Draft legislation changes for foreign investors revealed

At a glance, foreign investors were essentially treated as Australian residents when it came to exemptions, but proposed changes to the law will mean that those various exemptions will not be available to foreign residents.

This means:

• Foreign residents would not be entitled to the main residence exemption;
• Trustees of deceased estates are not entitled to the main residence exemption of ownership interest in a property of a deceased individual if the deceased individual was a foreign resident at the time of death;
• Deceased individuals have to be an Australian resident, otherwise no exemptions regarding beneficiaries of deceased estates are available;
• Trustees of a special disability trust are not entitled to main residence exemptions regarding ownership interest in property if the principal beneficiary was a foreign resident when the property undergoes a CGT event;
• Trustees of a special disability trust are not entitled to main residence exemptions regarding ownership interest in a property if the principal beneficiary was a foreign resident at the time of death;
• Beneficiaries who are bequeathed ownership interest in a main residence at the time of death of a principal beneficiary of a special disability trust is not entitled to a main residence exemption if the principal beneficiary was a foreign resident at the time of death.

The principal asset test is also set to change, where if foreign residents hold membership interest in another entity, membership interest is treated as two assets: a TARP asset and a non-TARP asset. The market value of the TARP asset will be considered as nil, however, if the total participation interests held by the holding entity’s and its associates in the other entity is less than 10 per cent.

In a joint media release between Treasurer Scott Morison and Assistant Minister to the Treasurer Michael Sukkar,  these changes were stated to be a part of a package which has been estimate to contribute $600 million towards Australia's economy.

If successful, the legislation will come into effect from 9 May 2017. Foreign investors who already hold property can continue to claim the main residence CGT until 30 June 2019.

The consultation period is open until 15 August and is accepting submissions electronically via the Treasury website and by mail.