Capital Gains Tax for Foreign Residents

By Nicholas MurraySales Manager – Sales Manager, Murray Property

There is one decision that costs Australian expats more money than every other property decision combined, and most people make it without knowing there was a decision to make.

It is the date you sign the contract to sell your former home.

If you are a foreign resident for tax purposes on that date, you can lose the main residence exemption entirely. Not for the years you were away. For the whole time you owned the property, back to the day you bought it. Two decades of tax-free growth in Darlinghurst, taxed as though the property had always been an investment.

Sign the same contract as an Australian resident and the gain can be exempt.

Same property, same buyer, same price. A different tax outcome measured in hundreds of thousands of dollars.

The rule, plainly

Australia removed the main residence exemption for foreign residents in legislation passed in 2019. It applies to sales from 1 July 2020 onward.

Three things about it catch people out.

It is all or nothing. There is no apportionment. You do not get an exemption for the years you actually lived there and tax on the rest. If you are a foreign resident when the sale happens, the entire gain is taxable, including the growth from the years the property genuinely was your home.

It turns on the contract date, not settlement. The relevant moment is when you enter the contract, not when money changes hands. A six-week settlement gives you no grace period. If you are a foreign resident the day you sign, that is the position.

Your passport does not help. This is the part that surprises people most. Australian citizens and permanent residents are treated exactly the same as anyone else. What matters is tax residency, which is about where you actually live, not what you hold. An Australian citizen who has lived in Singapore for four years is very likely a foreign resident for tax, and the rule applies in full.

If you have not worked out your tax residency yet, start with are you a foreign person? It resolves the three separate tests before you go any further here.

What that looks like in numbers

Take an owner who bought a Darlinghurst apartment in 2021 for $650,000, lived in it, then moved to Singapore in 2021 and rented it out. She sells in 2026 for $1,500,000.

Selling as an Australian resident. The absence rule lets her keep treating the property as her main residence for up to six years while it earns rent. She is inside that window. The gain is exempt. Tax payable: nil.

Selling as a foreign resident. The exemption is gone. The full $850,000 gain is assessable. She also loses the 50% capital gains discount, which foreign residents have not been able to claim since May 2012. The whole gain is taxed at foreign resident rates, which start at 30% from the first dollar with no tax-free threshold. Tax payable: roughly $358,000.*

*Those figures are illustrative and ignore the costs that would properly increase her cost base, stamp duty, legal fees, agent commission, capital improvements. The point is not the exact number. It is that the same sale, weeks apart on either side of a residency change, produces a difference larger than most people’s mortgage.

The life events exception, and why it rarely rescues anyone

There is one way out, and it is narrow by design.

You may still access the exemption if you have been a foreign resident for a continuous period of six years or less, and during that period one of the following happened:

You, your spouse, or your child under 18 had a terminal medical condition
You, your spouse, or your child under 18 died
The sale happened because of a formal property settlement following the breakdown of your marriage or relationship

Both conditions must be met. Six years or less, and a qualifying life event.

Note what this means for anyone who has been away longer. Pass the six-year mark and the exception closes permanently. It does not matter what happens after that, a death or a terminal diagnosis in year seven does not reopen it.

The six years runs continuously from when you became a foreign resident. This is worth knowing if you are approaching that mark and a sale is on your horizon.

The 15% that surprises everyone at settlement

Separate from the tax itself, there is a withholding rule that has caught a great many sellers off guard since it changed.

Since 1 January 2025, foreign resident capital gains withholding applies to every property sale in Australia. The old $750,000 threshold is gone and the rate is 15%.

Here is the part people misread: the 15% is calculated on the sale price, not on your gain.

On a $1,500,000 sale, that is $225,000 withheld at settlement and paid straight to the ATO by the buyer. It applies whether you made a profit, broke even, or sold at a loss. If you were counting on the proceeds to settle a mortgage or fund a purchase somewhere else, that shortfall arrives at the worst possible moment.

The two ways to deal with it

If you are an Australian resident for tax:

Apply for a clearance certificate. It is free, it tells the buyer no withholding is required, and it is the difference between receiving your proceeds and waiting a year for them. Apply as soon as you are thinking about selling . the ATO says most are issued within days but some take up to 28. The certificate is valid for 12 months, so applying early costs nothing.

If you are an Australian resident for tax:

Three ways this goes wrong

Applying too late. Twenty-eight days is longer than many settlements. Miss it and the withholding happens regardless.

Names that do not match. The name on the certificate must match the certificate of title exactly. A married name, a middle initial, a spelling variation, any mismatch and the buyer must withhold at the full rate. Check the title before you apply, not after.

Selling above your variation cap. A variation notice specifies a maximum sale price. If your variation was based on $1.4 million and the property sells for $1.5 million, the variation is void and the full 15% is withheld. In a strong market that is a real risk, and it argues for building headroom into the figure.

You do get it back

The withheld amount is not a final tax. It is a credit against your actual liability, claimed when you lodge an Australian tax return. If too much was withheld you are refunded the difference.

The catch is timing. You may be waiting until after the following 30 June to lodge, then longer for processing. That is potentially a year with a six-figure sum sitting with the ATO rather than in your account. You will need an Australian tax file number to lodge, so sort that out early if you do not have one.

The timing decision

For anyone with a former home in the inner east, the sequencing is often worth more than the sale price.

Selling before you leave. If you are still an Australian resident, the exemption may be fully available. For owners with a long ownership history and substantial growth, this is frequently the cheapest moment to sell, and it is a decision people make by default, without realising they are making it.

Selling after you return. Residency can change back. If you resume Australian tax residency and sign the contract after that point, the exemption can be available again, subject to the usual rules including the six-year absence limit. For someone planning to come home anyway, waiting can be worth more than any market movement.

Selling while abroad. Sometimes there is no choice, and sometimes the numbers still work. But it should be a decision taken with advice and with the withholding planned for, not something discovered at settlement.

What we can help with is the mechanics. We cannot tell you what your tax position is, we are agents, not tax advisers, and you should be wary of any agency that tells you otherwise. But we can time a campaign around a contract date your accountant has nominated, and we can make sure the clearance certificate or variation is in hand well before settlement rather than three days out.

Inherited property and relationship breakdowns

Two situations follow different rules.

Deceased estates. Where the deceased was a foreign resident, the changes can flow through to legal personal representatives, trustees and beneficiaries. There is also a legislative instrument that varies the withholding to nil where a beneficiary acquires the property under a will. The rules here are genuinely complicated and worth specialist advice.

Relationship breakdowns. Where property transfers under the Family Law Act, withholding is varied to nil, provided the documentation is in order at the time of transfer. This is also one of the qualifying life events for the main residence exception, if you are inside the six-year window.

What to do next

Work out your tax residency first. Everything on this page turns on it, and it is a question of fact rather than paperwork, start here.

Then speak to a registered tax agent who works with expats, before you list. Not after you have accepted an offer. The decisions that matter, contract timing, whether to sell at all, whether a variation is worth applying for, all have to be made before there is a contract.

If you are keeping the property for now, managing it from overseas covers the practical side. If you are working toward a sale, selling from overseas deals with powers of attorney, identity verification and settlement mechanics.

We sell across Darlinghurst, Surry Hills, Potts Point and Paddington, and a meaningful share of those sellers are overseas when they sign. Get in touch and tell us where you are based.

Contact us

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Phone: 02 9371 5901

Email: home@murrayproperty.com.au

Office: 251 Oxford Street, Darlinghurst NSW 2010

Frequently asked questions

Do I lose the main residence exemption completely, or just for the years I was away?

Completely. There is no apportionment. If you are a foreign resident for tax when the CGT event happens, the entire gain is assessable, including growth from the period the property genuinely was your home.

Does it matter whether I sign the contract or settle while overseas?

The contract date is what counts, not settlement. If you are a foreign resident on the day you enter the contract, the rule applies regardless of when settlement occurs.

I am an Australian citizen. Does the rule still apply to me?

Yes. Citizenship and permanent residency make no difference here. What matters is tax residency, which is determined by where you actually live. An Australian citizen living permanently overseas is generally a foreign resident for tax and is caught by the rule.

Is the 15% withholding calculated on my profit?

No, on the full sale price. On a $1.5 million property that is $225,000 withheld at settlement, whether or not you made a gain. It is a credit against your actual tax, refundable through your tax return, but you may wait a year to see it.

Can I get the exemption back if I move home to Australia?

Potentially. Residency status can change, and if you resume Australian tax residency before entering the contract, the exemption may be available again, subject to the usual conditions including the six-year absence limit. Get advice on timing before you list.

How long does a clearance certificate or variation take?

Both can take up to 28 days. Australian residents should apply for a clearance certificate as soon as they are thinking about selling; it stays valid for 12 months. Foreign residents should lodge a variation application as soon as the contract is signed.

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Disclaimer

The data, figures, and market statistics referenced in this article were current at the time of publication and are sourced from third-party providers including CoreLogic/Cotality, Domain, realestate.com.au, HtAG Analytics, PropTrack, and NSW Fair Trading, among others. Property market data changes frequently, median prices, rental yields, vacancy rates, clearance rates, and days on market figures are updated regularly by their respective providers and may have changed since this article was published. Readers are encouraged to verify all figures directly with the cited sources before making any decisions.

This article is intended as general information only. It does not constitute financial, investment, legal, or taxation advice. The information provided does not take into account your individual circumstances, objectives, financial situation, or needs. Before making any property investment, purchase, sale, or management decision, you should seek independent advice from a qualified financial adviser, solicitor, or property professional licensed in your state.

Murray Property is a licensed real estate agency operating in NSW. We are not financial advisers. References to rental yields, capital growth, or investment returns are based on publicly available market data and historical performance, which is not a reliable indicator of future results.