Insights

If you’re a foreign resident who owns property in Australia or you’re planning to change your residency status, understanding your Capital Gains Tax (CGT) obligations is essential. Recent changes to Australian tax law have significantly impacted the way foreign residents are taxed when selling property.

Who Is a Foreign Resident for Tax Purposes?

Your tax residency status is determined by the ATO and may differ from your immigration or citizenship status. You’re considered a foreign resident if you don’t meet any of the following:

• Resides test
• Domicile test
• 183-day test
• Commonwealth superannuation test

Changing your residency status can affect which assets are subject to CGT and whether you qualify for certain exemptions or discounts.

What Is Capital Gains Tax (CGT)?

CGT is the tax you pay on the profit from selling an asset, such as real estate. Foreign residents are subject to CGT on taxable Australian property, which includes:

• Residential and commercial real estate
• Mining, quarrying, and prospecting rights
• Business assets connected to a permanent establishment in Australia

Do Foreign Residents Get the 50% CGT Discount?

Generally, foreign residents are not entitled to the full 50% CGT discount on assets acquired after 8 May 2012. However, you may qualify for a partial discount if:

• You were an Australian resident for part of the ownership period.
• You acquired the asset before 8 May 2012 and use the market value method.

What Is the Main Residence Exemption (MRE)?

The Main Residence Exemption allows Australian residents to disregard capital gains on the sale of their primary home. However, foreign residents cannot claim this exemption unless they meet the life events test.

Life Events Test Criteria:

You must have been a foreign resident for 6 years or less, and during that time one of the following must have occurred:

• You, your spouse, or child under 18 had a terminal medical condition.
• Your spouse or child under 18 died.
• The CGT event occurred due to a relationship breakdown.

If you meet these conditions, you may:

• Claim the MRE
• Use it to reduce the Foreign Resident Capital Gains Withholding (FRCGW) rate

What Changed in 2020?

From 1 July 2020, foreign residents lost access to the MRE unless they qualify under the life events test. Transitional relief applied to properties:

• Acquired before 9 May 2017
• Sold before 30 June 2020

Foreign Resident Capital Gains Withholding (FRCGW)

Previously, FRCGW only applied to property sales by foreign residents where the sale price exceeded $750,000. This threshold has been completely removed from 1 Jan 2025. This means that all property sales by foreign residents, regardless of the property’s value, will be subject to FRCGW.

When a foreign resident sells Australian property, the buyer must withhold a portion of the sale price:

• 12.5% for contracts signed before 1 Jan 2025
• 15% for contracts signed on or after 1 Jan 2025
• Applies to all property sales, regardless of value

You can apply for a variation notice to reduce the withheld amount if your actual CGT liability is lower.

Planning to sell property or change your residency?

Navigating CGT as a foreign resident is complex and the rules are constantly evolving. At Altitude Advisers, we offer tailored tax advice to help you:

• Determine your residency status
• Minimise CGT liabilities
• Apply for FRCGW variations
• Strategically plan your property sale

Contact Altitude Advisers today to ensure your property decisions are tax-smart and compliant.