The way the main residence exemption applies to foreign residents including upon their death can be quite tricky.

General rule for residents

A full main residence CGT exemption applies to a capital gain from a property that was a person’s main residence throughout the period they owned it.

The exemption can even apply in respect of periods where the owner was not living at the property if they chose to continue to treat the property as their main residence. Such a choice can only be made if:

• The property became the owner’s main residence as soon as practical after it was bought.
• The period ceased to be the owner’s main residence, and during the owner’s absence it is used to produce income during for less than 6 years.
• The owner does not treat any other property as their main residence during the absence period.

Example

Barry bought a house in Sydney in 2015. He lived there until he was transferred to Melbourne in 2022. In Melbourne, Barry’s employer provided him with accommodation. While living in Melbourne he rented the Sydney house. In 2023, Barry decided to sell the Sydney house. As the period he chose to treat the Sydney house as his main residence while he lived in Melbourne was less than 6 years, Barry is entitled to a full main residence exemption.

Rules for foreign residents

Since 2020, a foreign resident is not entitled to any CGT main residence exemption, unless they have been a foreign resident for less than 6 years and satisfy the life events test. This test is satisfied if the owner or a family member is diagnosed with a terminal illness, a family member dies, or the owner is involved in a marriage breakdown.

If you don’t meet the life events test, you aren’t entitled to any main residence exemption, even if you were a resident for some of the ownership period.

Example

Barry bought a house in Sydney in 2015. He lived there until he was transferred to Auckland in 2022. During his absence from Australia, Barry was not a resident of Australia for tax purposes.

Barry’s employer provided him with accommodation in Auckland. While living in Auckland he rented the Sydney house.

In 2023, Barry decided to sell the Sydney house. Because Barry is a foreign resident when he sold the house and he does not satisfy the life event test, he is not entitled to any main residence exemption (including for the period that he actually lived in the Sydney house).

Application to LPR

If when you die you have been a foreign resident for six years or less, your legal personal representative may be entitled to a full main residence exemption (similar to the way the rules would apply if you had not become a foreign resident).

If you have been a foreign resident for more than six years when you die, your legal personal representative will not qualify for the main residence exemption in respect of a former dwelling.

Example

Assume that Barry moved to Auckland in 2016. He did not rent the Sydney property. He was involved in an accident and died in 2024. His executor sells the property. As Barry has not been an Australian resident for more than six years, the main residence exemption does not apply to the capital gain from the sale of the dwelling.