ATO treatment of amendments related to foreign resident CGT main residence exemption

The ATO has released details of its administrative treatment of proposed amendments extending Australia’s foreign resident capital gains tax (CGT) regime to deny foreign and temporary tax residents access to the CGT main residence exemption.

Proposed measure

The government had announced that Australia’s foreign resident CGT regime would be extended to deny foreign and temporary tax residents access to the CGT main residence exemption in May 2017.

The original Bill to give effect to these changes, Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No 2) Bill 2018 was introduced into parliament but lapsed when the 2019 election was called. According to the original Bill, the change was to apply from the date of announcement and properties held prior to this date would be grandfathered until 30 June 2019.

Following consultation, the government had also amended the change to the main residence exemption to ensure that only Australian residents for tax purposes could access the exemption. Thus, temporary tax residents who are Australian tax residents would be unaffected by the change.

A new Bill, Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019, was introduced into parliament on 23 October 2019. The new Bill, which revised the original Bill, provides exclusions in certain circumstances. It also extends the grandfathering period from 30 June 2019 to 30 June 2020. The changes impact certain foreign residents as follows:

• for properties held before 7:30 pm (AEST) on 9 May 2017, the CGT main residence exemption will only be able to be claimed for disposals that happen up until 30 June 2020, provided they satisfy the other existing requirements for the exemption. For disposals of these properties that happen from 1 July 2020, at the time of the CGT event, they will no longer be entitled to the exemption unless any of the following life events occur within a continuous period of six years of the individual becoming a foreign resident:
  • either the foreign resident, their spouse, or their child who was under 18 years of age, has a terminal medical condition
  • their spouse, or their child who was under 18 years of age at the time of their death, dies
  • the CGT event involves the distribution of assets between the foreign resident and their spouse because of their divorce, separation or similar maintenance agreements.
• for properties acquired at or after 7:30 pm (AEST) 9 May 2017, the CGT main residence exemption will no longer apply to disposals from that date unless certain life events (listed above) occur within a continuous period of six years of the individual becoming a foreign resident.

Administrative treatment

The ATO will accept tax returns as lodged during the period up until the proposed law change is passed by parliament. Past year assessments will not be reviewed until the outcome of the proposed amendment is known.

After the new law is enacted, taxpayers will need to review their positions:

• for properties acquired from 7.30 pm (AEST) on 9 May 2017 — back to the 2016/17 income year, and
• for properties held from 7.30 pm (AEST) on 9 May 2017 and disposed after 30 June 2020 — back to the 2020/21 income year.

Taxpayers who have lodged their tax return in accordance with the changes do not need to do anything more. Those taxpayers who did not return their capital gain will need to seek amendments and obtain or reconstruct records to support any costs associated with the property.

No tax shortfall penalties will be applied 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.