“The Liberals have botched this from the very start and so it will be up to [an] incoming Labor government to work through outstanding tax measures and iron out any unintended consequences,” shadow treasurer Chris Bowen told The Australian Financial Review.
“This process is just one of many instances where the Coalition has bungled housing policy. Labor meanwhile has listened to the concerns of the expat Australians.
“I wrote to Scott Morrison last year about the matter and we have also relayed our concerns to Josh Frydenberg. We have flagged issues like retrospectivity as matters we would be willing to discuss further,” Mr Bowen added.
Answering questions from South Australian independent senator Tim Storer, Finance Minister Mathias Cormann said this week the bill would be considered among the government’s priorities for the last few days of Parliament.
“We’ll deal with it as soon as we can … obviously we’ll try to do as much as we can in those two sitting days,” Senator Cormann said.
Senator Storer asked if the government would reconsider its plans for the crackdown, or delay the start date. “You are asking me to get ahead of ourselves. We’ll make decisions in an orderly fashion,” Senator Cormann said.
New York-based expat Marcus Johnston bought his one-bedroom apartment at 4/85 Boundary Street in the inner Sydney suburb of Darlinghurst in 2012 and lived in it for more than a year before getting a job in Manhattan.
But now as he approaches his six-year CGT exemption period, he’s jumped into action and listed the property for sale, through Belle Property, aware that he will be slugged a lot more in tax if he sells after the new rules take effect.
“It seems the amendment was brought in to help Australians get into the market, but it’s not protecting me and I’m Australian, so it’s doing the opposite effect,” Mr Johnston said.
“The catch is the amendment hasn’t been passed yet but no one can wait for it to be passed because it takes time to sell a home,” he added.
Under the current rules, if Mr Johnston sells his Sydney property within the six-year exemption period, he will pay no capital gains tax. If he sells a year after his exemption period expires, he would pay one year’s worth of capital gains tax.
Under the proposed rules, there would be no exemption and Mr Johnston would incur a tax bill on the increased value of the home over the entire ownership of the property, which is approaching seven years.
The proposed rules are causing the biggest stir at the top end of the market with expats selling their homes, many in Sydney’s eastern suburbs, to avoid potentially hefty tax bills, agents say.
“I’m selling one right now and I sold a few last year, for expats living in Singapore, London and Hong Kong, and that’s because they were worried about changes to capital gains tax in July,” Alexander Phillips, of Phillips Pantzer Donnelley, said.
Managing director of Sydney Sotheby’s International Realty Michael Pallier said a lot of people were talking about the potential changes to capital gains tax for expats as well as the unknown around negative gearing.
“We have a home coming onto the market because the family is moving to the UK and they were very uncertain as to whether they should sell or not. But the thing that tipped them over was the threat of the capital gains tax that would be imposed upon them,” Mr Pallier said.
“It’s also affecting buyers’ confidence – with a state and federal election very close to each other, right now is the most uncertain time we’ve had in a long time.”
Robyn Jacobson, senior tax trainer at TaxBanter, said while Treasury was trying to keep the rules simple to avoid excess record keeping, the proposed changes to capital gains taxes would have the opposite effect.
“If they pass the rules as they currently stand, every single homeowner in Australia would have to keep detailed records of buying their home and maintaining it – interest on mortgages, insurances premiums and council rates – in case they happen to become a non-resident and they have to sell their home,” Ms Jacobson said.
To make the rules more equitable for expats, Ms Jacobson said home owners should only be taxed on the period during which they are a non-resident.
“They should pro-rate the days, so if someone lives in Australia for 30 years as a resident and then move overseas and five years later they sell the property, I’m proposing that out of the 35-year ownership period, the 30 years as a resident should be subject to main residency exemption and five years as a non-resident should be taxable,” Ms Jacobson said.
“They should also pro-rate the capital gain based on value, so any capital gain that’s accrued from when you bought it to when you go overseas is exempt from capital gains and once you become a non-resident any value you accrue to when you sell would be taxable,” she added.
With Tom McIlroy