Planning to sell your home after relocating from Australia? Be cautious! If you’ve lived in Australia for years and own a home here, it’s important to understand the tax implications if you sell after becoming a foreign resident for tax purposes.
Key Points to Consider:
- Selling your home after leaving Australia means you may lose your Capital Gains Tax (CGT) exemption on the sale, unless specific exceptions apply.
- As a foreign resident, you’ll also miss out on the full 50% CGT discount for any period you were not an Australian resident.
- Any capital gain will be taxed at higher non-resident tax rates.
However, if you sign the contract while still an Australian resident (even if settlement occurs later), you’re in the clear – the sale will be considered for CGT purposes at the time the contract was signed, not at settlement.
So, if you are still a resident of Australia at this time, then you will not be denied a CGT exemption on the sale of your home – nor the CGT discount, as relevant (such as where a partial CGT main residence exemption may otherwise apply).
This rule has important practical implications – and offers various solutions to get around any potential problem. For example, you could offer a sufficient discount on the asking price to make sure the agreement is entered into before you cease to be a resident.
And no doubt there are more extreme steps that can be undertaken if necessary.
For example, you could return to Australia and become a resident again for tax purposes on a bona-fide basis – and then sell the home. But if the home is, say, jointly owned between spouses, then both spouses would need to return to Australia.
On the other hand, in the case that you may have a capital loss on the home, selling it while you are a foreign resident is a good way to realise it so that you can use it for other purposes.
Finally, the rule denying you a CGT main residence exemption on your home if you sell it while you are a foreign resident does not apply if you have been a foreign resident for less than 6 years and you are required to sell it because of divorce or separation or family illness or death, etc.