On 12 December 2019, legislation was passed in order to limit the availability of the Main Residence Exemption to Australian Tax Residents only (with some exemptions).

Where a Foreign Tax Resident disposes of a property:-

• they acquired prior to 9 May 2017, the Taxpayer would continue to be entitled to the Main Residence Exemption provided the disposal occurred prior to 30 June 2020;
• they acquired prior to 9 May 2017, the Taxpayer would no longer be entitled to the Main Residence Exemption where the disposal occurred after 30 June 2020 (unless certain conditions are met);
• they acquired after 9 May 2017, the Taxpayer would not be entitled to the Main Residence Exemption on disposal (unless certain conditions are met).

Where a Foreign Tax Resident disposes of a property that would have been entitled to the Main Residence Exemption (if they were an Australian Tax Resident), the Taxpayer may still be entitled to the Main Residence Exemption if the following conditions are met:-

• they were only a Foreign Tax Resident for a continuous period of six (6) years or less; and
• one of the following ‘life events’ occurred:-
  • the Taxpayer or their spouse has had a terminal medical condition that existed at any time during that period of foreign residency;
  • the Taxpayer’s child has had a terminal medical condition that existed at any time during that period of foreign residency, and that child was under 18 years of age at at least one such time;
  • the Taxpayers’ spouse, or child (who was under 18 years of age at death), has died during that period of foreign residency;
  • the CGT event happens because of a matter relating to a Marriage or Relationship Breakdown involving the Taxpayer and their spouse/former spouse.

The above changes could trigger a substantial tax liability for Taxpayers living/working overseas and are considering selling their Main Residence while they are overseas:-

• where the Taxpayer continues to be treated as an Australian Tax Resident while working overseas (ie. being taxed in Australia on their worldwide income), they will continue to be able to claim the Main Residence Exemption on disposal of the property;
• where the Taxpayer has ceased to be an Australian Tax Resident (ie. only being taxed in Australia on their Australian sourced income), they will be unable to claim the Main Residence Exemption on disposal (unless the conditions mentioned above are met).

Note that as a result of the above, Foreign Tax Residents who no longer qualify for the Main Residence Exemption will also no longer be able to use the Main Residence Exemption as a reason to apply to have the Foreign Resident Capital Gains Tax Withholding rate varied down to Nil.