Capital gains tax changes for foreign residents: An update

Finally there is an update on the change of CGT for foreign resident. The government has released an exposure draft and asking interested parties for comments. Unfortunately, it is not a good news for Kiwis in Australia.

According to the exposure draft explanatory material, all individuals who are foreign residents at the time a CGT event* occurs to a dwelling in which they have an ownership interest are not entitled to the main residence exemption (Para 1.17). A foreign resident is a non-resident for Australian taxation purpose (Para 1.20). This means, even if the vendor has an Australian citizenship, if the vendor is a non-resident for Australian tax purpose, the vendor is not entitled to the main residence exemption.

* Usually, CGT event occurs at the time of disposal. However, there are many CGT events exist, for example, the transfer of an asset to a trust.

Example 1.2 explains the change clearly:
Vicki acquired a dwelling on 10 September 2010, moving into it and establishing it as her main residence as soon as it was first practicable to do so.
On 1 July 2018 Vicki vacated the dwelling and moved to New York. Vicki rented the dwelling out while she tried to sell it. On 15 October 2019 Vicki finally signs a contract to sell the dwelling with settlement. Vicki was a foreign resident for taxation purposes on 15 October 2019.
The time of the CGT event A1 for the sale of the dwelling is the time the contract for sale was signed, that is 15 October 2019. As Vicki was a foreign resident at that time she is not entitled to the main residence exemption in respect of her ownership interest in the dwelling.
Note: This outcome is not affected by:
– Vicki previously using the dwelling as her main residence; and
– The absence rule (i.e. 6 years CGT exemption rule) in section 118-145 that could otherwise have applied to treat the dwelling as Vicki’s main residence from1 July 2018 to 15 October 2019 (assuming all of the requirements were satisfied).

According to the example 1.2 above, if you are a non-resident for Australian tax purpose at the time of disposal, you are not entitled to the main residence exemption and the ENTIRE OWNERSHIP PERIOD WILL BE TAXED even if you have used the property as the primary residence.

For Aussie expats, they may choose to hold the property and sell it only after repatriation. For Kiwis living in Australia, if they are planning to repatriate back to New Zealand, they can only sell it before departure to avoid being taxed heavily assume they won’t move back to Australia in the future.

This is a very bad change and is not reasonable at all. One should not be penalised heavily just because he is a non-resident at the time of disposal. The statement on the media release says that the purpose of the change is to “stop foreign residents investing in residential real estate claiming the main residence exemption” but in fact, the change does not affect any “real” foreign investors (i.e. foreign investors without any permanent or working visa in Australia) at all as they are not entitled to this exemption anyway. A foreign investor who does not have any permanent or working visa to stay in Australia, is extremely difficult to satisfy the Commissioner that the residential property is his/her main residence. The change will only affect everyone who are genuinely living in a residential property as their home to claim the main residence exemption.

I recommend every Kiwis to submit a comment and express your concerns before 15th August. Please go to the following link: