Expats in a pickle! Unable to sell their aussie homes to avoid capital gains tax bills amidst COVID-19
- Arnold Shields
- Apr 30, 2020
- 3 min read
Updated: May 21
Thousands of Australian expats could be hit with unexpected tax bills unless they act fast
Up until 12 December 2019, Australians living overseas were able to claim the capital gains tax (CGT) main residence exemption on their homes in Australia. However, the Federal Government’s law change means this tax break no longer applies for most expats, and time is running out.
The New Law: A Costly Shock for Expats
Passed on 12 December 2019, this change removes the CGT main residence exemption for foreign residents. It applies retrospectively and could result in a significant tax bill if you sell after the cut-off.
Key dates:
Property acquired before 9 May 2017 (7:30pm AEST): You could still claim the CGT exemption, if sold on or before 30 June 2020
Property acquired on or after 9 May 2017: The exemption no longer applies unless you satisfy a narrow life events test.
What If You Miss the 30 June 2020 Deadline?
If you don’t sell before 30 June 2020 and don’t meet the exemption test, you lose the CGT exemption entirely, even if you lived in the property before moving overseas. Your CGT liability will be calculated from the original purchase date, not from when you became a non-resident. This means you could face a much larger tax bill than expected.
The Only Exception: The Life Events Test
You may still be eligible for the exemption if you meet the life events test. At the time of disposal, you must have:
Been a foreign resident for six years or less and
One of the following must have occurred during that period:
You, your spouse, or your child under 18 had a terminal medical condition
Your spouse or child under 18 passed away
You divorced or separated, and the CGT event occurred as part of a property settlement
This exception is narrow, and most expats will not qualify.
Market Collapse from COVID-19: A Tough Decision
Since COVID-19 struck in December 2019, the real estate market has taken a hit. With open homes cancelled and auctions suspended, selling has become much harder, and prices have dropped.
Many expats are now stuck in a lose-lose situation:
Sell at a reduced price now to avoid CGT
Wait and pay CGT on the entire gain if you sell after 30 June 2020
What Should You Do?
It’s a financial balancing act. You’ll need to calculate whether it’s more cost-effective to sell at a lower price or pay CGT later. In some cases, selling now, even at a discount, may save you thousands in tax.
If you're unsure of your options or need tailored advice, contact the experienced tax team at Dolman Bateman. We can help you assess your position and determine the most financially sound move.
👉 Reach out now before it’s too late.
Disclaimer:
The information provided in this article is general in nature and does not constitute personal financial, legal or tax advice. While every effort has been made to ensure the accuracy of this content at the time of publication, tax laws and regulations may change, and individual circumstances vary. Dolman Bateman accepts no responsibility or liability for any loss or damage incurred as a result of acting on or relying upon any of the information contained herein. You should seek professional advice tailored to your specific situation before making any financial or tax decision.
