Expat LifeTravel

Expats could face large capital gains tax bills under proposed laws

By October 18, 2018 No Comments


October 18, 2018 13:37:16

It was flagged as a housing affordability measure that was set to hit foreigners and raise $581 million.

But the Federal Government’s May 2017 budget announcement to deny the main residence exemption for Australians who sell their homes while living abroad has some expats worried.

The change, if passed, could hit Australian citizens living overseas for work or family reasons, if they sell their home while living abroad.

Michelle Cooke, 42, is one of them, and she breaks down crying over the prospect of having to sell her family home, and forcing her tenants out.

The sixth-generation Australian and her husband, Peter, 59, moved to New Zealand in May last year so that she could take up a senior role with a NZ-listed company.

She had intended to return to Australia in a few years, but now she and her partner may have to sell their Parramatta, Sydney, home if the proposed laws pass. The couple purchased their home in 2004.

“I am an Australian citizen — I am not a foreigner,” Ms Cooke tells ABC News.

“It is a discrimination against expats. It is a lie to say it is targeting foreigners.

“The Government has introduced this under [the impression it is about] housing affordability and making people pay their fair share.”

Tax bills could date back 30 years

Ms Cooke’s biggest gripe is that the legislation is retrospective.

For decades Australians living abroad have been able to claim the capital gains tax (CGT) exemption on the family home. This exemption is available, so long as the home was rented out for no more than six years at a time.

Now, he or she would be hit with capital gains tax — regardless of whether the home is rented out or left vacant — and the tax bill would date back from the time the owner purchased their home, not the point at which they moved overseas.

For a family who purchased in the late 80s — the CGT main residence exemption dates back to September 20, 1985 — that could mean a very hefty tax bill.

Ms Cooke said it runs contrary to the Coalition previously voting against other laws that were retrospective.

“Now they’re saying, ‘we are just going to change the law to suit ourselves’,” Ms Cooke said.

Labor calls for tweaks to legislation

Treasurer Josh Frydenberg said there were grandfathering provisions that allow people to sell by June 30 next year.

“There are no changes for Australian tax residents, they can still access the main residence exemption in full,” he said.

“This measure will apply only to property sales following the announcement of this measure in May 2017, and following a two-year grandfathering period if the property was purchased prior to the announcement.”

Shadow Treasurer Chris Bowen wrote to Scott Morrison when Mr Morrison was Treasurer saying that, while he supported the measure in principle, he was concerned about the “unintended consequences” it would have on expats, because of the retrospectivity.

A spokesman for Mr Bowen said Labor was considering amendments to the legislation when it returns to the Senate.

The Opposition, he said, was in discussions with the Government about it and is “keen to ensure expats aren’t penalised and paying CGT on that period of time they’re still in the country — basically along the lines of what stakeholders have been putting forward”.

Treasury figures estimate that Australians received about $74 billion worth of tax concessions on the family home last financial year — that was about double the defence budget for the year.

That is why both major parties are trying to claw back the billions spent on capital gains tax breaks and other housing tax concessions, but in different ways.

Labor has previously proposed to limit negative gearing to new rental dwellings and to halve the CGT tax discount from the current 50 per cent to 25 per cent.

Mark Hemphill, head of school at the Australian International School in Hong Kong, in a letter to former prime minister Malcolm Turnbull had also asked the Government to reconsider its policy that may hit expats, saying the proposed change would make it hard for the school to attract Australian teachers and students, and could lead to its demise.

“We are proudly an Australian school, but if we cannot staff our school with Australian teachers, who have expertise in this area, then we are essentially not an Australian school,” he said in the letter.

He said families of students at the school were also worried.

“We may lose enrolments and the viability of our school’s existence would be jeopardised,” Mr Hemphill said.

Aussies may never return

Graeme Halperin, a Melbourne tax barrister, knows of other expats who are now considering selling their homes and never returning.

“Our emissaries are Aussie expats,” he said. “So why are we discriminating against them? Why must they pay the price of taxing their family homes; homes they may have lived in for many years, perhaps 30 years?”

Robyn Jacobson, senior tax trainer at TaxBanter, a national tax training provider, is concerned it will stop skilled Australians from eventually returning.

“We’re talking engineers, academics, teachers, professionals — we are not talking about millionaires who are swanning about on yachts in the Mediterranean,” Ms Jacobson said.

“We are trying to encourage people to go overseas skill up, and come back to Australia, not to discourage them.”

She said while it was reasonable for the Government to form a policy that a non-resident is not entitled to the exemption, the problem was the measure was retrospective.

CPA Australia’s head of external affairs Paul Drum also hopes the proposed measure will be amended to remove its retrospective application to Aussie expats.

He said there were many options, but a simple one would be to make the new rules only apply properties acquired on or after May 9, 2017, when the measure was announced.

“Ordinary Australians who are living abroad for personal or business reasons bear the greatest risk — and the financial consequences could be quite dramatic for them,” he added.

No records kept

Ms Cooke said the other problem with the proposed law — if Australians living overseas choose not to sell their home — is the onerous documentation involved.

Under current law, where the property is bought after August 20, 1991, the owner can reduce the capital gain tax they owe if they can prove there were expenses in owning the property, such as interest on mortgages, insurance premiums, council rates and repair or renovation costs.

However, the paperwork to prove it is often not kept, especially decades on. That, Ms Cooke said, is why she would have to sell up.

“Every accountant has said, we think you should sell [if the legislation passes],” Ms Cooke said.

“We didn’t calculate what the interest payments have been over that time.

“We don’t have any records that allow us to prove how much we’ve spent on our property so that we can reduce the CGT.”

Ms Cooke said, if the couple are forced to sell the family home, they will never return.

“It’s the worst thing for Australia,” Ms Cooke said, adding that the past year had been “extremely stressful” for her because of the uncertainty.

“If I sell I won’t come back,” she said.

“It’s one less future taxpayer. But, also, the burden of looking after my parents if they fall ill in future goes back on the taxpayer.”






First posted

October 18, 2018 09:57:46

Original post: Source link