Worked Example of Tax on selling your Australian Home While Living Overseas

Question

Estimate CGT on possible sale of a home unit property Sydney used both as main residence and rented.

100% ownership. Owner non-resident since October 2013
Purchase 26 August 1999 $407,000 + stamp duty $20,000 + legals etc $2,000 = $429,000
Possible sale assume March 2025 $1,500,000 less Agent fee $23,000 legal & other $5,000. Net $1,472,000
Main residence from date of purchase 26 August 1999 to date first rented 26 August 2008
Estimated holding costs during main residence time 9 years $68,000
Then rented up to now
Building write-off has been claimed each year but n/a for calculation. Correct?

Answer

There is nothing in your question that would make me think that the building depreciation would not be written back against the cost base. Further if the unit is sold while the owner is living overseas there will be no main residence exemption at all.

This is what the CGT calculation will look like:

Cost base:

Purchase costs and legals etc	$429,000
Holding costs	$68,000
Selling cost	$28,000
	$525,000
Write back bldg. deprn	$100,000
	$425,000
	$1,500,000
Capital gain	$1,075,000 Less 27% discount = $784,750 taxable

This may shock you but it is all because the seller is living overseas when they sell. As a result no main residence exemption at all and no resetting the cost base to market value when first rented out.

Further there is no 50% CGT discount for the period of time the seller was living overseas. This is calculated on a pro rata basis, assume sell 26^th August 2025 to keep it a bit simpler ie 26 years owned

Total days owned 9,496. Total days overseas 1^st Oct 2013 to 26^th August 2025 = 4,348 4348/9496 = 46% of time not entitled to the 50% discount 50% x 54% = 27% CGT discount

Building write off claimed against the rent will have to reduce the cost base because the property was purchased after 13^th May 1997. I have arbitrarily estimated that to be $100,000 for the sake of the exercise above.

Now if all this has got you thinking about getting the seller back residing in Australia, you are probably right. Just make sure they actually come back here to live. Not just for a holiday. Ideally move back into the unit and add to their main residence days. They will still not be entitled to the 50% CGT discount for the period of time they lived overseas but all the main residence concessions would apply. So the CGT calculation would look more like this assuming the market value at 26^th August 2008, when it was first rented out was $600,000 and they did not cover another property with their main residence exemption for 6 years after they moved out. They can be living overseas and use the 6 year rule providing they are living back in Australia when they sell.

Market Value Reset 2008	$600,000
Selling cost	$28,000
	$628,000
Write back bldg. deprn	$100,000
Cost Base	$528,000
Sale Proceeds	$1,500,000
Capital gain taxable	972,000 x 65% = 631,800 less 15% discount = 537,030

Total days owned 26^th August 2008 to 26 August 2025 ie 17 years = 6,209 days

Total days covered by main residence exemption 6years = 2,192

Therefore 2,192/6,209 = 35% of gain exempt

CGT discount Days from 26^th August 2008 to 1^st Oct 2013 = 1,863

Total Ownership day Days from 26^th August 2008 to date of sale 25 August 2025 =6,209

1,863/6,209 percentage of days entitled to 50% CGT discount 30%

Therefore entitled to 30% of the 50% CGT discount = 15% discount

Note I have not taken any main residence days into account once the owner gets back into Australia. You would really want them to be back here for a while so that will improve the figures. It will also increase the percentage of the 50% discount they are entitled to but they will still lose the discount for the days they were a non resident.

Of course a lot depends on the 2008 market value but also consider as back in the country as a resident entitled to the tax free threshold and resident tax rates.

I have attached a spreadsheet that will allow you to do a more accurate what if analysis.

Note if a non resident do not have to pay the 2% Medicare levy. Also consider if a resident and no private health insurance the Medicare Levy surcharge will apply.