The starting position
Section 118-110 of the Income Tax Assessment Act 1997 grants a full CGT exemption to gains made on the disposal of a dwelling that was the taxpayer's main residence throughout the ownership period. The exemption is the central tax benefit of home ownership in Australia — and it is the planning question that most often determines whether a relocation to the UAE is net-positive in the year of exit.
The six-year absence rule
Section 118-145 ITAA 1997 allows an owner who ceases to occupy a dwelling as a main residence to elect to continue treating it as a main residence during an absence. The election extends the exemption for:
- Up to 6 years if the dwelling is rented or used to produce assessable income during the absence.
- Indefinitely if the dwelling is not rented out (not used to produce income).
The election is "all or nothing" — if you elect the absence rule for a property, no other dwelling can be your main residence during the same period (with limited transitional spousal exceptions).
The 2019 reform — foreign residents
The Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Act 2019 (royal assent 12 December 2019) inserted s 118-110(3) and (4) ITAA 1997: the main residence exemption is unavailable to individuals who are foreign residents at the time of the CGT event.
The transitional provision protected pre-9-May-2017 acquisitions sold by 30 June 2020. That window has now closed. From 1 July 2020 onward, every sale by an Australian-tax non-resident is taxed without the exemption — even for properties held for decades.
The reform applies on a residency-at-disposal basis. It does not matter that you were Australian-resident for the entire ownership and only became non-resident in the year of sale. The status at the contract date of the CGT event determines exemption availability.
CGT Event I1 — what it does and does not
Section 104-160 ITAA 1997 imposes CGT Event I1 on an individual ceasing to be an Australian tax resident — deemed disposal at market value of certain CGT assets (with election to disregard for non-residents who later return).
Critically, CGT Event I1 does not apply to Taxable Australian Property, which includes Australian real estate (s 855-15). So leaving Australia does not trigger a deemed disposal of the Australian home — but it does change the future-disposal tax treatment, because the home stays on Australian CGT exposure and the exemption no longer applies on future sale.
The decision matrix
| Scenario | Result |
|---|---|
| Sell home while Australian-resident, before relocating | Full main residence exemption (s 118-110) |
| Keep home, relocate to UAE, sell within 6 years while Australian-resident | Exemption available if absence-rule elected and Australian-resident at contract date |
| Keep home, relocate to UAE, sell while UAE-resident | No exemption — full CGT on entire gain from original purchase (s 118-110(3)) |
| Keep home, relocate, rent out, never sell — held by estate | Estate inherits CGT cost base; potential planning via testamentary distribution |
| Keep home, relocate, return to Australia, sell | Exemption depends on residency status at contract date — being Australian-resident at sale restores eligibility |
The pre-exit move
For most Australian-resident clients moving to the UAE with a meaningful gain accrued in the family home, the right move is to sell before ceasing Australian tax residency. This locks in the section 118-110 exemption.
Timing details that matter: the residency cessation under the ATO's resides, 183-day, and domicile tests; the contract date of the property sale (not settlement date — the contract date is the CGT event date under s 104-10); the absence-rule election interaction with any subsequent UAE-property purchase that you intend to nominate as main residence.
The UAE-resident return-trip option
For a client who has already become UAE-resident and now wants to dispose of the Australian home, the planning options are limited:
- Re-establish Australian tax residency before sale (typically requires moving back, full ATO residency test, often impractical).
- Hold the property indefinitely — if you never sell, you never trigger the CGT event. Inheritance via estate brings a step-up question subject to the deceased-estate rules.
- Sell and accept the tax — calculate the CGT carefully, including the 50% discount unavailability to foreign residents on accrued post-8-May-2012 gains (s 115-105).
- Restructure the holding — historically advisers used spousal transfers and trust holdings; the foreign-resident rule applies on a per-disposal basis, so check current law.
The 50% discount problem
Layered on top: section 115-105 ITAA 1997 removes the 50% CGT general discount for foreign residents on gains accrued after 8 May 2012. So a foreign-resident sale not only loses the main residence exemption — it also pays CGT on the full gain at marginal rates without the 50% reduction. The combined hit is materially worse than either rule alone.
Where Neo Legal fits
The Australian side of an Australian-UAE move is run by Australian tax counsel — typically through our Cornwalls Group connections (Cornwalls Melbourne tax partners) and other Australian specialist firms. Neo Legal coordinates the UAE-side residency, family-office establishment, banking, and the integration with the Australian exit timeline. We see this move 20+ times a year and have the pattern down.
