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Australian expats caught up in federal government's 'foreign investor' rule changes

Posted on 12 July 2017

Source:  Domain

In 2016, a withholding tax of 10 per cent on the sale of a home by foreign investors was introduced for properties selling at $2 million-plus.

That has been reduced to $750,000 sale price as from 01/07/2017 and withholding rate increased to 12.5%.

But some expats who do decide to sell their home once they've moved overseas will also be required to pay a chunk of their capital gains to the Tax Office when they sell and lose their main residence capital gains tax exemption.

An Australian Taxation Office spokesperson confirmed Australian citizenship did not necessarily preclude expats from being required to pay the foreign investment charges.

"In some cases an Australian citizen who lives outside Australia may not be a resident for Australian tax purposes, particularly if they have been living outside Australia for an extended period," the spokesperson said.

"In these cases, the Australian citizen may be a foreign investor for the purposes of these provisions and will not be granted a clearance certificate from the ATO if they apply. They will then have tax withheld on the sale of their property."

Overseas students enrolled in courses more than six months long at Australian institutions are also seen as residents under this definition.

A spokesman for Treasury said there was "no separate estimate of the gain to revenue attributable to Australian citizens".

He said individuals returning to Australia and re-establishing their tax residency "will not be affected" when they sell.

An expat with a $1 million property would only receive $875,000 after the 12.5 per cent withholding rate was paid to the ATO, Richie Muir, legal director of conveyancing company Lawlab, said.

The main residence capital gains tax exemption has also been stopped for foreign and temporary tax residents though those who held property before the Budget announcement are allowed to claim the exemption until 30 June 2019.

"Changes to the law mean expats need to think twice before selling property in Australia whilst living offshore," Mr Muir said.

"Sell your home before you leave Australia or after you have returned to keep your principal place of residence CGT exemption."

Only a resident taxpayer can obtain a clearance certificate and all others are subject to withholding of up to the 12.5 per cent.



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