In short
Australia used to let you sell the family home tax-free. For a foreign resident selling after 30 June 2020 that exemption is not reduced or apportioned, it is gone entirely, unless you satisfy a narrow test built around four specific life events. The rule people remember, the six-year absence rule, still exists but no longer helps you. And the date that decides your status is the contract date, not settlement.
Almost every oleh from Australia arrives with the same mental model: the family home is CGT free, and there is a six-year rule that protects it while you are away. Both halves of that were true. The first half stopped being true for foreign residents in 2020, and the second half now protects something that has been switched off.
What actually changed
The ATO states it flatly: foreign residents cannot claim the main residence exemption for property sold after 30 June 2020, unless they satisfy the requirements of the life events test. Note the word after. A contract dated on 30 June 2020 is on the other side of that line from one dated the next day.
The denial is also total. If you are a foreign resident at disposal and fail the life events test, you lose the exemption even if you were an Australian resident for most of the ownership period, and you also lose any partial or apportioned exemption, and the "home first used to produce income" rule. The statute carries that denial in the same words in two places, so this is not an ATO interpretation you might argue with.
There is no six-year safe harbour
This is the misreading that costs the most money, so it is worth stating bluntly. The Act denies the exemption to an excluded foreign resident or to any foreign resident who fails the life events test. Being a foreign resident for six years or less does not preserve the exemption. It only keeps the door open to the test, which additionally requires one of four specific and rare events. A three-year foreign resident with no qualifying event loses the exemption exactly as completely as a ten-year one.
The life events test, precisely
The statute sets two conditions that must both hold. Your continuous period of foreign residency at the time of the CGT event must be six years or less, and one of the following must have occurred during that period:
- you or your spouse had a terminal medical condition at any time in that period;
- your child had a terminal medical condition in that period, and that child was under 18 at at least one such time;
- your spouse, or your child who was under 18, died during that period;
- the CGT event happens because of a matter falling within the marriage-or-relationship breakdown rollover provisions involving you and your spouse or former spouse.
Read the statute rather than a summary here. The ATO's own page compresses the first two limbs into one and describes the fourth more narrowly than the Act does, and on a question this consequential the compressed version can read as excluding a situation the Act includes.
Why the six-year absence rule no longer saves you
The absence rule is real and unchanged: you may keep treating a former home as your main residence for up to six years while it earns income, or indefinitely while it does not, one property at a time. What changed is elsewhere. The absence rule is a choice, and the denial for foreign residents sits in a different section entirely. So the choice still formally exists, and the exemption it feeds is switched off. That is why people who read the absence rule carefully still get caught: nothing in the section they read mentions their problem.
The second, quieter loss: the CGT discount
Foreign and temporary residents are not entitled to the full 50% CGT discount for assets acquired after 8 May 2012. But the usual one-line summary of this is worse than the reality for most olim, and it is worth getting right.
- Acquired after 8 May 2012 and you were a foreign or temporary resident for the entire ownership period: no discount at all.
- Acquired after 8 May 2012, foreign resident when you sell, but Australian resident for part of the ownership period: you get an apportioned discount for the resident period. This is the case most olim are actually in, because most bought the house while living in Australia.
The date that decides everything
Contract date, not settlement
For CGT purposes the disposal happens when you enter into the contract; only if there is no contract does settlement govern. You also report the gain in the income year of the contract. Since your residency status at that moment is what switches the exemption on or off, the contract date is the single most controllable variable in this whole situation.
How this differs from the Canadian version
If you have read our page on selling a Canadian home after aliyah, do not assume the shapes transfer. They rhyme and then diverge hard:
- Canada's principal-residence relief shrinks by a ratio of years. Australia's is switched off entirely.
- Canada's clearance certificate reduces the buyer's withholding to a share of the gain. Australia's variation process reduces a percentage of the price, and requires the ATO to assess your estimated liability first.
- Australia additionally strips the CGT discount. Canada has no analogue to that at all.
If you hold a US passport
A directly owned house is not a pooled investment vehicle, so it is not a PFIC, and the PFIC machinery that dominates so much US-citizen aliyah planning does not reach it. You do still have a US layer: the US taxes its citizens on worldwide gains, with its own exclusion for a principal residence subject to its own ownership and use tests, which are unrelated to Australia's. Three tax systems can touch one sale, so label your figures: Australian amounts are AUD, Israeli amounts are NIS, US amounts are USD.
What to do before you list
- Establish your residency position at the intended contract date, not the intended settlement date.
- Work out whether any of the four life events actually applies. If none does, plan on the exemption being unavailable rather than hoping.
- Reconstruct your ownership timeline, including the periods you were an Australian resident. That timeline is what produces an apportioned CGT discount rather than none.
- Sequence the sale against your Israeli position deliberately, and get advice from someone who works across both systems rather than one.
Frequently asked questions
Australia removed the main residence exemption for foreign residents who sell after 30 June 2020, unless they satisfy a narrow life events test. The denial is total: there is no partial or apportioned exemption, and no length-of-absence safe harbour. Six years or less of foreign residency is only a precondition to attempting the test, which also requires one of four specific events. Disposal is dated by the contract, not settlement, and the CGT discount is separately reduced for foreign residents.
No, and this is the most common and most expensive misunderstanding. Six years or less of continuous foreign residency is a precondition to attempting the life events test, not a period during which the exemption survives. You must also satisfy one of four specific events: a terminal medical condition affecting you, your spouse or your minor child; the death of your spouse or minor child; or a marriage-or-relationship breakdown transfer. With none of those, a three-year absence loses the exemption exactly as completely as a ten-year one.
No. This surprises people most of all, because apportionment is how tax law usually works. If you are a foreign resident at disposal and fail the life events test, you lose the exemption even if you were an Australian resident for most of the ownership period, and you specifically lose any partial or apportioned exemption too. The Act carries that denial in the same words in two separate places.
It still exists and it is unchanged. The catch is structural: the absence rule is a choice that lets you keep treating a former home as your main residence, while the denial for foreign residents lives in a different section of the Act. So the choice remains available and the exemption it feeds is switched off. That is why people who read the absence rule carefully still get caught. Nothing in the section they are reading mentions their problem.
The contract date. For CGT purposes the disposal happens when you enter into the contract, and only where there is no contract does settlement govern. You also report the gain in the income year of the contract, not of settlement. Because your residency status at that moment switches the exemption on or off, the contract date is the most controllable variable in the entire situation, and it is worth planning around rather than discovering afterwards.
Partly, and the common summary is harsher than the reality for most olim. Foreign and temporary residents lose the full discount for assets acquired after 8 May 2012. But if you were an Australian resident for part of the ownership period, which is the usual position for someone who bought the house before making aliyah, you get an apportioned discount for that resident period rather than nothing. Reconstructing your residency timeline is therefore worth real money here.
No. A directly owned house is not a pooled investment vehicle, so the PFIC rules that dominate so much US-citizen aliyah planning do not reach it. You do still have a US layer, because the US taxes citizens on worldwide gains and applies its own principal-residence exclusion with its own ownership and use tests, which have nothing to do with Australia's. Three systems can touch one sale, so keep the currencies labelled and get advice that spans them.