Selling a home to retire overseas: capital gains tax and the Age Pension

A foreign resident for tax purposes who sells an Australian home after 30 June 2020 cannot claim the capital gains tax (CGT) main residence exemption, unless the life events test is met, according to the Australian Taxation Office (ATO)¹. The exclusion applies even if the seller lived in the home as an Australian resident for part of the time they owned it.

Without the life events test, a foreign resident seller is also not entitled to a partial main residence exemption¹. The rule that resets a home's cost base to its market value when it is first rented out also does not apply to a foreign resident seller who does not meet the life events test.

For an Australian resident seller, a home is fully exempt when three conditions are met². The dwelling must have:

• been the home of the owner, their partner and other dependants for the whole period it was owned
• not been used to produce income, such as from rent or a business
• stood on land of 2 hectares or less.

A foreign resident seller's 50% CGT discount is reduced for periods of foreign residency³. For property acquired after 8 May 2012, a seller who was an Australian resident for only part of the ownership period can claim the discount only for the resident period.

The seller's tax residency on the date the sale contract is signed decides whether the main residence exemption can apply. The ATO treats a home sold under a contract as disposed of when the contract is signed¹. Where there is no contract, the disposal time is settlement.

A home sold under a contract signed while the owner is still an Australian resident can qualify for the exemption¹. The same home sold under a contract signed after the owner becomes a foreign resident cannot, unless the life events test is met.

When a person stops being an Australian resident, assets that are not taxable Australian property are treated as sold at market value on that date for CGT purposes⁵. Australian real estate is taxable Australian property, so the CGT event for the home occurs only when it is sold.

Under the ATO's residency guidance, an individual who goes overseas temporarily and does not set up a permanent home in another country is still an Australian resident for tax purposes⁶.

For contracts signed from 1 January 2025, the buyer must withhold 15% of the price of Australian property and pay it to the ATO, unless the seller provides a clearance certificate or a variation notice⁶. From 1 July 2017 to 31 December 2024, the rate was 12.5% and applied only to property valued at $750,000 or more.

Home sale proceeds kept in a bank account or other financial investment are treated as earning income under the Age Pension deeming rules, regardless of the income they actually earn¹⁰. From 20 September 2026, a single pensioner's financial assets are deemed to earn 1.75% a year on the first $66,800 and 3.75% on the amount above it, according to Services Australia¹².

For a couple where at least one member receives a pension, the 1.75% rate applies to the first $110,600 of combined financial assets¹².

For homes sold from 1 January 2023, proceeds intended for a new principal home are deemed at the lower rate only while they are exempt from the assets test¹⁰¹². The lower rate is 1.75% from 20 September 2026¹³. Any other proceeds held in a financial asset are deemed at the regular rates¹².

This deemed income is then added to any other income under the Age Pension income test. A single pensioner's fortnightly rate falls by 50 cents for each dollar of income above $226 a fortnight, and for a couple, each member's rate falls by 25 cents for each dollar of combined income above $396 a fortnight¹⁴. Services Australia notes that the income cut-off point may be lower for a person who does not live in Australia.

The period from 1 May 2020 to 19 September 2025 had the lowest deeming rates shown in the Department of Social Services data dating back to 1 July 1996, at 0.25% and 2.25%¹³. Both rates rose by 1.5 percentage points over three increases from 20 September 2025 to 20 September 2026, reaching 1.75% and 3.75%.

A home kept and rented out can remain the principal home for the Age Pension assets test for up to 12 months after the owner moves out¹⁶. During that time, the owner is still treated as a homeowner, even if the absence is expected to last longer.

After 12 months, the home is no longer the principal home and its market value is counted as an asset¹⁶.

The 12 months can be extended for a person overseas who is unable to return because of circumstances beyond their control¹⁶.

Services Australia counts rent from a former principal home as income⁸.

Services Australia values real estate at current market value, which can differ from state and local government valuations⁸.

A foreign resident's taxable income, including net rent, is taxed at foreign resident rates. For 2025–26, the latest year listed in the ATO data, the rate was 30% on taxable income up to $135,000, with no tax-free threshold¹⁷. Foreign residents do not pay the Medicare levy.

A rented-out home is still subject to the foreign resident main residence exemption rules when it is later sold. The 6-year rule can let an owner treat a rented-out former home as their main residence for up to six years after moving out¹⁸. However, a foreign resident seller generally cannot use the main residence exemption unless the life events test is met¹.

An owner who returns to Australia and becomes a resident again before signing a sale contract is not affected by the foreign resident exclusion¹. The 6-year rule can then apply to the period the home was rented out if its conditions are met¹⁸.