ATO treatment of foreign resident CGT exemption changes

The ATO has released details of its administrative treatment of proposed changes to deny foreign residents access to the CGT main residence exemption. Under amendments in Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019, the exemption for the disposal of a main residence will be denied except where certain life events (terminal medical condition, death, divorce or separation) occur within six years of that individual becoming a foreign resident.

For properties acquired at or after 7.30pm (AEST) on 9 May 2017, the exemption will no longer apply to disposals from that date, unless covered by the above exception. However, under transitional rules for properties held before 7.30pm (AEST) on 9 May 2017, the exemption may still be accessible in certain circumstances if the CGT event occurs on or before 30 June 2020. 

For properties disposed of from 1 July 2020 by a non-resident, the main resident exemption is lost from the date of acquisition of the property, unless the above life event exceptions apply or the property was acquired pre-CGT. The tax treatment will be based on the taxpayer’s residency status at the time of disposal of the property, not their use of the property or their residency status throughout the ownership period.

The ATO has advised that if the proposed law is enacted, taxpayers will need to review their positions, potentially back to the 2016-17 income year. If taxpayers had lodged their returns not in accordance with the changes, they will need to seek amendments. The ATO will not apply shortfall penalties and any interest accrued will be remitted to the base interest rate up to the date of enactment of the law changes. In addition, any interest in excess of the base rate accruing after the date of enactment will be remitted where taxpayers actively seek to amend assessments within a reasonable timeframe after enactment.

From CAP TAX News – 31 Oct 2019 / Edition 42