Background Information-Jennifer’s Tax Triumph: 

Jennifer’s Tax Triumph: Jennifer, an Australian tax resident, acquired a property for $1.2 million in 2018 as her main residence. After living in the property for two years, she moved to the US, where she was classified as a non-resident for 3 years. She has now decided to leave her job in the US and spend some time traveling the world as a digital nomad.

Having rented out her home, Jennifer has contacted us to find out if she would be liable for capital gains tax should she sell the property, and whether she can qualify for the main residence exemption, considering she has no other residence. According to her real estate agent, the current market value of the property is $2.5 million. She mentioned that returning to Australia could be an option if it would result in tax savings.

Key Consideration – Main Residence Exemption Eligibility 

  • Jennifer’s eligibility for the main residence exemption depends on her residency status at the time of the Capital Gains Tax (CGT) event (i.e., the sale of the property).
  • Can she come back to Australia and reestablish the property as her primary residence? 
  • Will she return to Australia before the expiration of the six-year main residence exemption period?

Condition of Full Exemption –

The main residence exemption cannot generally apply if the taxpayer is a non-resident at the time of the CGT event. However, if the client returns to Australia and is classified as a resident for tax purposes when the CGT event happens then the ‘normal’ main residence rules should apply, even if the client was a non-resident for some of the ownership period. She must meet the following conditions to receive the full exemption on her Principal Place of Residence (PPOR)

  • Immediate Establishment: Jennifer must have established the property as her main residence as soon as practical after acquisition.
  • Tax Residency: Jennifer must be an Australian tax resident at the time of the CGT event.
  • Income-Producing Use: The property should not have been used for income-producing purposes while Jennifer was living in it.
  • Absence Rule: This rule can be applied to the property for any period it was not her main residence. There’s a 6-year limit for this rule if the property is used to produce income.
  • Exclusivity of Main Residence: No other property should be treated as Jennifer’s main residence (or that of her spouse) for Australian CGT purposes during the ownership period.

Consequences of Selling the Property as Foreign Resident – 

If Jennifer decides to sell her property in 2024 while classified as a non-resident for Australian tax purposes, she will initiate a capital gains tax (CGT) event. During the first two years of ownership, Jennifer occupied the property as her main residence, which entitles her to a tax exemption for that duration. However, for the subsequent three years of her non-residency, she becomes liable for capital gains tax.

It’s important to note that, as a foreign resident, Jennifer does not qualify for the 50% CGT discount available for assets acquired after May 8, 2012. Therefore, she will face the full CGT on her profit, calculated to be $1.3 million, derived from the sale price of $2.5 million and her original purchase price of $1.2 million.

Conclusion –

After thorough consultations with tax specialists at Investax Group, Jennifer has decided not to proceed with the sale of her Australian property while she is overseas. Understanding the complexities surrounding her eligibility for the main residence exemption as a non-resident, Jennifer recognises the significant tax implications of a potential capital gains event. Instead, she plans to return to Australia to reestablish her property as her primary residence, thereby aligning with the conditions necessary for the full exemption under Australian tax law.

By delaying the sale until after reestablishing her property as her main residence, Jennifer strategically positions herself to maximise the financial benefits and minimise tax liabilities. If you’re planning to travel and rent out your home like Jennifer, consider reaching out to us at Investax Group. We can help you understand your tax obligations and how to avoid large capital gains tax later on. Our advice is tailored to your situation, making it easier for you to manage your taxes effectively. 

Reference – 

CGT discount for foreign residents | Australian Taxation Office (

Treating former home as main residence | Australian Taxation Office (