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Hi we are thinking about moving abroad this year with a trial period beforehand, and plan to sell our PPOR (ownership is joint tenants) as a precaution.
The purchase price was $525,000 and sale price will be approximately $1m.
Our original idea was for my wife to transit first with the children and start setting up, although will stay with her parents there until I move over. I will remain here and finalise some renovations, market and sell the property before I move abroad. I would estimate a period of 2 or 3 months at most, as this is a high demand area.
My query is about her status as non-resident for tax purpose and what we would need to do to ensure she does not lose the main residence CGT exemption on her part of the property.
There are grey areas such as:
- Is that even relevant if I remain resident here until sold, even though she is joint tenant?
- If she doesn’t start work abroad, will this help her to maintain tax residency here?
- Likewise if she has an Australian based remote job will this secure her tax residency?
- If she travels back so she is in Australia on the date of contract signing, does this have any impact?
- Can she simply declare that this 3 month period there was no intent to move permanently, and as such remains resident here until the sale date?
- Will things such as moving furniture across before the sale date have any impact on the ATOs interpretation?
Thank you very much.
Answer
Short answer – Don’t risk it, the tax consequences are too great and the ATO has easy data matching.
You don’t mention which country you are immigrating to so all I can give you is the link to our double tax agreements. https://treasury.gov.au/tax-treaties/income-tax-treaties They usually contain a tie breaker for residency if required but I think your situation is pretty straight forward. At the time your family relocates with the intention of staying they and possibly you become non residents of Australia for tax purposes. Even if you successfully argue you did not become a non resident when they left that will only protect your half of the house so still not worth the tax consequences of not selling until after they leave.
What the ATO will be looking at is their recent ruling on residency TR 2023/1 https://www.ato.gov.au/law/view/document?docid=TXR/TR20231/NAT/ATO/00001
Examples 6, 7 and 8 are worth reading first then go back to the start of the ruling and work through the concepts. That is if you want to argue your case, I think you are caught as non residents. Bare in mind that this ruling talks most of the time as if you have come to Australia from overseas you will have to look at it in reverse. Key concepts are you can become a non resident of Australia once you are located in another country with the intention of living there, from the time you depart Australia, even if you do come back to visit. Further, it is unlikely for spouses to be considered to have a different place of residency to their spouse and children. So you might both be caught as non residents. I am taking an uncharacteristic conservative approach here because the consequences are not worth the risk and the ATO will be able to easily see what is going on. Further to sell a property worth more than $750,000 you need a clearance certificate from the ATO or the purchaser will have to withhold part of the purchase price and send it to the ATO. If you think, after reading TR 2023/1, that you have an argument that you and your spouse are still residents for tax purposes after your spouse and children leave the country complete with furniture to set up a home, then I strongly advise you get an ATO ruling first. I think your argument would have to be along the lines of when your family went overseas they did not intend to stay there and there was a change of circumstances that made them stay. From what you say that does not appear to be the case. Have a read of the ruling maybe there is something else peculiar to your circumstances that may apply.
Also note that it is the date of signing the contract that you need to be a resident but of course if that contract falls through and you are overseas already, you have blown it on the next contract you sign. Just being back in Australia is not enough, as you will see from TR 2023/1, you would need to re establish yourself in Australia.
It sounds like you are well aware that selling the property while you are a non resident will completely lose your main residence exemption so you will be taxed on all the gain at non resident tax rates with no 50% CGT discount for the period you were a non resident. The only comfort would be that section 110-25(4) ITAA 1997 will allow you to increase your cost base by all the holding costs on the property that have not otherwise been claimed as a tax deduction. This would include interest, rates, insurance, repairs and maintenance. Maintenance will even include cleaning materials and mowing costs.
Consider that the increase in value of renovating the property maybe less than the cost of the renovation plus the CGT on selling after your departure. I have no doubt a fresh reno will increase the selling price but a higher price also decreases the amount of people who can afford to buy. Buying a doer upper at least allows the purchaser to make changes to their taste.
I don’t envy your choice this new law puts people in a terrible position of having to sell up and incur all the associated costs only to probably eventually return to Australia and pay stamp duty etc to buy again. Do you eventually intend returning to Australia? Do you think it might be better to hold it as a rental before you do it up and renovate when you return? You are allowed to cover it with your main residence exemption for up to 6 years while it is a rental and you are overseas, just as long as you are an Australian resident when you sell. Further, you can choose to contribute the net rent to super so you are not taxed in Australia, though you will need to prepare an Australian tax return and the rent may well be taxed in your new country of residence. Detail – the super contribution will be taxed at 15% going in and you each have a cap of $27,500 a year.
I hope the explanation above and ruling give you the details on the grey areas you listed. Here is a direct answer to those questions:
- Is that even relevant if I remain resident here until sold, even though she is joint tenant? At best it will only protect your half our half but I think your spouse and children being overseas residents (ie moved there with the intention of staying) could mean you are a non resident too.
- If she doesn’t start work abroad, will this help her to maintain tax residency here? Not enough, she is there with the intention of staying. She becomes a non resident at the time she arrives in the country with the intention of taking up residency.
- Likewise if she has an Australian based remote job will this secure her tax residency? Not enough, as TR 2023/1 does not consider this relevant if the work does not require being located in a country.
- If she travels back so she is in Australia on the date of contract signing, does this have any impact? No, she has to come back with the intention of taking up residency again ie bring the kids and furniture back establish herself in Australia as discussed.
- Can she simply declare that this 3 month period there was no intent to move permanently, and as such remains resident here until the sale date? It is no enough to declare, it is her intentions as shown by her actions, a question of fact and the onus of proof is on her.
- Will things such as moving furniture across before the sale date have any impact on the ATOs interpretation? I think this will show intention.
