The Senate is still contemplating Treasury Laws Amendment Bill 2018 which is expected to have a huge impact to over 100,000 Australian expats. This bill proposes tax changes that will force expats to pay thousands of dollars in capital gains tax if they sell their home in Australia while working overseas. Although the measure is intended to improve local housing affordability by preventing the Capital Gains Tax Main Residence Exemption from applying to foreigners living in Australia, it will also run the risk of penalizing Australians for taking jobs overseas.
What Does This Mean for You?
If you became an expat after May 9, 2017, and were to sell your former Australian residence while living overseas, you might have to pay capital gains tax on the total gain of the property – including the time that you lived in it. This means that if you made $500,000 on the sale of your home, you would potentially have to pay back $200,000 in tax. There are also no exemptions for people that may have had to sell due to an illness, divorce, or death in the family.
What Can You Do?
According to the laws, the new rules would be administered to any property sales after May 9, 2017. However, a transition rule states that if you held the property at that date and sell it before July 1, 2019, the rules won’t apply to you. You do have to have held the property before May of last year though and enter a contract to sell your home by June 30, 2019. Although the market might not be the best time to sell, it may ultimately save you hundreds of thousands of dollars to sell now. Another option would be to reestablish your tax residency back in Australia before you sell your home.
Preparing Your Finances
Regardless of what option you choose, you will need to prepare your finances. Be sure that you’re saving money monthly to brace for the impact of the proposed taxes. Furthermore, you will want to fix your credit in the case that you need to pay capital gains taxes or reestablish your tax residency. Systems like Chexsystems can help you see your use of credit and establish a report to see what the banks can see. After reviewing your report, be sure to strategically pay off what you can and save the rest for the potential impact of the Treasury Laws Amendment.
What Will Happen Next
The future of the bill remains unclear. People have been lobbying Prime Minister Malcolm Turnball to overturn the proposed tax changes. Many of these lobbyists include Australian business and education organizations that believe the bill will drastically decrease overseas business and schooling, particularly during a time where Australia is trying to re-engage with Asia. Therefore, it’s important that you stay up to date with the relevant news and do what you can to save yourself from the impact of the amendment. I hope you got all the detailed information regarding New Capital Gains Tax Crackdown. If you want to know more then checkout our previous blogs.