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A controversial tax bill that proposes to deny non-residents access to capital gains tax exemptions has now been passed by the lower house.
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Controversial CGT bill progresses as apportionment calls fall on deaf ears
27 November 2019
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Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019 has now been passed by the House of Representatives.
The bill will now be considered by the Senate during the five remaining sitting days before the end of the year.
The measure, first announced in the 2017–18 budget, proposes to deny non-residents the CGT main residence exemption for CGT events that happen on or after 9 May 2017, subject to an extended 30 June 2020 transitional date.
The previous iteration of the bill had set the transitional arrangements to 30 June 2019, but that bill lapsed with the calling of the May federal election.
Under the new bill, individuals who have been foreign residents for a period of six years or less may be able to access the CGT main residence exemption if, during the period of that foreign residency, certain life events occurred.
A life event includes a terminal medical condition to the foreign resident, their spouse or their child under 18 years of age; death; and divorce or separation.
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The bill has been widely criticised by the tax profession, with concerns raised over the retrospective impact in denying the main residence exemption as far back as 20 September 1985, when CGT was first introduced.
The Tax Institute’s senior tax counsel, Professor Robert Deutsch, said the bill would deny Australian citizens living and working overseas the CGT main residence exemption.
“There is no legitimate policy reason for denying Australian citizens the CGT main residence exemption in these circumstances,” Professor Deutsch said.
“Based on the 2017–18 budget announcement, most practitioners considered that the underlying policy would only apply to foreign investors and temporary residents.
“No one envisaged that policy would catch an Australian citizen and tax resident of decades in the net and entirely deny them the main residence exemption if they decided to retire, take up tax residency outside Australia and then sell their Australian home.”
Professor Deutsch believes a “simple solution” would be to consider apportionment rules, a suggestion that had been put forward to government previously.
“The solution to this problem lies in apportionment. It is the fairest, simplest and the most consistent way to implement the original policy intent in the budget,” Professor Deutsch said.
“For example, apportionment would be consistent with the current tax treatment of a property that ceases to be a main residence and is used as a rental property.”
Professor Deutsch also noted recent concerns about Australia missing out on revenue that other countries may be able to capture.
“If this potential loss of revenue is considered to be the fly in the ointment, this should have been raised during the consultation phase,” he said.
“We assume that most jurisdictions would only attempt to tax the portion of the gain made by taxpayers while living and working in their country. So, what is the mischief?”
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