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Policy confusion leads to unreasonable denial of main residence exemption

Publication date: 28 Nov 19 | Source: THE TAX INSTITUTE

SYDNEY, 26 November 2019:

Current legislation before Parliament will deny Australian citizens the CGT main residence exemption while they are living and working overseas and not Australian tax residents.

“There is no legitimate policy reason for denying Australian citizens the CGT main residence exemption in these circumstances,” said The Tax Institute’s Senior Tax Counsel, Professor Bob Deutsch.

“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,” said Professor Bob Deutsch.

“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,” said Professor Deutsch. For example, apportionment would be consistent with the current tax treatment of a property that ceases to be a main residence and is used as a rental property.

The Tax Institute has previously lodged submissions objecting to these measures and proposing this solution.

We have recently heard concerns about Australia missing out on revenue that other countries may be able to capture.

“If this potential loss of revenue is considered to be the fly in the ointment, this should have been raised during the consultation phase. 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?”, asked Professor Deutsch.