Summary of how the Principal Place of Residence (PPR) Exemption is impacted by moving overseas.

When Australian homeowners move overseas and become non-residents for tax purposes, selling their principal residence (PPR) can lead to significant capital gains tax (CGT) liabilities. Since 1 July 2020, non-residents have generally been ineligible for the primary residence CGT exemption. However, certain life events and re-establishing Australian tax residency before selling the property can influence CGT obligations.​

Residency Status and Tax Implications

Determining your tax residency status is crucial as it affects your eligibility for various tax concessions, including the primary residence CGT exemption. The Australian Taxation Office (ATO) considers several factors to ascertain tax residency:​

• Physical Presence: The duration of your stay in or absence from Australia.​caat-p-001.sitecorecontenthub.cloud+1ato.gov.au+1
• Intention and Purpose: Your intended length and purpose of stay in or departure from Australia.​taxathand.com
• Family and Business Ties: The location of your immediate family and business or employment connections.​csttax.com+4ato.gov.au+4odintax.com+4
• Maintenance and Location of Assets: Where your assets are situated and how they are managed.​
• Social and Living Arrangements: Your living situation and social connections within Australia.​taxsummaries.pwc.com+4oecd.org+4ato.gov.au+4

If, based on these factors, you are deemed a non-resident for tax purposes, you may lose access to certain tax benefits, including the primary residence CGT exemption when selling your property while overseas. ​

Impact on the Main Residence Exemption

Effective from 1 July 2020, the Australian government revised the rules concerning the primary residence CGT exemption for non-residents:​

• General Rule: Non-residents are not entitled to the main residence exemption when they sell their property in Australia after 30 June 2020. This applies even if the property was previously their main residence while they were Australian residents.​caat-p-001.sitecorecontenthub.cloud+2ato.gov.au+2ato.gov.au+2
• Life Events Test: An exception exists if, during six years or less of being a foreign resident, certain life events occur, such as:​exfin.com+4cfs.com.au+4caat-p-001.sitecorecontenthub.cloud+4
  • You, your spouse, or your child under 18 years old have a terminal medical condition.​dfkeveralls.com+2ato.gov.au+2caat-p-001.sitecorecontenthub.cloud+2
  • The death of your spouse or child under 18 years.​
  • The CGT event happens due to a formal agreement following the breakdown of your marriage or relationship.​taxbanter.com.au+2ato.gov.au+2cfs.com.au+2

You may be eligible for the main residence exemption if you satisfy both the six-year foreign residency period and one of the specified life events. ​caat-p-001.sitecorecontenthub.cloud+1cfs.com.au+1

Considerations When Selling a PPR While Living Abroad

As a non-resident selling your PPR, several tax considerations arise:​

• Loss of CGT Discount: Non-residents are not eligible for the 50% CGT discount Australian residents receive for properties over 12 months. Consequently, non-residents may face higher CGT liabilities.​
• Tax Rates: Non-residents are subject to different tax rates on taxable gains, which can affect the overall tax payable.​

Given these implications, it’s advisable to:​

• Sell Before Becoming a Non-Resident: Dispose of the property while still an Australian tax resident to potentially access the main residence exemption and CGT discount.​caat-p-001.sitecorecontenthub.cloud
• Delay Sale Until Returning: If feasible, postpone the sale until you return to Australia and re-establish tax residency, thereby regaining eligibility for certain tax concessions.​

Returning to Australia and Selling Your PPR

If you return to Australia and re-establish tax residency before selling your property, you may regain eligibility for the principal residence CGT exemption. To be considered a tax resident again, you must meet the ATO’s residency tests, which include:​

• Physical Presence: Residing in Australia.​
• Intention to Stay: Demonstrating an intention to stay in Australia indefinitely.​
• Personal and Economic Ties: Having strong personal and economic ties to Australia.​

Simply visiting Australia for a short period does not automatically reinstate tax residency—you must show you have permanently returned. ​

Conclusion

Selling your principal residence while being a non-resident for tax purposes can have significant CGT implications. Understanding your residency status and planning accordingly to manage potential tax liabilities effectively is essential. Consulting with a property tax professional can provide tailored advice based on your circumstances.​

Scenario Overview

Mary, an Australian citizen, purchased a house in Sydney in 2010 for $500,000 and lived in it as his principal place of residence (PPR) until 2015. In 2015, she moved overseas for work and rented the property for six years while becoming a non-resident for tax purposes.

In 2021, after spending six years overseas, Mary returned to Australia and re-established her tax residency. She moved back into the property and lived as her PPR for one more year before deciding to sell in 2022.

This case study compares two scenarios:

1. Selling the property while still a non-resident (in 2021, before moving back to Australia)
2. Returning to Australia, re-establishing tax residency, and selling in 2022

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Scenario 1: Selling as a Non-Resident in 2021

• Purchase Price (2010): $500,000
• Sale Price (2021): $1,200,000
• Capital Gain: $1,200,000 – $500,000 = $700,000
• Holding Period: 11 years
  • PPR Period (2010-2015): 5 years
  • Rental Period (2015-2021): 6 years

Capital Gains Tax (CGT) Implications

1. No Main Residence Exemption for Non-Residents

• As of 1 July 2020, non-residents no longer qualify for the principal residence exemption, even if they previously lived in the property.
• This means that 100% of Mary’s $700,000 capital gain is taxable.

2. No 50% CGT Discount for Non-Residents

• Usually, Australian residents get a 50% discount on capital gains for assets held for more than 12 months.
• However, Mary was a non-resident at the time of sale, so she does not qualify for this discount.
• This means she must pay tax on the entire $700,000 capital gain.

3. Higher Tax Rates for Non-Residents

• Non-residents do not get the Australian tax-free threshold and are taxed at the following rates:
  • 32.5% on income up to $120,000
  • 37% on income from $120,001 to $180,000
  • 45% on income over $180,000

CGT Calculation for a Non-Resident:

Income Bracket	Tax Rate	Tax Payable
First $120,000	32.5%	$39,000
Next $60,000	37%	$22,200
Remaining $520,000	45%	$234,000
Total CGT Payable		$295,200

💡 Tax Outcome: If May sold while still a non-resident, she would have to pay $295,200 in CGT.

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Scenario 2: Returning to Australia Before Selling in 2022

If Mary returned to Australia in 2021, re-established Australian tax residency, and sold the property in 2022, the tax consequences would change significantly.

Key Benefits of Re-establishing Residency Before Selling

1. Six-Year Rule Protects PPR Status

• Under section 118-145 of the Income Tax Assessment Act 1997, the six-year rule allows a property to maintain its PPR status for up to six years while renting out (but only if you are an Australian Resident for Tax Purposes)
• Because Mary rented the property for exactly six years (2015-2021) and moved back in before selling, the entire period remains exempt from CGT.
• If Mary had rented the property for more than six years, a portion of the capital gain would have become taxable.

2. Re-establishing Australian Tax Residency Before Sale

• In 2021, Mary returned to Australia and re-established tax residency by meeting the Australian Taxation Office’s (ATO) residency tests:
  • Physical Presence: She resumed living in Australia.
  • Intention to Stay: She returned to his property and intended to remain in Australia.
  • Economic and Social Ties: She re-engaged with the Australian financial system and community.
• She was eligible for the full PPR exemption because she was an Australian tax resident when he sold the property in 2022.

3. No Partial CGT Liability

• If Mary had not moved back into the property before selling, a portion of his capital gain could have been taxable (specifically for any period beyond the six-year exemption).
• Because she resumed living in the property and never exceeded the six-year rental rule, her entire ownership period qualifies for the CGT exemption.

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CGT Outcome: No Tax Payable

Scenario	Taxable Capital Gain	Tax Payable
Selling as a Non-Resident (2021)	$700,000	$295,200
Returning to Australia Before Selling (2022)	$0	$0 (Full Main Residence Exemption Applies)

Key Takeaways

✔ By moving back into the property, Mary saved approximately $295,200 in CGT.
✔ The six-year rule preserved her PPR status despite six years of rental income.
✔ Re-establishing tax residency ensured she could claim full tax benefits.
✔ Mary successfully avoided CGT by following the right strategy.

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Conclusion & Advice for Expats

Key Strategies to Minimise CGT

🔹 Sell before becoming a non-resident to retain the full principal residence exemption.
🔹 Use the six-year rule if renting out a former PPR while overseas if you establish the home as your PPR on return.
🔹 Re-establish Australian tax residency before selling to regain CGT benefits.
🔹 Seek professional tax advice before making property sale decisions.

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Final Thought

Mary’s case highlights the importance of strategic tax planning for Australian expats. Returning to Australia and selling as a tax resident, she avoided a $295,200 tax bill and kept her entire capital gain tax-free. This case underscores why timing matters when selling a property as an expat.