the balance will offset against the capital gain within the Tax Return.

Please refer to previous blogs for strategies to not paying this rather hefty and unfair tax.  Or better yet, calls us to discuss your situation.

At MRS, we will spend today planning for your success.