27 October

A Capital Gains Tax guide for Australian Expatriates

What is capital gains tax on a property?

It was noted that with the sale of a capital asset, such as real estate or shares, an individual or entity will make a capital gain or a capital loss. This is the difference between what it cost you to acquire the asset and what you receive when you dispose of it.

A tax was introduced by the Australian Tax Office on these capital gains back in September 1985. Known as Capital Gains Tax, this must be paid unless the gain is deemed as exempt by the ATO.

What is an Australian Expatriate?

An Australian expatriate (expat) is an Australian citizen who is either living or working overseas.

I’m an Australian resident does capital gains tax apply to my assets overseas?

Yes. For assets that you have overseas capital gains tax will apply. However, Norfolk Island residents CGT applies to assets acquired from 23rd of October 2015.

How do I record my capital gain or capital loss? 

You will have to record your capital gains and losses in your income tax return for the year that you dispose of the asset. Capital Gains form part of your income tax and is not classified as a separate tax. You will need to pay tax on the capital gains at the applicable marginal rate for that year.

Do I use my settlement date for capital gains tax recording?

No. A capital gain or loss is usually started when you enter into the contract for disposal not when you settle. It is important to keep accurate records for this reason.

For example, if you signed your contract to sell your investment property on the 2nd of June 2020, and it didn’t settle until 29th of September 2020, your capital gain or loss will be in the 2019-2020 tax return year.

What about the main residence exemption?

For many years Australians residents who were residing overseas were able to claim the capital gains tax “main residence exemption” on their family home. This tax exemption was available if the family home was a property investment for no more than six years at a time.

On the 12th of December 2019 there was a change to the main residence exemption law which had the potential to leave many Australian expats with a massive capital gains tax bill to pay.

The changes remove the CGT exemption unless you satisfy a strict criteria of life events test.

As per the ATO: You satisfy the life events test if, at the time of the disposal of your residential property in Australia:

  • you were a foreign resident for tax purposes for a continuous period of six years or less and, during that time, one of the following must have also occurred:

    • you, your spouse, or your child under 18, had a terminal medical condition

    • your spouse, or your child under 18, died

    • the CGT event involved the distribution of assets between you and your spouse as a result of your divorce, separation or similar maintenance agreements.

The Government did put in place a grandfathered period for Australian expats who had purchased their family home before May 8th 2017 and who were living overseas. This clause allowed these expats to be exempt from this capital gains tax - but - they must have sold the family home before June 30th 2020.

If you need further information on capital gain tax (CGT) rules visit the ATO or seek financial advice from your accountant.

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About Mark Wilkins

Mark is an expert quantity surveyor, business owner, public speaker and property developer. With 20+ years experience in the construction and quantity surveying industry Mark’s specialist expertise have been sought in consultant capacity by professional bodies such as the National Institute of Accountants and the National Tax and Accountants Association, and he has presented at various property and tax seminars and expos nationwide. Mark holds a Bachelor of Construction Management from the University of Newcastle, is an affiliate member of the Australian Institute of Quantity Surveyors and a Registered Tax Agent.

View all posts by Mark Wilkins

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