Main Residence Capital Gains Tax exemption removed for Non-Residents Australian citizens thanks to the Liberal Government under Malcolm Turnbull and Treasurer Scott Morrison.
In the 2017–2018 Liberal National Party budget, Scott Morrison, the then Treasurer, announced a raft of changes to be implemented. The leadership of the Liberal Coalition at the time was being run by the now deposed Prime Minister Malcolm Turnbull.
One of those changes that would cause severe repercussions upon Australian citizens abroad was the scrapping of the Primary Residence Capital Gains Tax exemption for Non-Residents.
Under the new law, any Australian citizen owning a property in Australia, regardless of how long they owned that property beforehand, if deemed a ‘non-resident’, will lose all Capital Gains Tax exemption when selling their property.
This new law does not take into account periods of previous ownership of property. Aussies who have for example spent a large portion of their lives in their family home, perhaps decades are not exempt.
For many retirees, they may decide to take off overseas for cost of living reasons, lifestyle, stay with other family and to enjoy their later years in another country, whilst renting out their property to help fund their self funded retirement life. It is in many cases a main income source and the sale of the property in the future will help secure survival and stability.
Others such as non-resident expats, may have taken up employment opportunities whilst keeping their family home to return to in the future.
As part of the Primary Residence requirements — non-residents, in fact any property owner who has nominated a property as a Primary Residence, was required to reside in that property every six years. This re-set the ‘clock’ again for another six years.
Under the now deposed Turnbull Prime Minister Leadership, the 2017 Budget has ruined the retirement plans of many non-residents/expats. It only requires one single ‘non-resident’ event to trigger that CGT exemption removal.
PROPERTIES A SAFE INVESTMENT FOR RETIREES — NO LONGER THE CASE
Properties have always been seen as a safe and solid investment class — a ‘bricks and mortar’ investment that is mostly low risk. It is a place to return to if needed and re-establish as your home, a place you can rent out and also to acquire capital growth over time.
Many owners have spent decades paying off mortgages to own their properties. Others have invested their life savings and Superannuation to secure a piece of property and land in their country.
What has happened now is those whose circumstances and freedom of choices have led them abroad for extended lengths of time to become a ‘non-resident’, are now left floundering in what is a huge quandary as to deal with the punitive changes implemented.
IMPLICATIONS:
Non-residents are now being forced to sell their property before the 2019 deadline date in order to still qualify for the CGT exemption. This is now one of the worst times to sell when the market is falling, putting those forced to sell at a massive disadvantage — potentially huge losses for non-residents. Decent Aussies forced to sell up and often losing their only property asset in Australia.
Non-residents who keep their property will now be subject to severe capital gains tax — that will be charged at the very high rate non-discount Foreign Resident Rate when they sell.
Yes that’s right, Australian citizens to be treated as Foreign Residents. This also means for those non-residents who die, their inheritance will also be subject to the same CGT that their beneficiaries will be charged with following the sale of the Estate.
Non-residents will need to abolish their offshore retirement and lifestyle dreams and return to Australia to re-establish residency status and mitigate the non-resident CGT period prior to selling.
For many this means resorting to the higher costs of living that they were trying to avoid, leaving friends, relationships, family, social network and any possible employment.
They will also often be resorting to a lower standard of life back in Australia due to cost of living pressures based on lower incomes. The psychological impacts are obvious with depression and despair at having to return to up-heave their lives to comply with a tax law and potential financial pressures.
Non-residents, upon the completion of the sale of their property before the 2019 deadline date now have the daunting task of having to somehow work out where else do they now invest the proceeds of the sale?
For many solely living off the cash proceeds of a sale will not see them through to their graves. This will cause many to then have to resort to riskier investment classes that are fraught with danger.
We are talking then about resorting to investments such as: into the share and currency markets, managed funds and other investment classes. Bank deposits will just not provide enough income stream. On top of all this are the obvious changes to tax implications and the inability for certain investments to not qualify for tax exemptions.
Non-residents who had previously set up their retirements based off financial advice and tax structuring around their property investment before the 2017 Budget, now have to unravel all of this.
On top of that will be the usual ruthless and often untrustworthy financial advisers and unscrupulous spruikers of various investment products that so many expats and retirees have had their lives ruined from before. The sharks will be circling to gouge the accounts of non-residents.
It is guaranteed that many non-residents/expats/retirees are going to be scammed and lose from this. It is inevitable that as a result this will cause severe psychological and medical problems and suicides from ruined lives.
Many non-residents who are retired/expats are also not financial savvy and only wanted to rely on their home/investment property for income. Many too old to now have to re-learn how to invest.
Many expats are now feeling the pain and pressure to sell. The question is why has Morrison and then Turnbull targeted a small minority of property owners who will have no impact on driving down housing prices.
All it is doing is causing stress and suffering and forcing many expats and retirees to offload their one solid link to Australia so as to apparently benefit someone else who can snap up their property for a bargain.
The other downside is that by losing a permanent place of abode in Australia, it causes the Australian Tax Office to determine easier that you are a permanent non-resident with no ties to Australia. This is problematic for those who may have only occasionally fallen into the non-resident category and trying to maintain residency status. Now it will be even harder to convince the ATO in the future.
It also means that Australian citizens returning from abroad who have been forced to sell their homes to avoid the full CGT, they will often not have a place to return to (unless they have family or friend who can put them up in a spare room temporarily etc).
They will be forced to seek accommodation if they can afford it. This will make many expats feel disenfranchised, betrayed and disconnected from Australia and may as a result decide to never return to Australia at all.
Queensland property owners — special note.
As my previous articles have already detailed, being an Australian Queensland property owner (with land value from $350,000), you are already restricted to only being allowed to be out of Australia for 6 months each financial year or face a massive annual Land Tax & Absentee Surcharge imposed by Premier Palaszczuk’s Labor Party. Therefore it is a trifecta of punitive measures to severely deplete your wealth, living and retirement prospects.
The combined effect just puts nails in the coffins for expats who are easy targets for heartless politicians, forcing massive loss of wealth and forcing people into financial and emotional distress with dire consequences.
I am afraid that the future of Australian politics and tax policies will probably only get worse for its citizens.
(Article also published on Medium Website)
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