CGT on a sale of a property- PPOR, non-resident and six year rule

[#1]

Hi,

I am aware of the new rule exempting non-residents from claiming PPOR exemptions if the property is disposed of after 30 June 2020. I intend to remain living overseas for the foreseeable future and I have a few questions as to the tax treatment of a residential property for CGT purposes under various scenarios:

I entered into a contract to acquire a residential property on 1 November 2011 which settled on 1 March 2012, I moved into the property straight away.

I lived in the property as my Primary Place of Residence until 1 March 2015. On this date, I rented the property out to tenants and moved overseas for work.

I have lived overseas and have been a non-resident for tax purposes since 1 March 2015, I have continued to rent the property and filed tax returns as a non-resident since this date. I have not acquired any property in Australia or elsewhere during this period.

I am aware of the new rule exempting non-residents from claiming PPOR exemptions if the property is disposed of after 30 June 2020. I intend to remain living overseas for the foreseeable future.

I have a few questions as to the tax treatment for CGT purposes under various scenarios:

1) Am I correct that the exemption for non-residents is only valid if the CGT event occurs when I am a non-resident? E.g. If i returned permanently to Australia and sold the property I could still claim the PPOR exemption? Or, would any ability to claim this exemption (assuming held for less than 6 years) be impacted by my period of living overseas as a non-resident?

2) Assuming I return to Australia and become a resident for tax purposes again in early 2022, continue to rent the property out and then sell it on  01/07/2022. What would be the percentage (or amount) of the capital gain subject to tax in 2022/2023?

Assumptions

Purchase price on 01/11/2011- $500,000

Market Value on 01/03/2015- $650,000

Sale price on 01/07/2022- $850,000

Annual incoming in 2022/2023- $160,000

(Ignoring any other purchase or sale costs which could affect the cost base)

Using the ATO's Capital gains tax property exemption tool using the above details yielded the following results:

Percentage of capital gain or loss on disposal subject to CGT is 18.1%
Number of days exempt from capital gain tax is 2,194

Does this mean:

a) The Proportion of capital gain assessable is (200,000*0.181)= $36,200. The amount payable is then (36,200*0.45)= $16,290

OR

b) I need to calculate the Capital Gain based on the number of days exceeding the six year exemption rule:

Total Period of ownership	1/03/2012	1/07/2022	3775 days
Six year exemption period	1/03/2015	1/03/2021	2192 days
Period exceeding six years	1/03/2021	1/07/2022	487 days

 Proportion of capital gain assessable is 200,000 x (487/3775)= $25,801

c) With both of the above, can the Proportion of Capital Gain Assessable also be reduced by 50% using the standard CGT Discount method? Or does this not apply to PPOR and/or will it be reduced due to me being a non-resident for part of the period?

Thank you very much, any assistance would be much appreciated.

[#2 · Accepted solution]

@expat1 

(1) Correct.

(2) The total number of days exceeding 6-year absent rule / total number of days owned. (487/3775) = 12.9%

(b) Not sure where $200,000 came from? but yes and then x 50% (owned more than 12 months).

(c) Yes.

[#3]

Thanks very much.

So the ATO capital gains exemption tool is not the right method to use but rather the days based calculation?

The $200,000 comes from the difference between the market price when the property was first rented and the sale price based on applying the ‘home first used to produce income’ rule.

Is the 50% cgt discount or the proportion exceding the 6 year year rule affected at all by me being a non-resident for several years? how is any reduction in discount calculated?

thanks again

[#4]

@expat1 

Being a non-resident will not affect anything until July 1, 2020.

Make sure that you include everything you can to the cost base to reduce the CGT.

https://www.ato.gov.au/General/Capital-gains-tax/Working-out-your-capital-gain-or-loss/Cost-base/Ele...

[#5]

Thank you for your help.

From the info you supplied.

From this and my own reading of the various guidances, after 1 July 2020 I can keep the property until I return to Australia and become a resident. My claim to PPOR will be reduced for any years beyond the six year period, as will the total of the CGT discount I can apply due to years of being a non-resident