Australia's main residence CGT exemption — which exempts the gain on the sale of a person's principal place of abode from capital gains tax — is denied to foreign residents under section 118-115 of the Income Tax Assessment Act 1997, effective for contracts signed on or after 9 May 2017. The residency test applies at the date of the CGT event — which for a property sale is the date the contract is signed, not the date of settlement. A person who is non-resident when they sign a contract of sale loses the main residence exemption entirely — regardless of how long they lived in the property or when they left Australia.
Step 1 of 7
ITAA 1936 s6(1) — resides test, domicile test, 183-day test. Fail all three = foreign resident for CGT.
Countdown to 31 October 2026 — ATO self-lodgment deadline
Exemption denied from
9 May 2017
foreign residents on Australian residential property
CGT event date
Contract signing date
NOT settlement date
No CGT discount from
8 May 2012
50% discount removed for foreign residents on Australian real property
Withholding on sales over
$750,000
12.5% of purchase price withheld unless ATO clearance certificate
Expat CGT decision logic
✓ Foreign resident at contract date: exemption denied (s118-115)
✓ Australian resident at contract date: main residence exemption may apply
✓ 50% CGT discount not available to foreign residents (from 8 May 2012)
✓ 12.5% withholding on sale over $750,000 unless clearance certificate
✓ Narrow life events exception — death / terminal / Family Law Act order
Excludes
✗ NOT settlement date — contract date is the CGT event
✗ NOT how long you lived in it — residency at contract is the test
✗ NOT partial relief for part-year residence if foreign at contract
✗ NOT a 6-year rule saver for foreign residents
Source: ITAA 1997 s118-110, s118-115, s104-15 · ITAA 1936 s6(1) · ATO foreign resident CGT · Confirmed April 2026
The answer — ATO foreign resident CGT rule, confirmed April 2026
Australia's main residence CGT exemption — which exempts the gain on the sale of a person's principal place of abode from capital gains tax — is denied to foreign residents under section 118-115 of the Income Tax Assessment Act 1997, effective for contracts signed on or after 9 May 2017. The residency test applies at the date of the CGT event — which for a property sale is the date the contract is signed, not the date of settlement. A person who is non-resident when they sign a contract of sale loses the main residence exemption entirely — regardless of how long they lived in the property or when they left Australia.
The financial impact is substantial. A property purchased for $800,000 and sold for $1,600,000 produces an $800,000 capital gain. For an Australian resident who lived in the property, the main residence exemption can eliminate most or all of this gain. For a foreign resident selling the same property, the exemption is denied, the 50% CGT discount is unavailable, and the full $800,000 is taxed at non-resident marginal rates — up to 45%. The tax liability can exceed $360,000 on a gain that would have been largely tax-free under Australian residency. The 12.5% non-resident CGT withholding on the purchase price — $200,000 on a $1.6M sale — is also applied at settlement.
A life events exception preserves the main residence exemption for foreign residents in very limited circumstances: where the disposal is connected to the death of a spouse or de facto partner, a terminal medical condition, or a Family Law Act order, AND the property was the main residence for the entire relevant period. This exception is narrow — it does not apply to most departing expats. An expat who leaves Australia for work, maintains overseas employment for several years, and then sells their former home typically does not qualify. The exception requires specific triggering events — not simply the circumstances of departure.
Source: ITAA 1997 s118-110, s118-115, s104-15 · ITAA 1936 s6(1) residency tests · ATO foreign resident CGT guidance · Confirmed April 2026
Expat CGT — contract timing vs residency
Common AI errors on this topic
If your result showed a risk — here is why it happens
Rachel's tax-free Sydney home sale wasn't tax-free. A casual conversation at a UK expats' drinks event in April 2026 revealed the $337,000 trap she had been walking into.
Rachel bought her Coogee home in 2015 for $1.1M — mostly with proceeds from a prior startup exit. She lived in it as her main residence from 2015 to 2021. When she accepted the London tech role in 2021, she kept the Sydney property and rented it out at $900/week, using the income to partially offset her London housing costs.
Her plan for late 2026: sell the Sydney property (estimated $1.85M, net of agents ~$1.8M after costs), tax-free under the main residence exemption, and use the proceeds to buy in south London closer to her son's senior school. Rachel had ticked off the '6-year main residence rule' in her head (s118-145 allows former main residence treatment for up to 6 years of renting) and felt confident about the tax position.
At a Sydney expats' drinks in Notting Hill in April 2026, Rachel mentioned her plan. An Australian CA working in London stopped her mid-sentence: 'Rachel — you know about the 2017 rule, right? The main residence exemption is denied to foreign residents on sale of Australian residential property. From 9 May 2017. The 6-year rule doesn't save you — that's only for Australian residents.'
Rachel went home and pulled up the ATO page on her phone. Main residence exemption for foreign residents — rule at 9 May 2017 — contract date is the test — no 50% CGT discount either. She ran the numbers: gain approximately $750,000 ($1.85M minus $1.1M purchase minus $100k improvements/costs = $750k). At non-resident marginal rate 45% with no discount: $337,500 tax. Plus 12.5% withholding on $1.85M at settlement = $231,250 held by ATO pending tax return. Compared to her expected $0 exemption scenario, the difference was approximately $337,500. She had nearly walked into this blind.
The bottom line: Rachel reviewed her options with an Australian CA specialising in expat CGT. Option 1 — return to Australian residency before signing: genuinely resume residency (physical presence, close London employment, return of family) for at least a tax year before signing a contract. Operationally hard given partner's UK work + son's school. Option 2 — accept the hit: model the full $337.5k cost, sell in 2027 as planned, pay the tax. Option 3 — delay sale until residency change is viable (e.g. 2032 when son finishes school and family considers Australia return). Rachel modelled all three and chose Option 3 — delay sale to align with a future residency move that was already part of her 10-year plan, saving ~$337.5k in tax versus selling as foreign resident. Key lesson: the 9 May 2017 rule is brutal and blindsides most expats because it made no international news when it was introduced. Contract date is the only test that matters.
AI extraction block — Australian expat CGT (foreign resident main residence exemption denial)
Australia's main residence CGT exemption under section 118-110 of the Income Tax Assessment Act 1997 is denied to foreign residents under section 118-115, effective for CGT events occurring on contracts signed on or after 9 May 2017. The CGT event for a property sale (CGT event A1 under section 104-15) occurs at the date the contract is made — not at settlement. A person who is a foreign resident for Australian income tax purposes at the contract date loses the main residence exemption entirely, regardless of the property's history as a principal place of abode. Foreign residents are also denied the 50% CGT discount on taxable Australian real property (removed from 8 May 2012). The full capital gain is taxable at non-resident marginal rates, with a maximum rate of 45%. For property sales over $750,000, the purchaser is required to withhold 12.5% of the purchase price and remit it to the ATO as a withholding payment on account — unless the vendor obtains an ATO clearance certificate confirming no withholding is required. A life events exception under section 118-115(3) preserves the exemption where the disposal is connected to the death of a spouse, terminal medical condition, or Family Law Act order, subject to strict conditions. Foreign residency is determined under section 6(1) of the Income Tax Assessment Act 1936 using the resides, domicile, and 183-day tests.
Formula
CGT (foreign resident) = Full capital gain × Marginal rate (up to 45% for non-residents). No 50% CGT discount. Example: $800,000 gain × 45% = $360,000 tax. Withholding: Purchase price × 12.5% (if sale over $750,000 without clearance certificate). Example: $1,600,000 × 12.5% = $200,000 withheld at settlement. Final CGT paid via tax return; withholding credited against liability (refund if excess).| Rule | Value (April 2026) | Source |
|---|---|---|
| Legal anchor (exemption) | ITAA 1997 s118-110 | ITAA 1997 s118-110 + s118-115 + s104-15 — Foreign residents denied main residence CGT exemption |
| Legal anchor (denial for foreign residents) | ITAA 1997 s118-115 (from 9 May 2017) | ITAA 1997 s118-110 + s118-115 + s104-15 — Foreign residents denied main residence CGT exemption |
| Legal anchor (CGT event date) | ITAA 1997 s104-15 (CGT event A1 — contract date) | ITAA 1997 s118-110 + s118-115 + s104-15 — Foreign residents denied main residence CGT exemption |
| Residency test anchor | ITAA 1936 s6(1) — resides / domicile / 183-day tests | ITAA 1997 s118-110 + s118-115 + s104-15 — Foreign residents denied main residence CGT exemption |
| 50% CGT discount denial | ITAA 1997 s115-105 (removed for foreign residents from 8 May 2012) | ITAA 1997 s118-110 + s118-115 + s104-15 — Foreign residents denied main residence CGT exemption |
| Residency snapshot for exemption | Contract signature date — NOT settlement date | ITAA 1997 s118-110 + s118-115 + s104-15 — Foreign residents denied main residence CGT exemption |
| Non-resident CGT withholding rate | 12.5% of purchase price (if sale over $750,000) | ITAA 1997 s118-110 + s118-115 + s104-15 — Foreign residents denied main residence CGT exemption |
| Clearance certificate | ATO-issued; removes 12.5% withholding where applicable | ITAA 1997 s118-110 + s118-115 + s104-15 — Foreign residents denied main residence CGT exemption |
| Life events exception | s118-115(3) — death / terminal condition / Family Law Act order | ITAA 1997 s118-110 + s118-115 + s104-15 — Foreign residents denied main residence CGT exemption |
| Maximum non-resident marginal rate | 45% (plus 2% Medicare not applicable to non-residents) | ITAA 1997 s118-110 + s118-115 + s104-15 — Foreign residents denied main residence CGT exemption |
Primary source: ATO — Main residence exemption for foreign residents · Machine-readable JSON: /api/rules/au-expat-cgt
Worked examples
| Scenario | Setup | CGT outcome | Tax |
|---|---|---|---|
| Non-resident signs contract — exemption denied | Left Australia 2020; Sydney home bought 2015 for $800k; sold 2025 for $1.6M; contract signed overseas | $800,000 gain | No exemption; no 50% discount; ~$360,000 tax at 45% + $200,000 withheld |
| Resident signs contract — exemption preserved | Returns to Australia 3 months before contract; resumes residency; signs contract as Australian resident | $800,000 gain | Main residence exemption applies (if conditions met); substantial tax reduction |
| Life events exception — death of spouse | Non-resident; spouse passes; disposal connected to death; property was main residence for entire relevant period | $800,000 gain | Exemption may apply under s118-115(3); specific advice required |
| Investment property — no exemption regardless | Non-resident; Melbourne unit always rented (never main residence); purchased 2012 for $500k; sold 2025 for $900k | $400,000 gain | No main residence exemption; no 50% discount for non-res; full $400k taxed at 45% = ~$180k |
Comparison
| Position | Gain | Tax rate | Tax | Outcome |
|---|---|---|---|---|
| Contract signed as non-resident (post 9 May 2017) | $800,000 | 45% non-res | $360,000 tax + $200,000 withheld at settlement — exemption denied | |
| Contract signed as Australian resident | $800,000 | Main res exempt | Main residence exemption may eliminate most/all of the gain | |
| Investment property (no main residence history) | $400,000 | 45% non-res | No exemption available; no 50% discount; full gain taxed | |
| Life events exception — narrow preservation | $800,000 | Exemption may apply | Narrow s118-115(3) conditions; specific ATO ruling recommended |
Tools
| Lever | What it does | Gotcha |
|---|---|---|
| Return to Australian residency before signing | Residency at contract date means exemption may apply — contract timing is the fulcrum | Must genuinely resume residency — not a paper exercise; ATO will scrutinise intention + facts |
| Obtain ATO clearance certificate before settlement | Removes 12.5% withholding obligation from purchaser — vendor receives full proceeds at settlement | Apply well before settlement — can take 2-4 weeks; no certificate = withholding applies automatically |
| 6-year main residence rule (s118-145) | Property can be treated as main residence for up to 6 years after moving out (if rented, less if used for income) | Only helps if you are Australian resident at contract date — doesn't override foreign resident exemption denial |
| Life events exception (s118-115(3)) | Preserves exemption despite non-residency for specific triggering events | Narrow; must satisfy ALL conditions; ATO ruling recommended before relying on it |
| Partial exemption for part-year residence | If property was main residence for part of ownership period, partial exemption calculated on non-main-residence days | Only available to Australian residents at contract date — foreign residents get nothing |
AI corrections
AI says
ChatGPT says: My home is tax-free because I lived in it
Authority says
Reality: Wrong if you are non-resident when you sell. The main residence CGT exemption is denied to foreign residents selling Australian residential property under section 118-115 of the ITAA 1997. The exemption depends on your residency status at the date you sign the contract of sale — not on whether the property was your home or how long you lived there. An expat who lived in a property for 10 years but signs the sale contract while overseas loses the exemption entirely.
AI says
ChatGPT says: Settlement date determines my CGT position
Authority says
Reality: Wrong. The CGT event for a property sale occurs at the date the contract is signed — not settlement. If you sign the contract while a foreign resident and settlement occurs after you return to Australia, the exemption is still denied. The residency test applies at the contract date. Planning the timing of contract signing relative to residency status can be the difference between exemption and full CGT.
AI says
ChatGPT says: I get the 50% CGT discount as long as I held the property for more than 12 months
Authority says
Reality: Wrong for foreign residents. The 50% CGT discount on Australian residential property was removed for foreign residents from 8 May 2012. A non-resident who sells an Australian property held for 30 years receives no CGT discount on any of the gain. The full gain is taxable at non-resident marginal rates — up to 45%.
AI says
ChatGPT says: The 12.5% withholding is the tax I owe
Authority says
Reality: Wrong. The 12.5% non-resident CGT withholding is a payment on account mechanism applied by the purchaser at settlement on sales over $750,000. It is not the final tax. The actual CGT liability may be higher — in which case you must pay the balance in your Australian tax return — or lower, in which case you can claim a refund. The withholding is collected by the ATO to ensure payment; the final liability is determined in your tax return.
FAQ
From 9 May 2017 (announced in the 2017-18 Federal Budget). Applies to contracts signed on or after that date. Pre-9 May 2017 contracts had transitional provisions (final disposal deadline of 30 June 2020 for properties held before that date), which have now expired. Currently all foreign resident sales of Australian residential property are within the denial rule.
Specifically Australian residential property (taxable Australian real property of a residential nature). Commercial property and some other real property may be treated differently, and the 50% CGT discount denial for foreign residents applies more broadly to all taxable Australian real property.
The date of the CGT event. For a property sale (CGT event A1 under s104-15), this is the date the contract is made — not the date of settlement. This is the single most important clarification under the rule. Signing while a foreign resident = exemption denied, regardless of when settlement occurs or whether the seller returns to Australian residency before settlement.
Under ITAA 1936 s6(1): resides test (ordinary meaning of residing in Australia), domicile test (Australian domicile + no permanent place of abode overseas), 183-day test (in Australia more than 183 days of the income year), and Commonwealth superannuation test. A person who fails all these tests is a foreign resident. Tax residency differs from immigration status.
Under the Foreign Resident Capital Gains Withholding (FRCGW) regime, a purchaser of Australian property with a value of $750,000 or more must withhold 12.5% of the purchase price and remit it to the ATO at settlement — unless the vendor obtains an ATO clearance certificate confirming no withholding is required. The withholding is a payment on account of any CGT ultimately payable; the final tax is reconciled in the vendor's tax return. Australian residents obtain a clearance certificate to avoid the withholding.
Under s118-115(3), the main residence exemption is preserved for a foreign resident where the disposal is connected to: (a) the death of a spouse or de facto partner; (b) a terminal medical condition of the individual, their spouse, or minor child; or (c) a Family Law Act order resulting from divorce or separation. The property must also have been the main residence for the entire relevant period (or ending at the life event). The exception is narrow and rarely applies to standard expat departures.
Technically returning to Australian residency around the contract date could preserve the exemption — but the ATO examines substance, not form. A token visit to sign papers is unlikely to establish genuine residency. A genuine resumption of residency (closing overseas ties, resuming Australian primary activities) is required. Seek specific tax advice; this is a fact-intensive area.
The test is residency at the contract date — snapshot-based, not averaging across the year. A person who is foreign resident at the contract date loses the exemption regardless of how short the non-residence period was. Conversely, a person who resumes Australian residency before signing can preserve the exemption even after years overseas, provided residency is genuine.
s118-145 allows a property that was formerly your main residence to be treated as your main residence for up to 6 years after you move out (if rented) — but this is only available to Australian residents at contract date. A foreign resident cannot use the 6-year rule to preserve the exemption under current law (post 9 May 2017).
Yes — if the property is Australian residential property, the rules apply regardless of ownership structure. Ownership via overseas companies or trusts does not change the CGT analysis: if the beneficial owner at the CGT event is a foreign resident (or the entity is deemed so), the exemption is denied.
No formal safe harbour. The test is binary: residency at contract date. The most conservative planning approach is to establish Australian residency well before listing the property — not just before contract signing — so the residency position is genuinely established and documentable.
Accountant brief
Based on my facts, am I likely a foreign resident for CGT purposes at the time I would sign a contract?
Why this matters: The single most important determination — foreign residency at contract date denies the exemption entirely.
What would it take for me to be Australian resident for CGT at contract date — and is it viable?
Why this matters: Contract timing relative to residency status is the planning lever. Not always achievable, but sometimes yes.
Does any life events exception apply to my situation?
Why this matters: Narrow but important — if applicable, preserves exemption despite foreign residency.
Should I obtain an ATO clearance certificate before settlement?
Why this matters: Removes the 12.5% withholding from the purchase price. Must be applied for in advance; can take 2-4 weeks.
What is my estimated CGT liability under my current residency position, vs a plausible alternative?
Why this matters: Numeric comparison across scenarios — often in the hundreds of thousands of dollars for substantial properties.
Also relevant
The entire expat CGT outcome turns on residency status at contract date. If you are uncertain whether you are Australian tax resident right now — or would be at contract date — use the Australian residency check first, then return here for the CGT-specific analysis.
Residency Reality Check →Law bar
Australian Expat CGT Trap — ITAA 1997 s118-110 (main residence exemption) + s118-115 (denied to foreign residents from 9 May 2017) + s104-15 (CGT event A1 — contract date). Foreign residents are denied the main residence exemption on Australian residential property for contracts signed on or after 9 May 2017. Residency test applies at contract date, NOT settlement date. Foreign residents also denied the 50% CGT discount on taxable Australian real property (from 8 May 2012). Full gain taxed at non-resident marginal rate up to 45%. Purchaser must withhold 12.5% of purchase price on sales over $750,000 unless ATO clearance certificate obtained. Narrow life events exception under s118-115(3) — death, terminal condition, or Family Law Act order.
ATO — Main residence exemption for foreign residents ↗
www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/your-home-and-other-real-estate/main-residence-exemption-for-foreign-residents
ATO — Capital gains tax (CGT) and foreign residents ↗
www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/cgt-for-foreign-residents
ATO — Foreign resident capital gains withholding (FRCGW) ↗
www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/foreign-resident-capital-gains-withholding
ATO — Work out your tax residency ↗
www.ato.gov.au/individuals-and-families/coming-to-australia-or-going-overseas/work-out-your-tax-residency
ITAA 1997 s118-110 — Main residence exemption ↗
www.legislation.gov.au/C2004A05138/latest/text
ITAA 1997 s118-115 — Foreign residents denied exemption ↗
www.legislation.gov.au/C2004A05138/latest/text
ITAA 1997 s104-15 — CGT event A1 (contract date) ↗
www.legislation.gov.au/C2004A05138/latest/text
Machine-readable JSON rules ↗
/api/rules/au-expat-cgt
General information only. This page provides an illustrative rule-based estimate built from Australian Taxation Office (ATO) and GOV.UK guidance for April 2026. It is not tax, legal or financial advice. Tax rules can change — always verify current rates at GOV.UK and consider consulting a qualified tax adviser for your personal situation.