Whether you have lived in Australia for a short or long time, you may have purchased a home here. Given new opportunities to access the global market brought about by the nexus of fresh connectivity technology and increasingly open markets, you might also have had the chance to move your business activity overseas, and so move overseas yourself.
What happens to the taxes you pay on your Australian property if you do decide to move overseas?
This has been a contentious issue of late, in particular in regards to capital gains tax and selling your Australian property. A CGT discount applies if you are an Australian resident for tax purposes. This means many Australians who live or work overseas can sell their home in Australia and take this discount into account.
However, uncertainty has arisen over the definition of ‘Australian resident for tax purposes’ in regards to CGT. Many expats are suddenly unsure if they will be considered non-residents, and so be hit with the considerable CGT payment should they decide to sell their home in Australia.
This uncertainty stems from proposed changes to CGT applicability put forward by the Australian government since 2017. The ‘six-year absence’ rule was to be overturned. You would no longer have remained exempt from paying CGT on the sale of your home if that sale occurred within 6 years of your moving out of Australia. Under the proposed rule changes, if you move overseas and rent out your family home, and then decide to sell your home back in Australia while still overseas, you will need to pay CGT on the proceeds of the sale. Even if you decide to move back to Australia within six years, you will not be considered an Australian resident and benefit from the CGT exemption unless you also pay your tax in Australia. This means those who have moved overseas and pay tax overseas cannot come back to Australia temporarily simply to sell their home and receive the CGT exemption.
The new rules were to come into effect from 1 July 2019. However, since many Australian expats would be hit hard by this new ruling, there has been considerable opposition to this proposal. And the government has responded by wavering.
Paying the CGT on the sale of your home obviously has a big impact on whether or not you sell and the financial benefit you may receive from the sale. It becomes increasingly complex when you consider the impact on beneficiaries of expats who pass away overseas or sales driven by divorce settlements. The draft legislation did not provide any pro-rating or apportionment for the part of the gain accrued while a tax resident.
It becomes an even more complex issue for Australian business owners who live overseas. You will need to consider the impact of the CGT on the sale of your home in Australia with the benefits of your tax status overseas and the overall balance of the tax status of your business operation , both here and overseas. And 1 July 2019 is not far away at all – how do you take all this into account in such a short space of time, and decide how the sale of your home might impact your finances overall?
However, the government has wavered. In March, the government indicated that the proposed changes will not go ahead in their current form, and hence the CGT exemption will still apply for Australian expats. Yet the uncertainty over this issue for business owners who live overseas points to the need to find high-level, holistic financial guidance that takes into account a specific issue, such as proposed tax changes to CGT, in light of your overall finances and financial operations in Australia. After all, while expats may breathe a sigh of relief that they can still access the CGT exemption, this does not exclude any new rule changes occurring in the future.
This up-and-down CGT saga highlights the real need for outsourced CFOs. In this climate, where financial complexity can be heightened by the debate surrounding the change in one financial ruling, which can then spiral to impact your overall bottom line, you cannot simply turn to your run-of-the-mill accountant and expect them to manage your books and P&L adroitly. CFOs can keep you on top of the fluctuating world of tax compliance. They can help you plan ahead to find a means for growth and stability in such a climate. Whether it is in regards to expats selling property or tax audit management or R&D grant access or other matters, this is what they have experience in; this is why they are high-end business advisors. And, since hiring an outsourced CFO is not only more popular than ever when doing business in Australia, but also more viable and accessible to small business owners, now is an ideal time to discuss your financial challenges and opportunities with a Virtual CFO.
In particular, Australian business owners who live and work overseas can find great benefit in hiring a virtual CFO to help guide their business finances while also balancing tricky aspects of their personal wealth and tax. This is vital in regards to current uncertainty regarding expats and property tax. A CFO is the key professional who will be able to come up with a clear and coherent plan as to how you can balance the tax demands placed on the sale of your home with the compliance demands placed on your business. They will have access to tax experts to deal with CGT, and will use both your personal and business data and financials to help you see clearly how you can protect your bottom line.
This saga over property tax and expats points to the severe impact one particular rule change can have on individual tax payers and business owners. This impact is all the more strenuous if you live and work overseas. Calibre Business Advisory has a CFO team that can help you remotely and globally. Get in touch below if you want clarity about your business position in Australia and beyond.
Important Disclaimer: Readers should not act solely on the basis of the material on this page. Items herein are general comments only and do not constitute or convey advice. Legislation and proposals of legislation are also subject to constant change. We therefore recommend that formal advice be sought before acting in any of the areas. This news article is issued as a guide to the readers. Calibre Business Advisory Pty Ltd and its associated entities disclaims any losses that may be incurred as a result of the reader undertaking any action based on this article.
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