Foreign Residents: Is Your Home Still CGT-Exempt?
Whenever you dispose of an asset, capital gains tax (CGT) potentially applies to any gain. Since 2019, the rules changed for one specific and important case: foreign residents selling a home in Australia that would otherwise qualify as their main residence.
What changed
Australian tax residents get a full or partial main residence exemption from CGT when they sell their home, provided it genuinely was their main residence. From 9 May 2017, the government proposed removing this exemption for foreign residents (i.e. non-residents for Australian tax purposes), and the change became law in December 2019. The rule now works like this:
- Properties held before 7:30pm (AEST) on 9 May 2017: these got transitional relief. A foreign resident could still claim the exemption, but only if the property was sold by 30 June 2019. Sales after that date don’t qualify.
- Properties acquired after 7:30pm (AEST) on 9 May 2017: no main residence exemption is available if you’re a foreign resident at the time you sell, regardless of how long you lived in it as your home.
This only affects foreign residents. Australian tax residents and temporary residents are unaffected.
The exception worth knowing
If you were a foreign resident who later moves back to Australia and becomes an Australian tax resident again, you can still claim the exemption (in full or in part) when you eventually sell, even though you spent time as a non-resident in between. Residency status at the time of sale is what matters.
Two examples
Example 1. Amy bought a property in September 2010 and lived in it as her home. In July 2018 she moved overseas to New York, and rented the property out while trying to sell it. She signed a contract of sale in October 2019 while still a foreign resident; the sale settled in November 2019.
Because the contract date (the relevant CGT event date) falls after the 30 June 2019 cut-off, and Amy was a foreign resident at that time, she isn’t entitled to any main residence exemption on this sale. As a foreign resident, her income is also taxed from the first dollar, starting at a 32.5% rate rather than getting the Australian tax-free threshold.
Example 2. Ben bought an apartment in March 2005 and lived in it as his home. He worked overseas from 2010 to 2015 (a foreign resident for that period) and rented the property out while away, then moved back to Australia in 2015 and back into the apartment, becoming an Australian tax resident again.
He signed a contract to sell in October 2020, while an Australian resident. Because he was a resident at the relevant CGT event, he’s entitled to the full main residence exemption. Under the “six-year rule”, the property continued to count as his main residence throughout his time overseas, even though he wasn’t living in it.
If you’re planning to sell a property and your residency status has changed at any point, this is exactly the kind of thing worth checking before you sign a contract, not after. Talk to us and we’ll work through your specific timeline with you.
