Australian Expats Could Lose the New Capital Gains Tax Indexation Benefit by Working Overseas
A single period of foreign residency after 1 July 2027 could permanently deny access to Australia’s new Capital Gains Tax (CGT) indexation regime for an Australian investment property.
For many Australians working overseas, retaining an Australian investment property has long been part of their financial plan. Australia continues to tax capital gains on Australian real estate, regardless of where the owner lives, so many expatriates simply keep their property until they eventually return home or decide to sell. However, one of the most significant aspects of the Government’s new CGT reforms has received little attention.
Under the legislation passed by Parliament, an Australian who becomes a foreign resident after 1 July 2027 may lose access to the new inflation indexation regime for that property—even if they later return to Australia before selling. For thousands of Australians working overseas, this could become one of the most important tax planning issues arising from the CGT reforms.
Australia still taxes Australian property
Many Australians assume that once they become a foreign resident, Australia can no longer tax the sale of their investment property.
That is incorrect.
Australian real estate remains Taxable Australian Property, meaning Australia generally continues to tax any capital gain when the property is sold.
Moving overseas changes your Australian tax residency.
It does not remove Australia’s taxing rights over Australian real estate.
What the New CGT Rules Mean for Expats From 1 July 2027
From 1 July 2027, Australia moves away from the long-standing CGT discount regime and introduces an inflation-based indexation system for eligible taxpayers.
Rather than reducing eligible capital gains by a fixed percentage, the new regime increases the cost base of eligible assets to recognise inflation.
For many Australian residents, this will fundamentally change how capital gains are calculated. However, there is an important condition.
The residency requirement many Australians will miss
The new legislation contains a strict residency requirement.
To obtain indexation, an individual must not be a foreign resident (nor temporary resident) at any time during the testing period.
For assets already owned on 1 July 2027, the testing period begins on 1 July 2027 and ends when the relevant CGT event occurs, usually the sale of the property.
This requirement is absolute.
The legislation does not ask:
“Were you an Australian resident when you sold the property?”
Instead, it asks:
“Were you a foreign resident or temporary resident at any time between 1 July 2027 and the sale?”
If the answer is yes, the residency requirement is not satisfied.
Returning to Australia does not restore eligibility
This is where many expatriates are likely to be caught by surprise.
Consider Sarah…
Sarah purchases an investment property in Adelaide in 2020.
She remains an Australian resident until 2029.
She then accepts a five-year role in Singapore and becomes a foreign resident for Australian tax purposes.
In 2034 she permanently returns to Australia.
She sells the property in 2038 while once again an Australian tax resident.
Most people would assume Sarah qualifies for indexation because she is an Australian resident when the property is sold. That is not how the legislation operates. Because Sarah was a foreign resident during the testing period, she does not satisfy the residency requirement. Returning to Australia before selling the property does not restore eligibility.
A short overseas assignment could have significant tax consequences
The practical effect of the legislation becomes even clearer in the following example.
Imagine David owns an Australian investment property from 1 July 2027.
He remains an Australian tax resident for twenty years.
During that period, inflation steadily increases the property’s indexed cost base.
In 2047, David accepts a three-year overseas assignment and becomes a foreign resident.
One year later he decides to sell the property.
Many taxpayers would reasonably expect twenty years of Australian residency to qualify them for twenty years of inflation indexation. That is not how the legislation is drafted. Because David became a foreign resident during the testing period, he fails the residency requirement.
The issue is not that he loses one year of indexation. The issue is that he loses access to the indexation regime for that asset.
For Australians contemplating overseas employment later in life, this may produce an outcome that is entirely unexpected.
Why this matters?
Historically, Australians moving overseas were primarily concerned about:
- Australian tax residency;
- the six-year absence rule;
- Capital Gains Tax;
- Foreign Resident Capital Gains Withholding;
- Deemed Disposal; and
- double tax agreements.
The new legislation introduces another important planning issue. For Australian investment property, the timing of overseas residency after 1 July 2027 may determine whether the new indexation regime is available at all. This is particularly relevant for Australians who:
- move overseas;
- retain Australian investment property;
- later return to Australia;
- intend to hold property for many years; or
- expect to sell Australian property after 1 July 2027.
Frequently Asked Questions About CGT Indexation for Expats
| Does Australia still tax my investment property if I move overseas?
|
Yes.
Australian investment property generally remains Taxable Australian Property. Australia continues to tax capital gains even after you become a foreign resident. |
| If I return to Australia before selling, do I regain indexation?
|
No.
The legislation requires that you are not a foreign resident or temporary resident at any time during the period beginning on 1 July 2027 and ending when the CGT event happens (usually sale). Returning to Australia before sale does not satisfy that requirement if you have already been a foreign resident during the period. |
| Does this apply to temporary overseas assignments?
|
Yes.
The legislation does not distinguish between a permanent move overseas and a temporary overseas assignment. The relevant question is simply whether you were a foreign resident during the testing period. |
| Should I sell my property before moving overseas?
|
Every taxpayer’s circumstances are different.
However, Australians planning to retain investment property while working overseas should understand how the new residency requirements may affect the future taxation of that property before making long-term decisions. |
The bottom line for expats on Capital Gains Tax
The Government’s new CGT reforms introduce a planning issue that many Australian expatriates may not yet appreciate.
Australia continues to tax Australian investment property owned by foreign residents. However, the new indexation regime is subject to a strict residency requirement.
For Australians who become foreign residents after 1 July 2027, a later return to Australia does not restore eligibility for indexation. For many expatriates, understanding this issue before leaving Australia may be just as important as understanding Australia’s tax residency rules themselves.
Contact Us
Managing your financial affairs across borders is a complex space, and having the right support can make all the difference. We specialise in supporting Australian expats with cross-border tax planning, mortgage solutions, superannuation, and wealth management. Contact us to arrange a consultation with a qualified adviser who specialises in Australian expat financial planning to get personalised guidance tailored to your circumstances.
Refer to Part 2: Moving Overseas? Australia’s New CGT Rules Have Changed the Deemed Disposal Decision
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Disclaimer: This article is intended for informational purposes only and does not constitute legal or financial advice. Individuals should consult licensed professionals when seeking guidance regarding their financial circumstances.