Living Overseas? Be careful when selling your Australian property

The federal government’s changes for “foreign investors” will also apply to some Australian citizens who don’t live in the country, with experts warning it expats should “think twice” before selling their home.

by Jennifer Duke for Domain

In 2016, a withholding tax of 10 per cent on the sale of a home to foreign investors was introduced for properties selling at $2 million-plus.

The latest budget papers announced the threshold would be dropped to $750,000 – covering most of Sydney’s houses – and the tax would be increased to 12.5 per cent to improve “the integrity of capital gains tax rules for foreign investors”.

Some Australian citizens living abroad may be impacted by the changes. Illustration: Karl HilzingerSome Australian citizens living abroad may be impacted by the changes. Illustration: Karl Hilzinger

But some expats who do decide to sell their home once they’ve moved overseas will also be required to pay a chunk of their capital gains to the Tax Office when they sell and lose their main residence capital gains tax exemption.

An Australian Taxation Office spokesperson confirmed Australian citizenship did not necessarily preclude expats from being required to pay the foreign investment charges.

“In some cases an Australian citizen who lives outside Australia may not be a resident for Australian tax purposes, particularly if they have been living outside Australia for an extended period,” the spokesperson said.

“In these cases, the Australian citizen may be a foreign investor for the purposes of these provisions and will not be granted a clearance certificate from the ATO if they apply. They will then have tax withheld on the sale of their property.”

An ATO fact sheet says Australians who move overseas and do not set up a permanent home in another country are “generally” Australian residents for tax purposes.

Overseas students enrolled in courses more than six months long at Australian institutions are also seen as residents under this definition.

But citizens who leave the country “permanently” would be considered foreign residents and would be among those whose withholding charges are expected to provide the government $581 million in revenue from 2017/18 to 2020/21.

Australian Bureau of Statistics data shows 9.9 million Australian residents left the country “short-term” in 2016, and there were 448,700 permanent and long-term departures.

A spokesman for Treasury said there was “no separate estimate of the gain to revenue attributable to Australian citizens”.

He said individuals returning to Australia and re-establishing their tax residency “will not be affected” when they sell.

An expat with a $1 million property would only receive $875,000 after the 12.5 per cent withholding rate was paid to the ATO, Richie Muir, legal director of conveyancing company Lawlab, said.

The main residence capital gains tax exemption has also been stopped for foreign and temporary tax residents – though those who held property before the Budget announcement are allowed to claim the exemption until 30 June 2019.

“Changes to the law mean expats need to think twice before selling property in Australia whilst living offshore,” Mr Muir said.

“Sell your home before you leave Australia or after you have returned to keep your principal place of residence CGT exemption.”

Australian citizen Anne Cooke, 40, who moved to New Zealand recently for work, is now worried what these changes mean for her.

Cooke bought her first home in 2004 in Seven Hills with her husband, a New Zealand citizen, for $525,000. Similar properties in her area sell in excess of $1 million.

She fears she could be considered a “foreign investor” in the future, which means she might have to forgo 12.5 per cent of the home’s value.

“We made our decision to move and planned it carefully – there was not a lot of room for financial mistakes,” Ms Cooke said.

She is also faced with an increased land tax charge, announced as part of the NSW budget – which she said they have to pay as her husband does not have Australian citizenship.

“I’m saddened that my government doesn’t really care about me as a citizen,” she said.

Paul Gerrard, an accounting and tax manager for Price Accounting Services, confirmed some expats would be captured by the rules.

“Only a resident taxpayer can obtain a clearance certificate and all others are subject to withholding of up to the 12.5 per cent,” he said.

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