Capital Gains Tax changes will mean that Australian expats will be denied the capital gains tax (CGT) main residence concession if they sell their former main residence while living abroad. To date, this stands to affect over 100,000 Australians who currently live and work overseas whilst owning property back home.
The GST tax advisers acknowledge that the Senate committee believes the CGT exemption may provide improved housing outcomes for Australians. However, they believe that there may actually be a counterintuitive reaction from expats as they decide not to sell properties until they return to Australia, creating a ‘lock-in’ effect rather than improving the quantity of housing inventory for sale. In other words; to avoid losing their ‘retirement plan’ to taxes, they will hold onto their property, potentially not selling it for decades, contributing to a lack of housing stock for sale.
In Hong Kong, expatriates have come together in an attempt to create a campaign that would influence the Senate Committee to overturn the proposal. They believe that such a policy will make it difficult for firms, both Australian and international, to employ Australians to work offshore if they have the potential to have life savings wiped as a result of selling their home while not residing in Australia.
It is a concern for expats globally. The proposal could cost many Australians tens, even hundreds, of thousands of dollars each. It potentially places many Australians in an arduous situation; unsure as to what their financial future will hold. Others are considering cutting their international position short to return home, weighing up their financial options.
Tony Kofkin, Managing partner at Kofkin Bond and Co explained: “If the Government proceeds with the proposals as announced, the following scenario is an example of what would apply, and the financial toll it will have, on the average Australian.”
“I was explaining an example to some clients the other day” He continued “They purchased their Melbourne home for $100,000 in 1986 and lived in it as their primary residence, before accepting an international job posting, in 2016. At that time the value had increased to $2.2 million. Whilst overseas they have rented out the property and become foreign residents. If they decided to then sell their property by 2021 assuming the property had increased in value to $2.5 million, they would then stand to pay tax on all of the gains over the entire 35 years, even though they had only been living outside of Australian for the past 5 years.”
Many commentators are recommending that the Government either amend the proposal to include only the gains that have been recognized since the Australian was living abroad or extend the transitional period end date to allow people sufficient time to consider their options.
Hong Kong currently hosts one of the largest concentration of Australians working overseas. This has been incentive enough for the Australian Chamber of Commerce in Hong Kong to lead this global campaign that is encouraging Australian Expats to protest the change.
Chief Executive, Jacinta Redden, has optimistically stated that she is hoping the new treasurer will look upon the proposed changes with fresh eyes, as she believes it’s not too late.
Kofkin is fearful that Australians are going to take a hit, and others even blind sighted, if they are not aware of the proposed changes and hence not giving themselves enough time to prepare sufficiently.
Sue Kench, Global Chief Executive of King and Wood Mallesons, believes the changes to be “wrong on every level.” She is one of the thousands of expats currently residing in Hong Kong. She is concerned that many people will now reconsider the option to move overseas due to the financial hit they may receive.
This new bill, should it pass, would discourage Australian influence on the world stage, something that is seen as being of great importance right now.