Foreign resident CGT main residence exemption
The government has introduced Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019 to implement capital gains tax (CGT) measures aimed at improving housing affordability, including the removal of the CGT main residence exemption for foreign residents.
These measures were first announced in the 2017/18 Federal Budget and were contained in a 2018 Bill which lapsed in July 2019. Notably, in the new Bill the measure to remove the CGT main residence exemption for foreign residents has been revised to provide exclusions in certain circumstances. In addition, under transitional rules, the exemption may still be accessible in certain circumstances if the CGT event occurs on or before 30 June 2020.
Schedule 1 to the Bill amends ITAA 1997 to:
- remove the entitlement to the CGT main residence exemption for foreign residents, except where certain life events (terminal medical condition, death, divorce or separation) occur within six years of that individual becoming a foreign resident, and
- modify the foreign resident CGT regime to clarify that, for the purpose of determining whether an entity’s underlying value is principally derived from the taxable Australian real property, the principal asset test is applied on an associate inclusive basis.
These measures apply from 9 May 2017.
Schedule 2 to the Bill will provide investors an additional capital gains discount of up to 10% for gains from ownership interests in a dwelling that is residential premises used to provide affordable housing. With the existing CGT discount of 50%, this means that investors in affordable housing can access a 60% discount on capital gains. The additional discount applies to investments by individuals directly in affordable housing or investments through trusts (other than public unit trusts and superannuation funds), including management investment trusts to the extent the distribution or attribution is to the individual and includes such a capital gain.
This measure applies to capital gains realised by investors from CGT events occurring on or after 1 January 2018 for affordable housing tenancies that start before, on or after 1 January 2018.
Schedule 3 to the Bill enables a reconciliation payment to be made by developers who sell dwellings to foreign persons under a near-new dwelling exemption certificate. Developers will be required to make six monthly payments to the Treasurer (or their delegate, currently the Commissioner of Taxation) under the Foreign Acquisitions and Takeovers Fees Imposition Act 2015. The Foreign Acquisitions and Takeovers Fees Imposition Amendment (Near-new Dwelling Interests) Bill 2019 has also been introduced to make consequential amendments to this Act by imposing the amount of the fee payable by developers.