This article is general information about how Australian tax rules and lending rules meet on a property sale. It is not personal financial or tax advice. Decisions about a sale, a variation application or a mortgage should be made with a registered tax agent and a licensed adviser who can see your full position.
Three things move at once when a foreign resident sells
A sale by someone who is a foreign resident for Australian tax purposes does not run like a domestic sale. Three threads start on the contract date.
- The sale appears in the income evidence a lender reads, which is where a self-employed borrower's next loan is decided.
Most of the difficulty in these sales comes from sequencing rather than from the tax itself. A variation lodged two weeks before settlement will not be decided in time, and the buyer will withhold regardless.
Tax residency is not your visa or your passport
The reverse happens as well.
Long-term expats sometimes assume a visa settles the question, then find the sale treated as a foreign resident disposal.
What happens to the main residence exemption
The exemption is the largest single variable in the calculation. For a foreign resident it is generally unavailable on the sale of an Australian home, including a home the family lived in for years.
Two questions decide most cases: whether a qualifying event applies to you, and how the ownership period splits between resident years and foreign-resident years. Records of when you actually lived in the property carry that argument.
Withholding at settlement, and why the proceeds arrive short
The withholding regime is designed to collect the tax before the money leaves the country. On a large sale the shortfall is material, and it lands on the day you were expecting the funds.
Two documents change the outcome.
The figures to work from are the ones in force on your contract date.
Applying for a variation: timing does most of the work
A variation is an argument, made with documents, that withholding more than the expected liability would be excessive. In practice the ATO wants to see:
- the contract of sale, with the date and the price;
- the cost base, meaning what you paid plus purchase costs plus capital improvements, backed by records;
- the dates you were resident and non-resident during the ownership period;
- the calculation you say is correct, including how the exemption and any discount have been handled;
- the history of the property as a home, where the exemption is being claimed.
Lodge it as soon as the contract is signed.
Applications fail for predictable reasons: a cost base with no evidence behind it, an exemption claimed without a qualifying event, or a calculation that ignores the split between resident and foreign-resident years.
Working out the CGT position
For foreign residents two adjustments usually dominate.
The second is apportionment. Where ownership spans both resident and foreign-resident periods, the outcome is divided across those periods, and the way the years are allocated can move the number materially.
Reporting and paying
The items to pin down early are the reporting date and the form that depend on your residency and lodging history, rather than in the week the return is due.
What the lender reads after the sale
This is where a self-employed borrower can lose the next loan before applying for it. St.George Bank's broker guidance for self-employed applicants sets out what a Fast Track assessment looks at: two years of personal ATO notices of assessment, with capital gains deducted from taxable income, and two full financial years in the same business. Applicants also need no more than $200 in foreign income tax credits on either year's notice.
The first point catches sellers who offloaded a property in the past two years. A one-off gain inflates the taxable income shown on the notice of assessment, and the lender strips it back out, so the inflated figure does not raise borrowing capacity. The same guidance states that Fast Track verifies income solely from the notices of assessment, which makes the quality and timing of those notices decisive.
Low doc lending sits alongside that. Self-employed borrowers can use BAS statements, accountant letters and business bank statements instead of payslips, which helps where taxable income has been kept low.
St.George is one lender's policy, not the market. Other lenders treat self-employed income differently, and the scenario matrix published for brokers exists precisely because those treatments diverge.
Contract date to settlement: the order that works
- Fix your residency position for the contract date.
- Collect the cost base records, including purchase costs and capital improvements.
- List the dates you lived in the property.
- Decide whether the exemption is being claimed, and on which event.
- Lodge the variation application with the ATO.
- Tell the conveyancer the withholding position before settlement is booked.
- Confirm what will be withheld if the variation has not been decided.
- Line the settlement date up against the two years of notices of assessment your lender will use.
- Keep the contract, the variation outcome and the credit record together for the tax return.
- Confirm which return the sale is reported in, and when it is due.
Questions sellers ask before they list
What withholding rate and threshold apply to my sale?
Older numbers quoted in forums and old articles are not reliable for a contract signed now.
Do I keep the main residence exemption?
Generally no, as a foreign resident.
How do I apply for a variation, and how long does it take?
Lodge the application with the ATO once the contract is signed, supported by the cost base, the residency dates and your calculation. Processing time varies with the complexity of the file and the evidence provided, so early lodgement is the only reliable way to have an answer before settlement.
Do I still get the CGT discount?
The discount available to resident individuals generally does not apply to foreign residents. Where ownership spans resident and non-resident periods, the outcome is apportioned across those periods, so part of the gain may still be treated differently.
When do I report and pay?
The items to confirm before the due date are which return applies to your lodging history and residency, and the deadline that follows from them.
I am self-employed and buying again. How does this affect approval?
Lenders using notices of assessment deduct capital gains from taxable income, so a one-off gain does not help serviceability. Two years of notices are typically required, and the proceeds you actually receive are lower where an amount was withheld at settlement.
Where the facts come from
The lending detail in this article comes from St.George Bank, Home Loans for Self-employed Broker Clients, undated broker guidance setting out Fast Track assessment for self-employed applicants.
Tax rules are described generally.