Looming tax bills for expatriates

Is it still worth taking a foreign posting? Australian employers wanting to send staffers abroad are already getting push-back following proposed measures to retrospectively tax expatriates who sell their home in Australia.

A measure intended to improve local housing affordability runs the risk of penalising Australians taking postings abroad and migrants who return to their countries of origin, by stripping from them the main residence exemption (MRE) from capital gains tax (CGT).

A bill before the Senate seeks to retrospectively remove the main residence exemption from CGT for non-residents from the time the property became the taxpayer’s main residence, instead of from the time they became a non-resident.

Expatriates caught in housing affordability net

The Senate is still considering Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No.2) Bill 2018.

“The government’s position is that if you’re from overseas and you buy property in Australia, but you remain a non-resident for tax purposes, you won’t get the CGT MRE,” says Robyn Jacobson FCPA, senior tax trainer at TaxBanter. “They’re trying to make it less attractive for foreigners to buy houses here, trying to make more houses available to Australians, and trying to improve housing affordability.

“I get that. But as the proposed legislation stands, it also applies to Australian expatriates who have taken a job posting overseas and are non-residents for tax purposes, as well as Australian citizens who have chosen to retire overseas,” says Jacobson.

If someone from either of these groups sells the dwelling that was their home for many years, and they happen to be a non-resident at the time of the CGT event – that is, when they sign a contract to sell the property – they will not be entitled to the MRE for the entire period they owned the home.

Thousands of expats affected by tax on homes

Inadvertently or not, the Bill affects “hundreds of thousands of Australians living and working offshore,” says Jacinta Reddan, chief executive of the Australian Chamber of Commerce in Hong Kong and Macau.

“This simply has not been thought through. Firstly, we’re living in an increasingly globalised world, and the expatriate diaspora is both an enormous benefit to the Australian economy, because people return bringing with them increased skills, and to the nation’s engagement with the world.”

Secondly, she says, being an expatriate does not mean immunity from unexpected life events such as divorce or loss of a job, illness or death.

“These can hit us all regardless of where we live, and we often don’t have a choice about when to sell our homes. Making all of the gains from a property sale taxable just because the person is a non-resident at the time of disposal is penalising Australians for living and working offshore, which is manifestly unfair,” says Reddan.

The Chamber is seeing a backlash from corporate members who report resistance from staff offered critical offshore postings.

Read more at INTHEBLACK, CPA Australia 

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