Expats sweat as main residence CGT cut-off looms


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Already facing a rapidly approaching deadline signaling the end of exemptions from capital gains tax, expats now face further challenges in selling their former family homes, with only COVID-19 to blame.

Atlas Wealth Management managing director James Ridley argues that with just over four weeks looming to the cut-off date for the main residence CGT exemption, expats are set to face a potentially huge capital gains tax burden.

"Their decisions are limited; they either hold until they have returned back to Australia and sell as an ordinary Australian tax resident or if they are forced to sell due to personal circumstances they will have to seek tax planning advice prior to the sale so they can have an opportunity to reduce their overall CGT burden at a non-residents tax rate," he says.

expats cgt deadline

Similarly, HLB Mann Judd tax partner Peter Bembrick said COVID-19 had made it all the more difficult for Australians overseas to sell their former family homes.

"It was going to be difficult for some people to sell anyway," he says.

"This situation has just made it worse."

The bill, directed at foreigners (including foreign investors and expats) aimed to make housing more affordable by reducing foreign investment; however, it did little to recognise Australian home owners who had followed opportunities abroad.

"In my experience, expats are the ones that have been the most heavily impacted," Bembrick says.

This article first appeared on Financial Standard

"For these people living overseas, under the new regime once this June 30 deadline passes, if you're a foreign resident at the time that you sell the property then you get no access to the main residence exemption at all."

Bembrick said the most drastic aspect of the legislation was that there was no recognition for the period that this foreign resident lived in their home before moving overseas.

"An extreme example would be somebody who lived in a house for 20-years or so and then sold their property while overseas," he says.

Despite having lived in the property for more than 20 years, the total gain would be calculated by subtracting the purchase price from the day they acquired the property from the sale price, with the seller likely facing a CGT at the top marginal rate of 45%.

"So that could be quite disastrous for people," Bembrick says.

Ridley agrees, arguing the government should extend the timeframe given the current COVID-19 environment.

"The government has the ability to increase the transitional period but there has been not a whisper of this likely to take place; given their concerns are focused on the local economy through COVID-19," he says.

"I feel as though the thousands of expats who will be impacted by this are being left behind."

He explained a case where a client had purchased a Sydney home in 1996 for $400,000, living in the property as their main family residence until 2016.

"They sold recently and ended up reducing their asking price by $350,000 because of COVID-19; just so they could get out of the market and not be impacted by the legislation," he says.

"If they signed the contract as of July 1, the tax on the $3.2 million property would be hundreds of thousands of dollars - compared to it not being a taxable event at all."

He argued COVID-19 related social distancing measures has put further pressure on sellers, as exemplified by the above.

These include no longer being able to hold inspections to drum up interest from buyers, with inspections coming almost to a halt as a result of restrictions imposed by both federal and state governments.

Auction clearance rates had also dropped significantly, he says, as virtual auctions and "walk-throughs" prove widely unsuccessful.

Further, expats would face a sense of emotional loss, Ridley argues, with time running out and the value of the home dropping since the beginning of the year.

Bembrick reveals a source had started up a business to profit from the tightening deadline, offering up their services to expats to make sure potential buyers were not aware that the property needed to be sold in a hurry.

"The analogy he gave was, if it's a deceased estate wanting to sell in a hurry - buyers know that they're going to get a bargain," he says.

"So they don't want potential buyers to know they need to sell - it's just as difficult."

Demanding an extension to the transition period, Atlas Wealth has started a petition on Change.org, and has also written to seven members of parliament, including Treasurer Josh Frydenberg.

Despite the petition gaining nearly 1000 signatures, with figures growing every day, Ridley says the letters have gone unnoticed.

"This hasn't gained any traction, but we are really trying to shake every tree as the deadline approaches in less than five weeks," he says.

Bembrick is also doubtful that any extension to the deadline is likely to be passed before the cut-off date.

"I think it would be highly unlikely in the current environment given it wouldn't be a high priority for the government at the moment," he says.

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Ally Selby is a journalist at Financial Standard. Prior to this she worked as a video producer at publisher Pedestrian Group. She previously worked as a prime time program producer at Your Money (Sky News Business), producing shows covering technology, investing, entrepreneurs and Australia's most successful business people. She has a double Bachelor's degree in Journalism and International Studies from the University of Technology Sydney.

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