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The strict rules around proposed legislation to deny foreign residents access to capital gains tax exemptions, including the denial of apportionment of the exemption or the “absence rule”, could disadvantage a global workforce, says one firm.
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‘Tax should never drive an outcome’: Proposed CGT exemption changes mulled
30 May 2018
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The Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018 is currently before Senate, aiming to remove the entitlement to the CGT main residence exemption for foreign residents from 9 May 2017 — the date of the federal budget announcement. The current law allows foreign residents to access the CGT main resident exemption in the same way as Australian residents.
For main residence properties acquired before 9 May 2017, the new rule will not apply to disposals that occur up to 30 June 2019, as part of a grandfathering measure.
Speaking at the Tax Institute’s NSW annual tax forum, Henderson Edelstein director Zubair Bangash said that while the change was not yet law, the implications of the hard rules could disadvantage Australians who were part of a mobile workforce.
“It is a strict rule that says that looks at the status of the person at that time it is sold,” said Mr Bangash.
“There is no allowance for any sort of apportioning either by way of ownership period, and given the way people work these days and the mobility of the workforce, there is no allowance for that.
“The ‘absence rule’ is also not allowed as it is strictly the time of disposal and residency status of the owner at that time.”
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Mr Bangash comments follow those made the Senate Economics Legislation Committee, who noted concerns that Australian citizens and permanent residents working overseas might be adversely affected.
“Mr Frederick Morgan questioned the ‘wisdom of denying non-residents, the entire exemption, rather than pro-rating the exemption, so that it is only available, for the portion of the ownership period, that the individual is resident’. In particular, he maintained that the loss of the exemption for Australians who depart overseas seemed ‘massively unfair and intrudes into the flexibility of Australians’,” the committee noted.
However, the committee recommended that the bill be passed, calling for the government to ensure Australians living and working overseas are aware of the changes and the transitional arrangement for them to “plan accordingly”.
Mr Bangash believes the change will likely drive an outcome, should it be passed in its current form.
“The consequence here is if you're overseas and you have the opportunity to come back then you would make that decision to not sell until you come back,” said Mr Bangash.
“If you know you're not going to come back and you have this property you were relying on under the ‘absence rule’ then you would look to sell it before 30 June 2019.”
“Tax should never drive an outcome but if you aware of the rules then you can make them work in your favour.”
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