Proposed changes to Capital Gains Tax have the potential to massively impact your tax position as an executive, professional or business owner in mining & resources.
If you are already overseas or are preparing to relocate overseas for work there are wide-ranging tax matters that will need to be addressed before you go and then re-considered once you are domicile in another country. In this article, we focus on proposed CGT legislation and how it may affect you.
This alert may not be relevant for you if you retain tax residency in both Australia and an overseas country. Otherwise, continue reading to find out how the proposal may impact you should it become law on 1 July 2019 and, importantly, what to do about it.
In brief – What is the proposed legislation?
If you are a non-resident or are planning to move overseas and also own property or other ‘taxable Australian assets’ (TAA*) in Australia, you will need to be aware of changes announced in the May 2017 Budget that may take effect from 1 July 2019.
The changes concern removal of the Capital Gains Tax (CGT) and main residence exemption when your main residence or other TAA is sold or transferred during the period when you are a non-resident.
*Taxable Australian assets are shares or other investment style assets owned by non-residents who have made an election for their investments to be treated as TAA when they departed Australia to become non-residents.
What does tax residency have to do with it?
As mentioned, this alert may not be relevant for you if you retain tax residency in both Australia and an overseas country. Determining your tax residency is fundamental and critical when you live and work overseas. It is based on a complex ‘totality of factors’ which will most probably require legal advice as well as advice from your accountant.
It is entirely possible for you to be a non-resident in Australia while living overseas, or a tax resident in both Australia and the country where you are living and working. Your tax residency will determine whether or not the proposed changes to CGT legislation would apply to you.
What are the main rules of the proposed legislation?
The proposed changes concern removal of the Capital Gains Tax (CGT) discount and main residence exemption when your main residence or other TAA is sold or transferred during the period when you are a non-resident of Australia.
Under the proposed changes, an individual’s main residence that was previously CGT free would be subject to tax. Property that has always been investment property would entirely lose the 50% discount regardless of the period of ownership.
The rules were modified in 2012 to quarantine gains made on investment assets prior to 8 May 2012 if the taxpayer was resident in Australia at that time. That concession would also be removed if the proposal becomes law.
Further, if a person dies while on assignment overseas and passes their main residence to their family who are resident in Australia, the property would retain none of its exemptions as a main residence.
Mini Case Study: In 1990, a mining executive purchased a house in Australia. By 2018 the property was valued at over $1 million. If the proposed CGT changes are legislated, the executive may find that selling the property may not provide enough funds for them to clear their debt after they have paid their CGT.
As mentioned, the changes were announced in the May 2017 Budget, to take effect from 1 July 2019. There are transitional rules for properties owned by non-residents and sold before 30 June 2019.
While the changes have not yet come into law, it is important for you to be aware of the huge implications for some taxpayers if they did. In particular, we recommend that you consider the financial and tax implications for any TAA before 30 June 2019 to help you decide whether or not to sell or transfer the asset before that date.
Your next step
When navigating your path through the details of CGT, we strongly recommend you seek professional advice. Your financial adviser will be able to help you work out whether the property or asset is still a good investment; your property advisor will advise on whether selling the property before 30 June 2019 will improve your situation; and your tax accountant will help you determine your tax residency and further tax implications.
Should you need assistance we invite you to contact David or Brenden as we can advise you on this and other matters including business advice and tax matters relating to superannuation, investment property and your Executive Share Scheme offer. Additionally, as contributors to Resources Unearthed, we have direct access to other professional advisors (financial, property, legal, lending/finance, health) who specialise in providing advice for those in mining and resources who are living and working overseas.
Please take a moment now to view/download our strategy paper for mining and resources personnel who live and work overseas.
To find out more, please contact us on +61 (0)7 3007 2000 or firstname.lastname@example.org
Resources Unearthed is a solutions hub that provides integrated financial, legal, property and accounting & business advisory services for executives, professionals and business owners in the mining and resources sectors.
The information contained here is general and not intended to serve as advice. Any information supplied is not a substitute for independent professional advice. We do not warrant the accuracy, reliability, completeness or adequacy of the information or material. All information is subject to change without notice. P+Y Accountants and Business Advisors and each party providing material displayed here disclaim liability to all persons or organisations in relation to any action(s) taken on the basis of currency or accuracy of the information or material, or any loss or damage suffered in connection with that information or material. Users are encouraged to contact P+Y for advice concerning specific matters before making any decision.