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Guide

The main residence exemption trap

The family home is normally free of capital gains tax. But since a 2020 law change, if you sell your former home while you are a foreign resident, you can lose the exemption for the entire time you owned it, not just the years you were away. This is the single most expensive mistake departing property owners make, and it is entirely about the date you sign the contract.

What changed in 2020, and why it’s so brutal

The main residence exemption removes the gain on the home you actually live in from CGT. For decades, leaving the country did not disturb it. You could move abroad, keep the house, and still access the exemption when you eventually sold. The Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Act 2019, which took full effect from 1 July 2020, changed that.

The rule now is blunt: if you are a foreign resident for tax purposes on the day you sign the contract of sale, you generally cannot claim the main residence exemption at all, unless you qualify for a narrow life-events exception. And “at all” means exactly that. The exemption does not shrink to cover only your resident years; it disappears for the whole ownership period, right back to the day you bought the place and lived in it as your only home.

Here’s what the ATO will actually fight you on: your residency status on the disposal date. Not when you moved out, not when you bought it, not your intentions. The contract date is the switch, and it is binary.

The life-events exceptions (the only way through)

There is one relief valve. If you have been a foreign resident for a continuous period of six years or less at the disposal date, and a “certain life event” occurred during that period, you can still claim the exemption as if the rules had never changed. The qualifying life events are narrow and specific:

Note what is not on that list: “I moved abroad for work,” “the market was good,” “I needed the cash.” The exception is for genuine misfortune, not for ordinary financial planning. And the six-year clock is a hard ceiling, if you have been non-resident for six years and one day, the life-events door is closed regardless of what happened.

How this interacts with the six-year absence rule

People confuse two different six-year rules, and the confusion is expensive. The absence rule (section 118-145) lets you treat a home as your main residence for up to six years after you move out and rent it, so the property stays exempt-eligible. That rule still exists. But it does not save you if you are a foreign resident on the sale date, the absence rule tells you the property qualifies as your main residence; the non-resident rule then removes your access to the exemption anyway. You can satisfy the absence rule perfectly and still pay full CGT because of where you were living the day you sold.

The practical takeaway: the absence rule is about the property’s status; the 2020 change is aboutyour status. You need both to line up. The clean fix is almost always to sign the contract while you are still an Australian tax resident (before you leave, or during a genuine period of resumed residency) so that the exemption survives.

A worked example: the $300,000 swing

Say you bought a Melbourne home in 2013 for $600,000, lived in it as your only residence, then moved to Dubai in 2022 and rented it out. In the 2025, 26 year it’s worth $1,200,000 and you want to sell. Your gross gain is $600,000.

Sell while still a resident (or before you leave): the main residence exemption plus the absence rule cover the property, and the gain is fully exempt. Tax on the sale: roughly nil.

Sell while a foreign resident, no life event: the exemption is gone for the entire period. The full $600,000 gain is assessable. Worse, foreign residents lost access to the 50% CGT discount for the portion of ownership after 8 May 2012, so most of your discount is stripped too. On a $600,000 gain taxed largely at non-resident rates, 30% from the first dollar, no tax-free threshold. You are looking at a bill comfortably in the region of $180,000 to $200,000+, where before there was none.

The swing between the two scenarios is well over $300,000 once you factor in the lost discount and the resident brackets you would otherwise have kept. Nothing about the house changed. The only variable was your tax residency on the day you signed.

What most owners miss

General information only, not tax, legal or financial advice, and no tax agent services are provided. Verify your position with a registered tax agent before acting. Rates and rules last verified: 23 July 2026.