As we approach the Australian federal election, which is expected to be held in May 2019, significant uncertainty exists surrounding the ability for foreign or non-resident taxpayers to claim the capital gains tax (CGT) main residence exemption for properties they own in Australia.
What is main residence exemption?
The main residence exemption allows taxpayers who have nominated a particular residential property as their main residence to sell their property without incurring CGT. This has historically applied to non-residents who, at some stage, have lived in a residential property and have continued to nominate that property as their main residence, despite actually residing overseas.
Why remove the exemption?
The coalition government announced in the 2017 federal budget that, as part of a commitment to make housing more affordable, they will remove the main residence exemption for non-residents. The measure was proposed to apply from 9 May 2017 (being the date the Federal Budget was handed down). However, a concession was proposed for holders of existing properties, so that the main residence exemption could still apply to non-residents who sold their property on or before 30 June 2019.
To give effect to the measure, the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018 was introduced into the House of Representatives on 8 February 2018. The Bill was passed by the House on 1 March 2018. In voting for the Bill, the Labor opposition did note that, while they supported the measure, they did not see the measure doing enough to address the affordability issue.
The Bill was referred by the Senate to the Senate Standing Committee on Economics for consideration. The Committee reported on 23 March 2018 that it supported the policy of the Bill in addressing housing affordability but had reservations around the retrospective application of the legislation back to 9 May 2017.
The Bill has now been before the Senate since it was introduced on 19 March 2018. In the time since, it has appeared on the parliamentary program for debate in the Senate but, as time has progressed, it has moved further down the government’s order of business for the Senate. The Senate sat again on 12 February to 14 February and the Bill did not appear on the parliamentary program for this sitting.
Expectations as we look forward
As we look ahead, the Senate will sit again on 2 April and 3 April, but this will be the time that the government hands down the 2019 federal budget. We expect the Senate to be focussed on the budget on these sitting days.
There are four more sitting days for the Senate from 13 May to 16 May, however, with the federal election required to be held no later than 18 May, the expectation is that the election will be called before these sitting days and parliament will rise such that the Senate will not sit on these days. It is therefore quite probable that the Bill will not be passed before the election is announced and, with Parliament rising, the Bill would lapse.
The likely impact for property owners
The proposed deadline for the removal of the main residence exemption for non-residents is 30 June 2019 and fast approaching, creating significant uncertainty for property owners and their advisors.
The advice to taxpayers to date has generally been to sell properties prior to 30 June 2019. In the event that the Bill is re-introduced in the next parliament, there could be an expectation that the 30 June 2019 date could be pushed back due to the delay in the legislation. Alternatively, the Bill may never be re-introduced if there is a change of government. Or the Bill may be re-introduced as currently drafted, with the message that property owners have had long enough to meet the 30 June 2019 date.
Of note is that Labor voted for the Bill but with the political message that they thought the measure in isolation was not going to appropriately address the housing affordability issue. If Labor assumes government at the election, they could strip the affordability issue back to its core and bring a number of measures to the new parliament (which may or may not include the main residence measure).
Bentleys is of the view that this political uncertainty is not acceptable for taxpayers when having to make a decision on what to do with one of their most significant financial assets.
Bentleys therefore calls upon both the Federal Government and the Opposition to announce their intentions with respect to this Bill, to provide clarity for property owners and enable them to make informed decisions within whatever specific deadlines exist.
Talk with your local Bentleys advisor to learn more about what the 2019 federal budget might mean for you and your business. Contact us.