Buying a villa in Italy, a ski apartment in Japan, or a luxury base in Bali can look like a lifestyle upgrade with a side of tax planning. That is exactly why the idea keeps resurfacing among affluent Australians, especially as global lifestyle assets and dual-base living become more common. Knight Frank says wealthy Australians are increasingly looking at overseas lifestyle property, with Japan, Southern Europe and Bali all drawing demand.
The problem is that many buyers focus on the offshore opportunity and miss the tax risk sitting back in Australia.
In plain English, the trap is this: if you become a foreign resident for Australian tax purposes and then sell your Australian home, the main residence exemption may not apply. For sales after 30 June 2020, foreign residents generally lose access to that exemption unless they meet a narrow life-events test.
That can turn what people assume is a tax-free family home into a very large capital gains tax bill.
The part most people get wrong
A lot of Australians still think tax residency is mostly a day-count exercise. Spend fewer than 183 days overseas and you should be fine. Spend more and you are out. That is not how this works in practice.
Australian tax residency is more complicated than that. The rules involve multiple tests, and where another country is involved there can also be treaty tie-breakers. That means a family can believe they are still effectively “Australian” while the tax outcome points the other way.
That matters because the tax bill is not usually created by buying abroad. It is created later, when the Australian property is sold.
Why this hits harder than many owners expect
The emotional assumption is simple: “It was our home for years, so surely the tax office recognises that.”
Here’s the catch. For an affected foreign resident, the law may not give much weight to the fact that the property was genuinely your family home for a long stretch of time. The ATO says foreign residents selling after 30 June 2020 are generally unable to claim the main residence exemption unless the life-events exception applies.
That is why this can be so punishing in practice.
A family that bought a Sydney house decades ago at a much lower price may be sitting on a very large unrealised gain. Sell while still an Australian tax resident and the home may be fully exempt. Sell after becoming a foreign resident and the exemption can disappear, leaving a large taxable gain instead. That is the sort of gap that changes a family’s retirement maths, debt plans, and estate planning in one move.
This is also why the tax debate around property often misses the real pressure point. As Australian Property Review recently argued, the biggest financial hit in property often arrives at the exit, not during the holding period. Read more: Chalmers’ real property tax hit explained
Buying overseas does not automatically create the problem.
Becoming a foreign tax resident and then selling your Australian home is what can trigger it.
That is the difference most people miss.
What changed, and what did not
What changed is the treatment of the Australian main residence for foreign residents. The relevant law change took effect for disposals from 1 July 2020, following the 2019 legislation that removed the exemption for many foreign residents.
What did not change is the basic appeal of offshore property. Wealthy buyers still want diversification, lifestyle flexibility and, in some countries, a more attractive personal tax setting. Italy’s flat-tax regime and Greece’s non-dom-style arrangements are part of that broader pull, while Knight Frank says demand has also shifted toward Japan, Southern Europe and Bali.
So the policy risk is colliding with a lifestyle trend, which is why this issue keeps coming back.
The second-order effect families miss
The obvious risk is a sale while living abroad. The less obvious one is succession.
If a person dies while still overseas, the tax treatment around the former family home can become more complicated for beneficiaries, especially where the main residence exemption is already constrained. APReview has covered how inherited property, cost base rules, and exemption windows can shape the eventual tax outcome. Read more: The costly property mistake most investors only discover at the end.
That is where this stops being a simple “holiday home” story and becomes a family balance-sheet story.
What would change the risk
There are only a few levers that really matter here.
First, whether you are still an Australian tax resident when the sale happens.
Second, whether any life-event exception applies under the foreign resident main residence rules.
Third, whether you are dealing with a genuine main residence, an investment property, or a former home that has been rented out, because those facts can change the outcome materially. The ATO separately notes that the six-year absence rule can apply in some resident cases, but foreign resident rules can override the expected benefit.
That means the decision is not “Should I buy in Tuscany?” The real decision is “What happens to my Australian home before, during and after any move?”
For background, Australian Property Review also has a simpler refresher on the mechanics here: What is Capital Gains Tax? How To Calculate CGT?.
The practical take
If you are even thinking about splitting your life between Australia and another country, do not leave the family home until after the tax conversation. That is the rule of thumb.
Before you sign for the overseas property, pressure-test four things:
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your likely Australian tax residency status after the move
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whether and when your Australian home might be sold
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whether the property will be rented, kept vacant, or retained for family use
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how the plan affects estate and beneficiary outcomes
The lifestyle upside may still stack up. But the tax outcome is not something to tidy up later. In many cases, later is exactly when the damage gets locked in.
