Foreign residents and the main residence exemption

Australian residents can generally disregard a capital gain on their main residence if the relevant conditions are met. Different rules apply where the owner is a foreign resident for Australian tax purposes at the time the property is sold.

In many cases, a foreign resident cannot access the main residence exemption on the sale of an Australian home, even if the property was previously their home for many years. This can produce unexpected CGT outcomes for clients moving overseas or living between jurisdictions.

This update may affect clients who have moved overseas, are considering moving overseas, or may become foreign residents for Australian tax purposes before selling an Australian home.

It may also affect separating couples, executors, expatriates, returning Australians and clients with complex residency arrangements.

The key question is the client's Australian tax residency status at the time of sale. For CGT purposes, the sale time is generally when the contract is entered into, not when settlement occurs.

If the owner is a foreign resident at that time, the main residence exemption may be unavailable unless a limited exception applies. There may also be consequences for the CGT discount, with apportionment required for periods of foreign residency under the current rules.

Limited life event exceptions may apply where the person has been a foreign resident for six years or less and specific events occur, such as serious illness, death or certain relationship breakdown circumstances. These exceptions are narrow and should be checked carefully before relying on them.

Clients planning to move overseas should obtain advice before selling or retaining an Australian home. The review should consider tax residency, expected sale timing, whether a contract may be entered into before or after residency changes, CGT discount availability and whether any exception may apply.

Clients should also keep records of occupancy, ownership, periods of absence, rental use, residency status and major costs forming part of the cost base.

Tax residency and the main residence exemption are fact-specific. A client may be a foreign resident for tax purposes even if they remain an Australian citizen or retain personal ties to Australia. Advice should be obtained before relying on any exemption or exception.

If you are moving overseas, already live overseas, or may sell an Australian home while non-resident, please contact us before signing a contract.