Chorus of disapproval as CGT deadline looms
Australians overseas who have not sold their family homes by 30 June will be hit with capital gains tax. We speak to industry experts and those affected by the changes and identified some strategies that could still be put in place.
The SMATS Group has joined a growing chorus of opponents to capital gains tax (CGT) changes that will have a detrimental impact on Australian expatriates from 30 June.
Australian property owners living overseas have until the end of June to sell their homes if they want to avoid onerous capital gains tax bills.
The changes, passed in early December last year, eliminate the CGT exemption for Australian expatriates that has been in place since 1985.
But as COVID-19 makes it an increasingly difficult and financially inopportune time to sell, ahead of the looming June deadline, pressure is growing for the Australian government to extend its deadline.
Under the legislation, Australians overseas who have not sold their family homes by 30 June will be hit with capital gains tax — regardless of whether the home was rented out or left vacant. The tax bill will date back from the time the owner purchased their home, not the point at which they moved overseas.
For someone who purchased in the late 1980s, that could mean a hefty tax bill.
The bill was vigorously opposed by SMATS Group, in association with Austcham Hong Kong, who successfully argued that this would be harsh on expatriates, especially when they were forced to sell the property for unexpected reasons such as death or divorce.
Steve Douglas, Executive Chairman of SMATS Group, said in the lead up to the 2019 Federal Election the old legislation lapsed on the back of both parties conceding it was unfair to expatriates.
“Unfortunately, the new Morrison Liberal Government has now introduced and passed amended legislation in December 2019 that offers some concessions for so-called life events but still harshly impacts expatriates that may sell a former residence while living abroad,” Mr Douglas said.
“It’s a very unfair change.
“We’ve been lobbying the Government hard to try and push that June deadline back a year or two later or when this COVID-19 mess passes, which could even be longer.
“It was difficult to get it deferred last time and may require a small miracle for us to win a delay this time,” he said.
For Clare Spencer*, a married Australian expatriate living in Singapore, having ownership of their original Sydney residence and a separate investment property meant their hand was forced.
“The CGT change impacted us negatively, as when we evaluated our situation we realised we had to bring forward the sale of our first property by a number of years because it no longer made financial sense to keep it,” Ms Spencer said.
Ms Spencer argued that the time from the change becoming legislation to the looming enforcement was too short, especially given the fact the target group reside overseas.
“A property asset takes longer to dispose of as it follows certain cycles,” she said.
“I don’t believe the reforms are fair for several reasons, with the first being the CGT should be calculated from when the legislation came into effect, that is 2019, and not right back to the purchase date.
“It also unfairly targets people who are using property as a means of supporting themselves through retirement.”
COVID-19 only complicated matters.
“It did make the sale more difficult.
“Everything was managed remotely and with the uncertainty of employment, obtaining finance and all the other factors at play, it was very difficult to find potential buyers.”
Watch Steve Douglas discuss the changes with the Australian and New Zealand Chamber of Commerce in Japan and answer questions about individual circumstances and strategies.
Mr Douglas said there were strategies that could still be put in place, and that those affected should seek professional advice.
“If you need to access cash from property for a future purpose you might want to consider whether you can access that equity through finance, as opposed to sale, particularly if that sale is going to trigger capital gains tax or other issues soon after the June deadline,” he said.
“Borrowing against that money and having that available might end up being more advantageous than selling and paying more tax.
“So there are other opportunities to access the wealth in the property as opposed to selling and you certainly would be encouraged to do that, especially now that interest rates have gone down to historic lows.”
Voices of protest
In a blog that was reported on by the ABC, the Tax Institute's senior tax counsel Bob Deutsch called the changes an "outrageous piece of legislation".
"No one knows how many people are likely to be affected by these draconian measures, but it will certainly be in the thousands," he wrote.
"If we are genuine in wanting to build an agile, innovative workforce we have to do better than this."
Atlas Wealth Management managing director Brett Evans said a high number of Australian expats would get caught out because many won't be aware the previous six-year temporary absence rule was no longer applicable.
*Surname changed for privacy purposes