Capital Gains Tax Increase !

In September, 1985 the Australian government introduced a new tax term that promised a flood of wealth into government coffers.   The Capital Gains Tax applies when something we bought gains in value during the time it was ours and the government demands a share of this profit when it is sold.

Perhaps we bought some shares when the price was low and with good management that firm became a market leader and the share price rose sharply.  The government declared that profit when it was sold as a " capital gain " and demanded they receive a share of that dividend.   This Capital Gains Tax applied widely across the entire investment spectrum, with the exception of the homes in which we live.

Australians have the right to claim exemption from the CGT for any gain in the value of their primary residence and until now that included those who were living overseas.  From this coming June 30 that changes.   Australians living overseas will be swept up in the CGT and required to pay any capital gain in the price of Australian property, irrespective of how long they haver owned it - and that will apply retrospectively.

According to the latest information available, 182,000 Australians living overseas are registered with the Australian tax office.  An unknown number are Australian property owners but it would be reasonable to assume some own property to which they hope to eventually retire.  Others may be the owners of property bought to house elderly parents and homes in Australia have been leading the world in the rate in which their value has been increasing on a month by month basis.

What is not yet clear is the fine print that applies to any change in government regulations.  The CGT only applies when you sell an asset that has increased in value on the price you originally paid, hence just owning a home in Australia will not have an  affect - until you sell it.

What has yet to be decided is the situation that applies if the Australian living overseas returns and commences to live in that property ?   No doubt that will have definitions that apply and these may be tested in Australian court cases.  No doubt the legal profession will be studying this CGT extension with more than passing interest.

The fact that the CGT has been extended to homes owned by overseas living Australians is something that must worry the rank and file of Australian home owners.  In the past twenty years the rise in Australian home prices has been extraordinary.   The median house price is approaching a million dollars and many long term owners will become millionaires when they sell.

That is a very tempting income source for a government strapped for money.  There is an expectation that eligibility for CGT exemption on the sale of the home we live in may one day face restrictions or have time limitations.  That concept of a tax on the upward movement on investment forms came as a shock when it was introduced in 1985.  It certainly introduced a proviso to the entire concept of investing for profit from that date forward.

It certainly sends a signal that the home ownership defensive tax regime is far from sacrosanct. !