Australians who work overseas will lose access to any capital gains tax discount on investment properties from July 1, 2027 if they relinquish Australian tax residency during their time abroad.
Ben Turner, an accountant specialising in expat tax at Atlas Wealth Management, said the “surprisingly harsh” new residency requirement is buried in the budget legislation – which passed parliament in late June.
“To qualify for the new CGT indexation regime [on an investment property], an individual must not be a foreign resident or temporary resident at any time during the testing period,” he said.
KPMG workforce and innovation partner Craig Robinson, who also advises expats on tax, confirmed that based on his interpretation of the legislation, non-tax residents will not be eligible for the new indexation-based CGT discount.
“You must be neither a foreign resident nor a temporary resident at any time during the period,” the budget legislation reads, in a section entitled ‘residency requirements for individuals for indexation to be included in a cost base’.
Currently, if Australians work overseas and become non-resident here for tax purposes they only lose access to the CGT discount proportionally based on the amount of time they are non-resident.
For example, if someone owned an investment property for 30 years and was non-tax resident for three of those years, they could still claim the 50 per cent CGT discount upon sale proportionally, for 27 years of their ownership. By contrast, they would not be entitled to any CGT discount under the new law.
“The practical consequence is that a relatively short period of overseas employment may prevent access to the new indexation regime for that property, despite decades of Australian tax residency beforehand,” Turner said.
“It potentially captures Australians who have spent the overwhelming majority of their ownership period living, working and paying tax in Australia but happened to accept an overseas assignment before eventually selling an Australian investment property.”
Doing a work stint overseas in cities such as London, New York, Hong Kong or Singapore is something of a rite of passive for many Australian executives, especially those in the financial services industry.
They may choose to become a non-tax resident of Australia during that time if the tax regime of the jurisdiction they are working in is more advantageous. However, to break Australian tax residency, three tests apply.
The first is to spend less than 183 days in Australia during each financial year, and the second and third are to meet the Australian Taxation Office’s residency and domicile tests.
The budget change will affect investment-property-owning Australians working overseas after July 1, 2027 as well as Australians currently working overseas, who will still be doing so after that date.
“A significant cohort who will be impacted are those already overseas as non-residents and then return after July 1, 2027, inadvertently causing a tax issue they may not have been aware of,” Turner said.
For Australians in a similar position who own assets other than property, such as shares, the rules allow them to make a “deemed disposal” of those shares when they leave Australia, which triggers a CGT bill that qualifies for the CGT discount at that point.
It also effectively makes any future capital gains on that asset tax-free until they return to Australia, Turner said.
Senior advocate at the National Tax and Accountants’ Association, Robyn Jacobson, said the move was not surprising given Australia has progressively restricted access to various CGT concessions for foreign residents over the past decade.
“It may be a harsh outcome for someone to lose indexation on the entire ownership period – starting from July 1, 2027 – when they may be a foreign resident for only a portion of that time, but again, this is consistent with not permitting foreign residents access to our tax concessions.”
Turner said those who spend less than two years working overseas are unlikely to become non-resident for tax purposes, with the change more likely to affect Australians who are away for longer.
Source: https://www.afr.com/wealth/personal-finance/budget-s-nasty-cgt-surprise-for-australians-doing-a-stint-overseas-20260706-p60cyt