Q: My son has been working overseas for the past few years. He has kept a house in Sydney but now he is thinking of selling it. Last year there was a lot of discussion about whether someone in his position would be caught up in a move to remove the capital gains tax exemption on the sale of a main residence when the owner is a foreign resident. Can you tell me where we are up to with this?
A: The measure you are talking about is included in Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No 2) Bill 2018, which removes the entitlement to the capital gains tax main residence exemption for foreign residents.
The bill passed the House of Representatives in March last year. It was before the Senate but had not been voted on before Parliament was dissolved for the election. As a result, the bill lapsed.
There has been a lot of criticism of this bill because it appears to have the unintended consequence of catching expats in the net. The government delayed passage of the bill to review it but has not said whether it will change or withdraw it.
Because the bill lapsed when Parliament was dissolved it would need to be reintroduced. Unfortunately, you will just have to wait and see what happens.
It certainly does appear that expats would be caught up. The information memorandum accompanying the bill includes a number of case studies, showing how the law will work.
In one case, Vicki, an Australian, bought a unit in 2010, moved into it and established it as her main residence.
Several years later she moved to New York and rented the unit while she tried to sell it. A year after her move she signed a contract to sell the unit.
Vicki is a foreign resident at the time the sale contract was signed, so she is not entitled to the main residence exemption.
The definition of a main residence includes a building (such as a house) or part of a building (a unit) that is mainly used for accommodation; a caravan, houseboat or other mobile home; any land immediately under the unit of accommodation; and any adjacent structures to the extent that they are used mainly for domestic purposes.