Australian Budget 2026: Impact Of The 30% Capital Gains Tax (CGT) On Expats

The Effect Of The 30% Capital Gains Tax Minimum Floor Tax On Australian Expats And Non-Residents

Following the announcements in the 2026 Australian budget provided by Treasurer Jim Chalmers on 12 May 2026, Matthew Marcarian, Principal of our Sydney office, examines the distortive consequences of the proposed 30% Capital Gains Tax (CGT) minimum floor tax on Australian expats and other non-residents in this article.

The benefit of negative gearing was supposed to be preserved for residential properties acquired prior to 7.30pm on 12 May 2026 (Budget Night) and was to be permitted for new residential properties acquired after Budget Night. 

However, because of the proposed Floor Tax on capital gains – negative gearing benefits are not necessarily preserved. 

Unfortunately – this is true for Australian tax residents in various situations and is also true for Australian expats alike (non-residents).

The Case Study below illustrates the problem in the circumstances of an Australian expat “Liam” who decides to sell his Australian rental property. 

It demonstrates that the floor tax formula removes (effectively retrospectively) the value of accumulated prior-year rental tax losses. Current policy settings do not allow tax losses to be kept in abeyance. They must be applied to taxable income.

The Policy Flaw: Removing The Benefit Of Prior-Year Tax Losses

For individuals working overseas, their assessable Australian income is typically restricted strictly to Australian-sourced rental income. 

Under long-standing Australian tax principles, legitimate out-of-pocket investment losses incurred while property gearing can be carried forward indefinitely to offset future assessable income, including capital gains. 

The 30% minimum floor tax formula completely changes this.

While prior-year revenue tax losses are technically “used” on paper to reduce Liam’s nominal taxable income, the 7-step legislative formula in the proposed Section 119-10(2) forces a top-up calculation that anchors Liam’s final bill to a flat 30% of the gross capital gain. The 30% floor CGT claws back the tax savings otherwise available and removes the tax benefit of the tax losses. 

The benefit of negative gearing on residential property acquired prior to 7.30pm on Budget night was supposed to be preserved. 

Analysis: “Liam’s Case”

Liam is an Australian expat working overseas. Over 4 years of non-residency, he has accumulated $80,000 in carried-forward Australian tax losses on his investment apartment. 

The tax losses arose because his rental expenses, including bank interest, exceeded his rental income by $20,000 each year. Liam sells his property for a capital gain of $250,000 in preparation for buying a home upon returning to Australia. As a non-resident, he has now other Australian assessable income.

Liam’s Parameters: Carried-Forward Rental Losses: $80,000 | Net Capital Gain: $250,000. Actual Taxable Income (Post-Loss): $170,000. 

Scenario A shows the result if Liam had no accumulated tax losses. 

Scenario B shows the result with losses applied.  

Liam’s simulation is based strictly on the legislated 2026 Stage 3 foreign resident income tax brackets (30% from $0 to $135,000; 37% from $135,001 to $190,000; 45% above $190,000). Foreign residents are legally exempt from the 2.0% Medicare Levy and the Medicare Levy Surcharge.

Core Technical Anomalies For Expats And Non-Residents

• Confiscation Of Losses – Carried-forward rental losses are actual deficits paid by Liam to hold Australian property. Had he remained living in Australia, he would have had the benefit of the loss against his employment or other income. The new rules wipe out the tax deduction of these carry-forward losses simply because they are applied in a year with a capital gain, introducing an asymmetrical penalty on expat property owners. 
  
  Had Liam waited to return to Australia, he could have applied those losses to salary income if he were able to find employment on his return to Australia.  The tax outcome will likely influence the ‘right time’ for Liam to sell his apartment. It is necessary for Liam to earn enough other income (for example Australian employment income), before he can sell his apartment, otherwise he risks losing the benefit of his tax losses.
  
• The Return-To-Australia Barrier – Many expats retain single investment properties to preserve a financial link to their home market, intending to use the sale proceeds to buy a main residence upon return. By wasting tax losses, this legislation actively complicates the repatriation process for expat Australians looking to return home.
  
• Casualties Of Law – Australian expats have for many years been subject to harsh tax outcomes because Governments of the day were seeking to impose taxes on foreigners—but could not pass income tax laws targeting foreigners. As a result, policy responses which targeted at foreigners were legislated to apply to ‘non-residents.’

It is my view that Australian expatriates have been unfairly treated – this continues a long trend. First with the removal of the 50% CGT Discount (2012), second with the removal of the CGT Main Residence Exemption for non-residents (2020) and now again with new proposals in the Bill. 

Expats will risk significant loss of value for their existing tax losses, and the Government has already announced that non-residents, which include Australian expats, will not be given the benefit of indexation