As we enter the Halloween season, zombies and other ghoulish creatures are no doubt at the forefront of people’s minds. One issue that has also risen from the grave is the proposed denial of the CGT main residence exemption to foreign residents, which reappeared in a Bill before the House of Representatives on 23 October 2019. (New Bill)  

Sladen Legal has previously written about this proposal;

• first, when it appeared as an exposure draft in August 2017 but excluded from the Bill introduced to Parliament;

• secondly, when it reappeared in a Bill in February 2018 (Old Bill); and

• thirdly, when it seemed that the Government may have no longer supported the proposal (following the lapse of the Old Bill with the calling of the May 2019 election).

The resurrection of this ghoulish measure is likely to give foreign residents a fright this Halloween season. Most of what was contained in the Old Bill stays in the New Bill.

The result is that most individuals who are non-residents at the time of signing the contract to sell their family home will be ineligible for the full (or even partial) CGT main residence exemption. It is irrelevant that the individual may have been living in the family home as an Australian resident since 1985.

The New Bill does, however, differ from the Old Bill in two ways:

1. the transitional period has been extended from 30 June 2019 to 30 June 2020; foreign resident individuals will therefore be able to claim the CGT main residence exemption up to 30 June 2020; and;

2. individuals who have been foreign residents for 6 years or less may remain eligible for the CGT main residence exemption if a certain life event occurs during their foreign residency. These life events are prescriptively described to include

a.     if your spouse, or your child under the age of 18, dies during the period of foreign residency;

b.     if you go through a family relationship breakdown (that is, a separation or divorce) during the period of foreign residency; or

c.     if you, your spouse, or child has a terminal medical condition at any time during the period of foreign residency.

Given the limited application of the life event exemptions, current foreign residents (or Australian tax residents who anticipate becoming foreign residents) may wish to take advantage of the CGT main residence exemption before it’s too late, and Freddy Krueger comes knocking.

Happy Halloween!

Edward Hennebry
Associate
T +61 3 9611 0113
E: ehennebry@sladen.com.au

Neil Brydges
Principal Lawyer | Accredited Specialist in Tax Law
M +61 407 821 157 | T +61 3 9611 0176
E: nbrydges@sladen.com.au