The 50% CGT discount you lose when you leave

If you've owned Australian property for more than 12 months as an Australian resident, you're entitled to a 50% discount on your capital gain before it gets taxed. That discount disappears the moment you become a non-resident for Australian tax purposes.

As a non-resident, you pay CGT on the full gain at your marginal tax rate. For most Australian expats earning well overseas, that's a meaningful difference — often tens of thousands of dollars on a single property sale.

Most people are aware there's a CGT difference for non-residents. What surprises them is the size of it.

When does the ATO consider you a non-resident?

The ATO uses a residency test — and it's not just about where you live. You're considered a non-resident if you don't have a "permanent place of abode" in Australia and your domicile has shifted overseas.

In practice: if you've moved to Singapore, Hong Kong, or Dubai for work, rented out your Australian home, and set up your life overseas — the ATO will typically treat you as a non-resident. This applies even if you hold an Australian passport and intend to return one day.

The residency question matters because it determines which CGT rules apply to your situation. Getting it wrong at the time of sale can be expensive and difficult to fix after the fact.

The 6-year main residence exemption

Here's some relief: if your Australian property was your main residence before you left, you can usually continue to treat it as your main residence for up to six years while renting it out. This is the "6-year rule."

While the 6-year rule is in place, your property may be fully exempt from CGT — just as if you'd never left. But the exemption has limits.

First, it's not automatic. You need to have originally used the property as your main residence, and it needs to remain your only property for this treatment to apply cleanly.

Second, the exemption is partial once six years passes. If you've been overseas for more than six years and sell the property, the exemption only covers the period it was your main residence. The remaining years of ownership as a non-resident are subject to CGT — at full marginal rates, no 50% discount.

Third, recent legislative changes (effective from 30 June 2020 for contracts entered into after that date) have limited the main residence exemption for non-residents in some situations. The rules here are detailed and depend on your specific circumstances. This is territory where getting your own tax advice before selling matters.

What CGT looks like in practice

Say you bought a property in Melbourne for $600,000 and it's now worth $950,000. Your capital gain is $350,000.

As an Australian resident selling after holding for more than 12 months: you'd apply the 50% discount, reducing the taxable gain to $175,000. That $175,000 gets added to your income and taxed at your marginal rate.

As a non-resident: the full $350,000 is taxable — no discount. At a marginal rate of 45% (plus Medicare levy if applicable to your situation), the tax bill on that gain could exceed $150,000.

Same property. Same sale price. Very different tax outcome depending on residency status.

What about property bought after you became a non-resident?

If you bought the property as a non-resident — meaning you were already living overseas when you purchased — the 50% CGT discount doesn't apply at all. You never had Australian tax residency during ownership, so the discount was never available to you.

For investment properties purchased from overseas, the full capital gain is always taxable at marginal rates when you sell.

What to consider before selling

The most common situation we see: an expat has been overseas for several years, their Australian property has appreciated significantly, and they're thinking about selling. Before doing anything, it's worth working through a few questions:

• When exactly did you become a non-resident for ATO purposes?
• Was this property your main residence before you left?
• If so, is the 6-year rule still in play — or has it expired?
• What's your marginal tax rate for the year you plan to sell?
• Would selling in a different year change the outcome materially?

Timing the sale to align with a year of lower income — or returning to Australian tax residency before selling — can both affect the CGT outcome. These aren't simple decisions to make without proper tax advice, and the ATO rules on these points shift from time to time.

We're a mortgage brokerage, not tax advisers — so we can't give you personal tax advice here. What we can tell you is that every expat we work with who holds Australian property should have a conversation with an Australian tax professional before making decisions about selling.

Frequently asked questions

Do I still need to lodge an Australian tax return if I sell property as a non-resident?

Yes. Australian-sourced income — including capital gains on Australian property — is taxable in Australia regardless of your residency status. You'll need to lodge a tax return for the year you sell, even if you don't normally have Australian income to report.

What's the non-resident withholding tax on property sales?

For properties sold for $750,000 or more, the buyer is required to withhold 12.5% of the purchase price from settlement and remit it to the ATO unless you obtain a clearance certificate. This withholding isn't your final tax — it's applied against your assessed CGT liability. Apply for the clearance certificate well before settlement.

Does CGT apply to my owner-occupied home in Australia?

If you've been living in Australia continuously as a resident in the property, you may be eligible for a full main residence exemption. Once you leave and become a non-resident, the 6-year rule applies — see the section above. After the 6-year window, partial CGT applies for the non-resident period.

Can I avoid CGT by returning to Australia before I sell?

Returning to Australia and re-establishing Australian tax residency before selling may restore some CGT benefits — including the 50% discount for the period you were a resident. The mechanics are complex and depend on timing, so specific tax advice is essential. This isn't a general workaround that applies cleanly to every situation.

Is this different for Australian citizens versus permanent residents?

Citizenship and tax residency are separate things. An Australian citizen living full-time in Singapore may well be a non-resident for ATO tax purposes — and vice versa. What matters is the ATO's residency test, not your passport.

If you're working through a property decision and want to understand how your borrowing situation fits alongside it, we're happy to work through the numbers with you. The loan and the tax question often come up together — it helps to look at them side by side.

Check your borrowing capacity with us, or get in touch to talk through your situation.