Due to policy confusion, Australian citizens who are living and working overseas and are not Australian tax residents might be unreasonably denied the capital gains tax (CGT) main residence exemption, The Tax Institute said, even though there is no legitimate policy for doing so.
The Tax Institute’s senior tax counsel, professor Bob Deutsch, said that based on the 2017/18 Budget announcement, most practitioners considered that the underlying policy would only apply to foreign investors and temporary residents.
“No one envisaged that policy would catch an Australian citizen and tax resident of decades in the net and entirely deny them the main residence exemption if they decided to retire, take up tax residency outside Australia and then sell their Australian home,” he said.
“The solution to this problem lies in apportionment. It is the fairest, simplest and the most consistent way to implement the original policy intent in the Budget.”
According to Deutsch, apportionment would be consistent with the current tax treatment of a property that ceased to be a main residence and was used as a rental property.
“If this potential loss of revenue is considered to be the fly in the ointment, this should have been raised during the consultation phase,” Deutsch added.
“We assume that most jurisdictions would only attempt to tax the portion of the gain made by taxpayers while living and working in their country. So, what is the mischief?”