A critical review of the proposed law to remove the main residence exemption for non-residents

The Australian government is in the process of introducing new laws to remove the main residence exemption from income tax on the capital gain for non-resident home owners. This has been initiated on the basis that it will make housing more affordable for resident Australians. The Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No 2) Bill 2018 has serious implications for Australians wanting to work and live in an overseas country and change their residency status from that of Australia. In some cases, Australian residents for taxation purposes need to live and work overseas for employment opportunities or career enhancement, or even to maintain their employment if transferred by their employer. The consequence of changing residency is that the owner’s main residence will be subject to income tax on the capital gain if sold while they live overseas as a non-resident of Australia for taxation purposes. Moreover, if a main residence is sold at a loss, the capital loss may not be disregarded by the former owner. Main residence owners faced with paying income tax on their real property may be deterred from working and living overseas. This paper critically reviews the consequences that flow from this proposed law and what it means for Australian residents for taxation purposes wanting to work or live in another country. The paper will also make recommendations on how the proposed law may be amended so that certain Australian residents who own their own main residence may avoid paying income tax on a capital gain that is exempt for every other person who maintains their Australian residency for taxation purposes.