An Australian who leaves the country and later sells their former Sydney or Melbourne home faces three separate rules stacked on top of each other: the CGT discount has been removed or apportioned for the foreign-resident period since 8 May 2012; the main residence exemption was largely abolished for foreign residents from 30 June 2020; and a 15% withholding applies at settlement under the foreign resident capital gains withholding regime in place since 2016 and tightened from 1 January 2025. The combined hit can take more than a third of the sale proceeds straight to the ATO. Plan the timing carefully.
The three rules that stack — and why they matter together
Australian real property is "taxable Australian property" under s855-15 of ITAA 1997. That means it stays in the Australian CGT net regardless of where the owner lives — and three separate, stacking rules now determine the final tax outcome when a non-resident sells it.
- The 50% CGT discount is denied or apportioned for foreign-resident periods since 8 May 2012 (Subdivision 115-B ITAA 1997). - The main residence exemption is denied for foreign residents at the time of the CGT event, with limited transitional and life-events relief (Tax Laws Amendment (Reducing Pressure on Housing Affordability Measures) Act 2019). - Foreign resident capital gains withholding (FRCGW) requires the buyer to withhold a percentage of the contract price at settlement, with the vendor able to avoid it only by obtaining an ATO clearance certificate (Subdivision 14-D of Schedule 1 to the Taxation Administration Act 1953).
For most expats selling their former Australian home, all three rules apply on the same contract. Each one is a separate calculation. Each one has its own evidence and timing requirements. And each one has been tightened — not loosened — in the last decade.
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Rule 1 — The 50% CGT discount for foreign residents
Before 8 May 2012, an individual who held a CGT asset for more than 12 months was entitled to a 50% CGT discount on disposal, regardless of where they were resident. From 8 May 2012, that discount was removed for foreign and temporary residents for any portion of a capital gain accrued after that date.
The mechanics live in Subdivision 115-B of ITAA 1997 (broadly, sections 115-105 to 115-120). For an Australian property bought before 8 May 2012 and sold by a foreign resident:
- A market valuation at 8 May 2012 can be used to apportion the gain. The portion accrued up to that date keeps the full 50% discount; the portion accrued after that date is apportioned by residency days. - For a property bought after 8 May 2012, the discount is apportioned across the holding period by Australian-resident days.
A foreign resident selling a property bought after 8 May 2012 and held entirely as a foreign resident gets no CGT discount at all.
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Rule 2 — The main residence exemption cliff at 30 June 2020
This is the rule that catches most expats off guard. Before 2019, an Australian who moved overseas could still claim the main residence exemption on the eventual sale of their former Australian home, subject to the six-year absence rule under section 118-145 of ITAA 1997.
The Tax Laws Amendment (Reducing Pressure on Housing Affordability Measures) Act 2019 changed that. From 30 June 2020, the main residence exemption is generally not available at all to an individual who is a foreign resident at the time of the CGT event on their former Australian home. There is no apportionment for the years it was a main residence. There is no six-year absence rule for foreign residents. It is a hard cliff.
Two narrow forms of relief survive:
- Transitional relief for properties held continuously since before 9 May 2017 was available only if the CGT event happened on or before 30 June 2020. That window has now closed. - Life events relief remains for foreign residents who have been foreign residents for a continuous period of six years or less and the CGT event is connected to a terminal medical condition of the individual or a member of their immediate family, the death of the individual's spouse or minor child, or a divorce/separation. The conditions are tightly drafted; see the current ATO guidance before relying on this.
For anyone who does not fit a life event, the planning rule is simple: establish Australian tax residency again before the CGT event, or sell while you are still a resident.
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Rule 3 — Foreign resident capital gains withholding (FRCGW)
FRCGW is not a tax in itself — it is a withholding regime. The buyer (or their conveyancer) must withhold a percentage of the contract price at settlement and remit it to the ATO. The vendor then claims the withheld amount as a credit against their actual CGT liability on lodgement.
Two policy changes have made the regime substantially harsher since it started:
- The rate was 10% from 1 July 2016, increased to 12.5% from 1 July 2017, and increased again to 15% from 1 January 2025. - The market-value threshold below which withholding did not apply was originally $750,000, but was removed entirely from 1 January 2025. Withholding now applies to all real property dispositions by a foreign resident, regardless of price.
Because the buyer's withholding obligation is triggered by the vendor's foreign-resident status, the only way an Australian-resident vendor avoids being treated as a foreign resident is to provide the buyer with an ATO clearance certificate on or before settlement. The certificate is free, applied for online through ATO Online Services, and typically issued automatically for residents within a few days — but can take longer where the ATO has data-match concerns. Apply for it as soon as the property is listed, not the week before settlement.
For a foreign-resident vendor, the withholding is taken from the proceeds at settlement, with the balance available on lodgement of the next Australian tax return — a real cash-flow hit if you were planning to use the sale proceeds to settle abroad.
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Worked example: an expat selling a Sydney apartment
An individual who left Australia on 1 July 2018 (becoming a foreign resident from that date) sells a Sydney apartment in 2026 for $1,200,000. The apartment was acquired in 2014 for $800,000 and was their main residence until departure. No life event applies.
Main residence exemption: Not available — they are a foreign resident at the CGT event. The full gain of $400,000 is assessable.
CGT discount: Apportioned. The property was held entirely after 8 May 2012, so the discount applies only to the proportion of days they were a resident (roughly 4 years out of 12, or one-third). Of the $400,000 gain, approximately $133,000 attracts the 50% discount; the remaining $267,000 is taxed at full marginal rates.
Discounted assessable gain: roughly $200,000 ($133,000 × 50% + $267,000), included in their 2025-26 Australian return at non-resident marginal rates (which start at 30% from the first dollar — no tax-free threshold).
FRCGW: 15% × $1,200,000 = $180,000 withheld at settlement. Credited against the actual CGT liability on lodgement. Any excess withheld is refunded; any shortfall is payable.
The numbers shift dramatically depending on contract timing, valuation at residency change, and the apportionment dates. Run them with a TPB-registered tax agent before signing.
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Planning options that actually work
Sell while still Australian-resident. If the move is in planning rather than executed, selling first and renting back, or settling before departure, preserves the main residence exemption and (where available) the CGT discount. Timing is everything.
Re-establish residency before the CGT event. If you return permanently — actual move, family, home, intention — the main residence exemption can become available again on a subsequent sale. Document the residency change properly.
Get the clearance certificate early. If you are an Australian resident selling, do not let the buyer's conveyancer withhold $180,000 from your settlement because you forgot to lodge a free 5-minute form.
Don't rely on the six-year absence rule if you are a foreign resident at the CGT event. That rule lives in s118-145 and survives for Australian residents who use it correctly. But a foreign resident at the CGT event cannot access the main residence exemption at all, regardless of how many years they had previously claimed under the six-year rule.
For a deeper read on what happens to your other assets when you leave, see our companion guide on CGT event I1 and the deemed disposal of non-Australian-property assets. To find a tax agent with expat experience, see accountants in Sydney, Melbourne and Brisbane.
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FAQ
Q: My family stayed in Australia and I'm still on Medicare. Does that mean I'm still a resident? A: Maybe. Tax residency is a multi-factor test under section 6 ITAA 1936: domicile, permanent place of abode, the 183-day test and the Commonwealth superannuation test. A family at home is a strong factor, but not determinative on its own. Get a written residency view from a registered tax agent before you assume the main residence exemption is available. Q: I'm selling under a contract signed before I left Australia but settling after. Which residency status counts? A: For CGT purposes the CGT event for a real property sale generally happens at the contract date, not the settlement date (CGT event A1, s104-10). If you were a resident at the time of contract, you may still access the main residence exemption even if settlement happens after departure. The timing is critical — confirm before signing. Q: What is a clearance certificate and how long does it take? A: A document issued by the ATO that tells the buyer the vendor is not a foreign resident, so no FRCGW needs to be withheld. It is free, applied for online through ATO Online Services, and most are issued within 28 days but often much faster for vendors with clean compliance records. Apply at least 28 days before settlement to be safe. Q: I'm a temporary resident on a 482 visa. Are these rules the same for me? A: Largely yes for taxable Australian property like real estate — temporary residents are not exempt from CGT on TAP assets. The main residence and CGT discount rules apply to temporary residents the same way they apply to foreign residents. Subdivision 768-915 helps temporary residents on non-TAP assets, not on Australian real property.---
Sources
- ATO — Foreign residents and capital gains tax: ato.gov.au — foreign residents and CGT - ATO — Main residence exemption for foreign residents: ato.gov.au — foreign residents and main residence exemption - ATO — Foreign resident capital gains withholding (FRCGW): ato.gov.au — foreign resident capital gains withholding - ATO — Apply for a clearance certificate: ato.gov.au — clearance certificate - Tax Laws Amendment (Reducing Pressure on Housing Affordability Measures) Act 2019 (Cth) — main residence exemption removal for foreign residents - ITAA 1997 Subdivision 115-B — discount apportionment for foreign and temporary residents - ITAA 1997 ss 855-15, 118-110, 118-145 — taxable Australian property; main residence basic case; absence rule - Tax Practitioners Board public register: tpb.gov.au/public-register
Information in this article is general and current as at 19 May 2026. Confirm thresholds, rates and effective dates with a TPB-registered tax agent or the linked ATO pages before signing a contract.
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