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Surge in listings of high-end homes tipped as Australian expats are forced to sell

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It’s crunch time for Australian expatriates residing abroad who own property in Melbourne. They’re set to be hit by new Capital Gains Tax (CGT) changes after Federal Parliament voted in new laws which abolish CGT exemptions for expats living overseas.

Since the 1980s, Australia’s expat community has benefited from tax legislation which allows Aussies living abroad to sell their home back in Australia without having to pay CGT. This rule applied so long as the property was not rented out for more than six years in a row.

But most expats will no longer benefit from the existing primary residence exemption if they do not sell the property before the Australian Government’s 30 June 2020 deadline.

The new legislation, proposed by Assistant Treasurer Michael Sukkar last November, was voted into law on 5 December 2019 and is set to be introduced immediately, however, some provisions are provided. 

The rule change was originally proposed during the 2017-18 budget and is being promoted as a way of bringing in $581 million in extra taxes. The coalition government postponed its implementation following a backlash from the expat community. But the issue was put back on the table following the 2019 national election, which returned a Liberal/National majority..

What do the changes mean for Melbourne’s property market? For one thing, listings of higher-end homes in the inner-city and the northern and eastern suburbs, owned by expats and currently rented out, could spike up sharply, creating opportunities for the many prospective trade-up buyers who are now active buyers.

But the really critical problem for expat property owners is that many are not aware of the upcoming changes.

Because the new bill has been implemented quickly, tax experts and wealth managers fear that thousands of Australian expats living abroad will not be aware of the proposed changes. It is estimated that around 100,000 expats currently live overseas.

So, if you have a relative or a friend who’s working overseas and owns property here, alert them to the new rules.

Nelson Alexander’s sales team undertake regular training sessions that fully cover legislative changes affecting the residential real estate market. If you’re keen to maximise the return on a property but dispose of the asset quickly, the company’s sales team can draw on a range of strategies, including tapping into an extensive database of qualified buyers to conduct a successful off-market transaction and running a rapid-fire, three-week auction campaign providing widespread exposure of a home.

Shane Oliver, chief economist at AMP Capital, says there is little doubt the recent move will push up listings of quality family homes in inner Melbourne.

“These changes will most probably affect the middle and upper end,” he says. “I don’t think it will affect the lower end. But it could lead to an increase in the amount of stock on the market in areas that are lacking at the moment.

“It will definitely encourage people to sell. People who might not otherwise have sold their property might now decide to sell, which will increase the supply of property.”

Because the legislation was set to be introduced back in 2017-18 before being postponed, expatriates may be operating under the belief that the legislation is dead and the six-year absence rule still applies, This could leave them with an unforeseen hefty tax bill when they come to sell their property.

Under the previous tax regime, expats could benefit from the six-year temporary absence rule which allowed property owners to continue treating their Australian residence as their primary residence for up to six years. This would reduce the amount of capital gains tax due on the property.

But the new rules eliminate the six-year temporary absence rule which means expats residing abroad can no longer treat their Australian home as their primary residence. From July 1, any expat living abroad will automatically have their Australian home treated as a second property, with CGT due from the date the property was purchased.

For some expats, this could mean paying 20 per cent of the value of their home in CGT, if it is sold after June 30.

H&R Block tax expert Mark Chapman recently told News.com.au, “Expatriates literally won’t get the exemption at all, no matter how long they’ve owned the house, no matter how long they’ve lived in it as their main residence. But now the government has decided to bring it back again, so this is just creating even more confusion for foreign residents who have a main residence here.”

In response, Assistant Treasurer Michael Sukkar told The Australian Financial Review that grandfathering rights will apply to properties bought before 9 May 2017. This will enable expats to continue benefiting from the existing primary residence exemption so long as they sell the property before the 30 June 2020 deadline.

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