If you are a foreign resident for tax purposes when you sell your Australian home, you cannot claim the usual capital gains tax exemption on it. This applies no matter how long you lived in the home. It applies even if you were only a foreign resident for a short time before the sale.  There is no apportionment.

It is an all‑or‑nothing rule. What’s more, your capital gain will not be entitled to the full 50% CGT discount under the current rules; instead, the discount is apportioned based on the period you were an Australian resident. To make matters worse, the gain is taxed at the higher foreign resident tax rates.

Because the home is real property located in Australia, the ATO can readily identify and follow up on the sale through its data‑matching systems, including matching the transaction with details such as your new foreign address.

So, it’s important to get things right if you are going to become a foreign resident and you intend to sell your home. And don’t forget, the time of the sale is when you make the contract of sale (i.e.: exchange contracts) and not when you settle on the sale. However, there are several important exceptions to this rule.

The first involves circumstances where a person has been a foreign resident for less than 6 years and they sell the home because of serious illness or a death in the immediate family (as such “life event” exceptions are strictly defined in the legislation).

There is also another important “life event” exception and that is where there is a marriage or relationship breakdown within 6 years of becoming a foreign resident and the CGT rollover for this relationship breakdown would be available. But even in this case, the exception operates on a narrow basis.

It only applies if one of the spouses’ interests in the home is transferred to the other spouse and, further, this transaction would be entitled to the CGT rollover under the relevant means set out in the legislation.

However, it must be stressed that this exception does not apply if there is a marriage or relationship breakdown and the former home is sold to a third party as part of the settlement of matters. This is simply because the CGT rollover would not apply in this case, as it only applies to appropriate transfer of assets between the spouses – and not to third parties!

So, it’s a big trap to be aware of – especially in circumstances where say a separating spouse leaves the country to start a new life without yet dealing with the former matrimonial home.

 

Conclusion

The foreign resident CGT rules are strict, and the consequences of getting the timing wrong can be significant. With no main‑residence exemption, limited access to the CGT discount, higher foreign resident tax rates and only narrow “life event” exceptions, the risk of an unexpected tax bill is real — particularly where a change in residency or a relationship breakdown is involved. Ensuring the correct residency status at the time of contract, and understanding how the exceptions apply, is essential to avoiding costly mistakes.

If you are planning to move overseas, are unsure how your residency will be assessed, or may need to deal with a property as part of a separation, speak with our experienced team at Regency Partners before taking the next step. We can help you navigate the rules, protect your position and ensure nothing important is overlooked.