2017 Budget - Impact Summary for Expatriates
There were a couple of announcements in the 2017 Federal Budget that will impact expatriates and received very little local press attention. They were as follows:
Removal of the Main Residence CGT Exemption
"denying foreign and temporary tax residents access to the CGT main residence exemption from 7:30PM (AEST) on 9 May 2017, however existing properties held prior to this date will be grandfathered until 30 June 2019"
We will need to wait on detailed legislation, but our understanding is that "foreign ... tax residents" will include both Australian citizens and permanent residents, as well as foreign citizens, who are non-resident for Australian tax purposes. This is a significant change, particularly given the prior removal of the 50% CGT discount for non-residents in 2012. In effect, this means that it will become even less attractive to retain property in Australia whilst overseas, and of course makes CGT calculations even more difficult.
We also need further detail on what this sentence means explicitly: "Foreign and temporary tax residents who hold property on Budget night can continue to claim the exemption until 30 June 2019." One potential and literal reading is that unless the property is sold prior to 30 June, 2010 then the entire exemption is lost.
In the extreme this could mean that an expatriate who has been overseas for five years, and rented out their main residence on the presumption that the "six year rule" would apply, providing a CGT exemption in relation to any gain in that period, would lose the entire CGT exemption if the sale was not effected prior to 30 June 2019. Given the very significant capital gains in Sydney and Melbourne particularly over the last few years, this could be a very substantial amount of money potentially foregone if a property was not sold prior to the deadline.
CGT Withholding Tax
In the 2016 Federal Budget it was announced that any vendors selling Australian property valued at $2 million or above, would need to withhold 10% of the purchase price and pay it to the ATO directly, unless they obtained a clearance certificate - and these are only available to Australian residents.
In the new 2017 Budget, the Government has reduced the minimum contract value to AUD750,000 and increase the withholding tax rate to 12.5%. Any foreign resident vendor must lodge a tax return at the end of the financial year, declaring their Australian assessable income, including any capital gain from the disposal of the property.
The moral of the story is to ensure that you appoint an experienced solicitor to manage any property sale over AUD750,000, and probably more importantly obtain prior tax advice to ensure you understand the tax implications of any sale.
Tax Rates and the Medicare Levy
From July 1, 2019 the Government plans to increase the Medicare levy by 0.5% to 2.5% of taxable income to fund the National Disability Insurance Scheme (NDIS). On the upside, July 1, 2017 will see the planned discontinuation of the 2% Budget Repair Levy - but we're guessing that there are still some negotiations in the Senate between now and that occurring.