Clients affected by changes to the main residence exemption have been urged to be “very careful” when attempting to navigate the transitional provisions, with anti-avoidance rules potentially applying.
Late last year, the government passed changes that would deny non-residents the CGT main residence exemption for CGT events that happen on or after 9 May 2017, subject to an extended 30 June 2020 transitional date.
The transitional rule allows affected taxpayers until 30 June 2020 to sell their homes without being denied the main residence exemption.
Speaking to Accountants Daily, Knowledge Shop tax director Michael Carruthers said the changes are beginning to sink in for accountants and their clients, with many starting to realise how harsh the impacts are.
However, Mr Carruthers believes advisers should tread carefully when it comes to planning arrangements to take advantage of the transitional rule.
“The thing that we’re seeing a fair bit from people who are potentially affected by those changes is contemplating things like transferring their former main residence to a family member to take advantage of the exemption but still hold the property within the family group,” Mr Carruthers said.
“But the government has pointed out that the general anti-avoidance rules could potentially apply to arrangements that are done with the sole or dominant purposes of accessing that exemption.
“If you were planning to genuinely sell it to an unrelated party on the market by 30 June 2020, I think the risk would be lower, but your risk might be much higher if you were transferring it to a related party.”
He added: “You want to be giving some very careful thought as to the risk of those anti-avoidance rules applying — not only could you end up paying a fair bit of tax, but also interest and penalties can be pretty harsh as well. Again, I think people just need to be mindful of being too clever.”
With many clients still catching on to the new changes, Mr Carruthers believes there is still an opportunity to advise clients of the potential impact.
“It’s finally in and now there’s a deadline, so letting clients who are affected by this know what the impact is, how harsh the impact is on them, and also what they need to do to take advantage of the main residence exemption is imperative,” he said.
“That transitional period will come and go very quickly, and property sales can’t necessarily happen overnight. It’s the sort of thing that people need a bit of a lead time to plan and prepare for that.”