If you're planning to leave Australia after living here for many years and you want to sell your home, it's crucial to sell it before you leave. Once you become a foreign resident for tax purposes, you will lose the capital gains tax (CGT) exemption on your home, except in a few specific situations.
This rule can have significant consequences, as you'll also lose the full benefit of the 50% CGT discount on any capital gain if you were a foreign resident during any part of the time you owned the home. Additionally, any capital gain will be taxed at higher non-resident rates.
However, if you sign the contract of sale while you’re still in Australia, even if settlement occurs after you leave, you won’t lose the CGT exemption or discount. For CGT purposes, the sale is considered to happen when the contract is signed, not when settlement takes place.
This rule means that you might want to consider negotiating the sale before you leave to avoid any tax penalties. In extreme cases, you might even consider returning to Australia to regain resident status for tax purposes before selling the property. Note that if the home is jointly owned, both owners would need to return.
Interestingly, if you expect a capital loss on the property, selling it as a foreign resident can be beneficial, as it allows you to use the loss for other tax purposes.
There are exceptions to this rule if you've been a foreign resident for less than six years and need to sell due to reasons like divorce, family illness, or death.
In summary, losing your CGT exemption is a serious matter. If you're considering leaving Australia and selling your property, it's wise to seek professional advice to avoid any unnecessary tax liabilities.
