After hardly 40 days, the Government has now decided to amend its new cost base indexation laws to allow Australian expats (and other non-residents) to have the benefit of the cost base indexation on a proportionate basis from 1 July 2027.

On 26 June 2026, the Government legislated and introduced Section 114.25 ITAA 1997 which reads as follows:

INCOME TAX ASSESSMENT ACT 1997 – SECT 114.25

Residency requirements for individuals for indexation to be included in a cost base under subsection 110 – 36(1A)

 (1)  This section sets out requirements for indexation to be included under subsection   110 – 36(1A) in the * cost base of a * CGT asset for the purposes of working out your * capital gain from a * CGT event happening in relation to the * CGT asset if:

 (a)  you are an individual; and

 (b)  the CGT event happened while you were holding the CGT asset (as a result of earlier * acquiring it).

Note:  This section applies for working out a capital gain you make from directly holding the asset. A similar result arises for any capital gain you make indirectly as a beneficiary of a trust (see Subdivision 115 – C, in particular subsections   115 – 225(4) and (5)).

 (2)  You must be neither a foreign resident nor a * temporary resident at any time during the period (the testing period) :

 (a)  starting on the later of 1   July 2027 and the day of * acquiring the * CGT asset; and

 (b)  ending on the day the * CGT event happens.

The Problem: Complete Loss Of Indexation

The effect of Section 114.25 is that if a person is a non-resident at any time during their ownership period of an Australian investment property, they will not be able to benefit from cost base indexation at all – regardless of how long they may have owned the property while living in Australia.

We highlighted this inequity in a tax seminar held for members and invitees of the American Australian Association in New York on 16 July 2026.

We are pleased that the Government has now proposed to address this issue.

Legislation As “Beta Code”?

Curiously, the Explanatory Memorandum which introduced the Tax Reform Act 2026 flagged that

“Future amendments may be considered in relation to how entities that are resident for only part of the period they hold a CGT asset …may access indexation. “

That begs the question: Why did the Government legislate in this manner in the first place if they knew there was an equity issue that would need to be addressed?

It is disappointing to see this legislative approach, which wastes valuable time and resources and fuels uncertainty.

New tax rules should not be treated as some form of ‘beta code’, released for user acceptance testing with bug fixes in the form of amendments.

Since the equity issue here was surely known at out the outset it, these issues would have been far better addressed as part of exposure draft legislation rather than being rush through with all the other Budget changes.

RIP Section 114.25 ITAA 1997 – alive for hardly 40 days and already ready to be cast aside!

“O, ill-fated tax Section, whither goest thou? To become an irrelevancy after not having inconvenienced a single person!”

What The Proposed Amendments Mean For Expats

The proposed removal of Section 114.25 will mean that:

• a Departing Australian moves overseas and becomes a non-resident, they will NOT lose the benefit of cost base indexation completely (on property they directly own).
• a Returning Australian can also benefit from cost base indexation upon returning, on a proportionate basis.

Trust Ownership

We caution that this amendment only addresses the equity issue where a person directly owns real estate and changes tax residency.

It does not deal with the situation where a beneficiary of an Australian trust changes tax residency and the asset of the Trust is sold.

The Government is aware of this, given its latest comments as follows:

‘Further consideration is being given to determining appropriate outcomes for taxpayers who change their residency status and how make capital gains indirectly through a trust.’ (paragraph 1.92 Exposure Draft Explanatory Memorandum Treasury Laws Amendment (Tax Reform No. 3) Bill 2026: CGT Adjustments (Tranche 2).

It would be straightforward to permit a non-resident to benefit from cost base indexation to the extent they have been a resident of Australia at some point during the Trust’s ownership of the asset.

That approach to apportionment for trust level capital gains was already perfectly operational under the previous 50% CGT discount rules.

Whether the Government extends this reasonable approach to trust beneficiaries remains to be seen. Will they or won’t they (allow it) – that is the question.

Need Guidance On Your Australian Tax Residency Status?

If you are an Australian expat owning property directly or through family trusts, evolving CGT rules can significantly impact your international tax profile.

Contact our team today to discuss how these indexation amendments affect your assets and future tax planning.

Disclaimer: This article provides general information only and does not constitute formal tax or legal advice. Tax laws are complex and subject to change. Please consult a qualified tax advisor regarding your specific circumstances.

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 financial impact of the proposed 30% Capital Gains Tax (CGT) minimum floor tax on self-funded retirees who rely on franked dividends, interest, and investment growth.

Many self-funded retirees do not utilize negative gearing and do not receive the Aged Pension.

For these individuals the floor tax formula introduces a particular hidden penalty on top of the inequity of having a minimum 30% CGT on capital gains when their marginal tax rates might not require that.

When a self-funded retiree makes a capital gain from shares or ETFs, the formula forces a “minimum tax gap” top-up. This can be an effective way of clawing back the benefit of franking credits by arbitrarily increasing the tax liability when a capital gain arises and then using franking credits to offset the liability.

Policy Outcome: Franking Credits Used To Offset The CGT Floor

Paragraph 1.172 of the Explanatory Memorandum to the Bill states that a 30% minimum floor CGT prevents taxpayers from “deferring the realization of capital gains to years where their marginal tax rates are low” and “ensures their gains are subject to a tax rate closer to the rate they faced during their working life and is commensurate with the tax rate paid by most workers.”

However, self-funded retirees often have low-income and should benefit from the same low marginal tax rates as other taxpayers. Imposing a minimum floor 30% tax rate on capital gains made by people in retirement is an arbitrary approach which should be rethought.

It is not possible for a person to control or influence the distribution strategy of an Exchange Traded Fund or Managed Fund and consequently manipulation of tax outcomes is not usually possible.

For those self-funded retirees who do hold direct investments, the decision to sell is usually not taken because they are seeking an outcome that manipulates their tax position. They may be simply rebalancing a portfolio, realizing a long-term capital gain on a prudent basis or actively managing their portfolio through turbulent global markets.

Under current tax rules, taxpayers can utilize franking credits to offset their personal tax liability. This sometimes results in a refund where the taxpayer has a lower effective tax rate than 30%. See the example below.

If the Bill is passed self-funded retirees are likely to have their franking credits applied to help pay the floor 30% CGT on distributions of capital gains from ETF’s and Managed Funds and may still be left paying more.

Analysis: “Arthur’s Case”

Arthur is a self-funded retiree who does not qualify for the Age Pension.

Arthur’s Parameters: Assessable Assets: $800,000 (Exceeds the 2026 Single Homeowner asset cut-off of $722,000) | Interest Income: $2,000 | Franked Dividends: $7,000 cash + $3,000 Franking Credits = $10,000 | Capital Gain: $20,000. Total Taxable Income: $32,000.

The table below shows the calculation of Arthur’s tax position under the current and proposed system.

The Imputation Benefit Claw Back

Arthur would receive a $315 refund under current rules but would have to pay $3,477 if the Bill is passed. The floor tax formula in proposed Section 119-10(2) arbitrarily drives up Arthur’s gross liability to $6,477.

The tax assessment process would claw back Arthur’s entire $3,000 franking credit to fund the floor tax gap and still leave Arthur with $3,477 to pay.

Systemic Anomalies

Penalising Capital Gains – it is an arbitrary outcome that a taxpayer in Arthur’s position should have to pay more tax than would otherwise be required simply because he had a capital gain.

Claw Back Of Franking Benefits – The policy of taxing gains more highly for low-income taxpayers means that franking offsets are used to offset the floor CGT, an indirect outcome of the policy.

The ETF \ Managed Fund Penalty – Retail investors in diversified ETFs or Actively Managed (widely held trusts) have no control over the timelines of fund asset management. Often ETFs will often distribute capital gains. If the Bill is passed those distributed capital gains will eat away franking credits distributed by the same ETF.

Matthew has written a submission to the Senate Standing Committees on Economics posing the following questions: 

• Question 1: Why does the minimum tax formula in proposed Section 119-10(2) treat an ordinary capital gain distributed from an ETF or retail managed fund as deliberate taxpayer deferral manipulation?

• Question 2: Did the Government intend that the Floor 30% CGT Policy should claw back franking benefits from low-income individuals who own shares, ETFs and managed funds?

• Question 3: The removal of the CGT Discount is a significant measure. Why has the Government gone further to deny taxpayers the benefit of lower marginal rates simply because they have made a capital gain?

Matthew recommends the proposed 30% floor tax policy should be discontinued from the current Bill given that the 50% CGT discount is being phased out in any event from 1 July 2027. It results in franking credit offset being used to pay an arbitrarily higher tax merely because an individual taxpayer has a capital gain, including a distributed gain from an ETF or managed fund.

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 how the 30% minimum tax on capital gains affects some taxpayers with existing negative gearing arrangements. 

The Government has announced that taxpayers with residential properties acquired before 7.30pm on 12 May 2026 will be able to continue to negatively gear those properties.¹

However, this case study shows that some taxpayers with existing negative gearing arrangements will be affected by the Bill, because of the proposal of 30% minimum tax on capital gains.

Policy

Paragraph 1.172 of the Explanatory Memorandum to the Bill states that a 30% minimum floor CGT prevents taxpayers from “deferring the realization of capital gains to years where their marginal tax rates are low” and “ensures their gains are subject to a tax rate closer to the rate they faced during their working life and is commensurate with the tax rate paid by most workers.”

The Government has not made the case that its concerns about why taxpayers sell assets, warrant such a drastic change to our tax system. Nor has the case been made that capital gains should always be taxed at a floor 30% rate, when a taxpayer is not in those circumstances.

My experience from over 20 years of public practice is that most taxpayers who realize capital gains in low-income years do so because they need to supplement their cash flow or free-up resources to make new purchases or to fund one-off expenditures.

Often taxpayers have low-income years, because of changes in life’s circumstances, not because they have artificially planned to reduce their assessable income.

Implementing a blanket floor 30% CGT across the tax system (via the method statement in proposed Section 119-10(2)), rather than assessing taxpayers in accordance with their marginal tax rates is inequitable. The Government should not proceed with this measure.

The 30% floor tax works against the core feature of the Australian tax system, that people should be assessed in accordance with their marginal tax rates.

The case study below demonstrates how the benefit of a rental property loss on an existing residential property (said to be preserved under the Budget announcements) is almost entirely lost because of the 30% Floor Tax.

¹ See Budget 2026-2027 Tax Explainer – Negative Gearing and Capital Gains Tax (page 4)

Analysis: “Sarah’s Case”

Sarah has recently taken a break from full-time employment to start a family. She has salary income of $20,000 for the year and has realized a net capital gain on shares of $50,000, representing her savings over many years of work.

We model two ‘scenarios’ in the Calculation Table below. 

Scenario A where Sarah has no rental loss and in Scenario B Sarah has a rental loss of $15,000 on a residential property she acquired before 7.30pm on 12 May 2026.

Applying the 7-step formula in the proposed Section 119-10(2) to determine the “minimum tax gap amount” reveals a clear structural problem.

In Scenario A, where Sarah has no rental loss, she would pay $13,188 in tax (including Medicare) but if the Bill is passed Sarah would be required to pay $16,688 in tax on $70,000 of taxable income. This is an additional $3,500 in tax, merely because Sarah realized a capital gain.

In addition, to demonstrate how the benefits of Sarah’s residential rental loss would mostly be lost, we compare Scenario A with Scenario B.

In Scenario B, Sarah pays $16,100 in tax (including Medicare), even though her rental loss ($15,000) reduces her taxable income down from $70,000 to $55,000. The tax saving to Sarah for having the rental loss in this case is only $588.

Calculation Table

What If Sarah Had A Higher Salary During The Year?

Curiously, if Sarah instead had a salary of $80,000, she would receive the full benefit of her rental loss.

Her tax liability (including Medicare) would reduce from $32,388 to $27,588. Sarah’s rental loss of $15,000 would save her $4,800 in tax and there would be ‘no minimum tax gap amount’ on her capital gain.

How could it be equitable that Sarah loses most of the benefit of the deduction for her rental loss when she has salary of $20,000, but receives the full benefit of her rental loss if she earns a salary of $80,000?

Core Technical Anomalies And Removal Of Deductions

There are two main issues highlighted by this case study.

Arbitrary Removal Of Low Marginal Tax Rates

First, in Scenario A, Sarah loses the benefit of her low marginal rates simply because she makes a capital gain.

It is highly inequitable to require taxpayers like Sarah, who have low-income because of changing life circumstances, to pay more tax on a capital gain than their marginal tax rate would require, simply because they realize a capital gain in a year of low income.

In this example Sarah chose to work part-time to concentrate on starting a family, but there may be many reasons why a person has low income. They may be starting out in life, starting a business or looking after young children. They may have been retrenched from their job, maybe pursuing charitable work, or they may be in retirement.

Why should a person have to pay an additional tax, simply because they have realized a capital gain to free up funds to help with changing life circumstances?

Claw Back Of Negative Gearing Benefits For Existing Properties

Second, in Scenario B, there is negative gearing claw back. Sarah’s negative gearing benefits have been almost entirely lost – even though the Government announced that taxpayers would be able to continue to negatively gear residential properties acquired before 7.30pm on 12 May 2026.

In an arbitrary result, had Sarah’s salary income been higher, her negative gearing benefits would have been preserved. If she had a salary of $80,000 rather than only $20,000, she would have received the full benefit for tax deductions on her existing residential property.

The Bill does not preserve existing negative gearing outcomes for all taxpayers and could also result in the loss of negative gearing benefits for new residential properties.

In fact, the benefit of deductions for taxpayers on lower marginal rates can be lost or reduced by the presence of a capital gain, but not if they are claimed against other types of investment income – such as trading gains, dividends, interest and rents.

Matthew has written a submission to the Senate Standing Committees on Economics posing the following questions: 

• Question 1: Why does the floor tax formula in proposed Section 119-10(2) fail to prevent the benefit of deductions for existing residential rental property from being denied when the Government stated that negative gearing benefits would be preserved for properties acquired prior to 7.30pm on 12 May 2026.
  
• Question 2: Why does the floor tax formula also apparently result in a similar outcome for some taxpayers with net rental losses on new residential properties acquired after 7.30pm on 12 May 2026, when it is the Government’s policy is that the benefit of deductions for new residential properties should be permitted?
  
• Question 3: Why does the floor tax formula in proposed Section 119-10(2) also prevent low-rate taxpayers receiving the full benefit of other tax deductions (such as work-related expenses, donations and concessional contributions) in a year when the taxpayer also makes a capital gain?
  
• Question 4: The removal of the CGT Discount is a significant measure. Why has the Government gone further to deny taxpayers the benefit of lower marginal rates simply because they have made a capital gain?

Matthew recommends the proposed 30% floor tax policy should be discontinued because it claws back negative gearing benefits in situations where it is Government policy to permit negative gearing.

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

In a major decision affecting the area of trust taxation in Australia, the Full Federal Court last week ruled in Bendel (Commissioner of Taxation v Bendel [2025] FACFC 15) that an unpaid present entitlement (trust entitlement) owed to a company beneficiary of a trust, cannot be treated as a form of financial accommodation and is therefore not considered to be a ‘loan’ as defined under Section 109D(3) of Division 7A of the Income Tax Assessment Act 1997.

This overturns the approach taken by the ATO in rulings and determinations relating to the issue which have been in place for over almost 15 years. 

The ATO has long considered that where a family trust confers an entitlement to income upon a company, that the company is taken to provide financial accommodation (a loan) to the Trust if the said company does not insist on being paid its trust entitlement.

The decision has positive implications for the management of family trusts which distribute all or part of their income to family owned companies. It has the potential to simplify tax compliance in this area  while maintaining the integrity of the tax system.

The Federal Court’s decision has brought into focus Subdivision EA of Division 7A which has long been sidelined. Subdivision EA applies to situations where a trust monies that are due to be paid to a corporate beneficiary is instead lent or paid out of the Trust to other beneficiaries, usually individual family members, or if such family members are forgiven debts that they owe the Trust. 

It is unclear whether there will be a High Court appeal in relation to the matter or whether the Government will respond by changing the law.

Arguably changes in the law should not be required since Subdivision EA already operates (if properly administered) to safeguard the tax system from the inappropriate accessing of company profits. That point has been unequivocally made by the Federal Court. 

Retirement savings, especially when managing finances across international borders, can be complex. If you live in Australia, but hold plans in the USA, you need to understand the tax implications of having 401(k) and IRA plans. 

USA Tax Implications Of A 401(k) Or IRA Plan

401(k) and IRA plans are tax-advantaged retirement accounts that are available to US taxpayers. Contributions made to these accounts are typically tax-deductible, and earnings within the account grow tax-deferred until withdrawal. However, withdrawals from these accounts are usually subject to taxation in the USA. You should obtain tax advice from a qualified US tax advisor before accessing any benefits.

Australian Tax Implications Of A 401(k) Or IRA Plan

Australian tax residents (who are not temporary residents) are subject to tax on their worldwide income.

US retirement accounts like 401(k) and IRA plans are usually treated as foreign trusts by the Australian Taxation Office (ATO).

Therefore distributions from these vehicles will usually be taxable in Australia, except for amounts that can be said to represent contributions. This means that any taxable withdrawals from these accounts are treated as assessable income and taxed at the individual’s marginal tax rate. As foreign income, you would also be able to claim a Foreign Income Tax Offset (FITO) to reduce double taxation.

Roth 401(k) and Roth IRA plans are comprised of contributions made with after-tax dollars. This means that for Australian tax residents, withdrawals from these plans are generally tax-free.

Managing Funds While Living In Australia

For individuals residing in Australia who wish to access their US retirement funds, there are several options to consider:

1. Funds in the USA: Australian tax residents can choose to leave their 401(k) or IRA funds in the USA subject to complying with relevant US requirements. 
2. Withdrawal: Depending on the circumstances, individuals may opt to withdraw funds from their US retirement accounts. Careful consideration should be given to the tax implications of such actions, as they may trigger tax liabilities in both countries.

Our tax advisors and accountants are able to work with our clients, and their financial planners and wealth managers to clarify the taxation consequences, which would usually be an important element of the decisions that may be ultimately made.

Planning

Understanding the tax implications of 401(k) and IRA plans for Australian tax residents living in the USA is essential for effective retirement planning. While these accounts offer valuable tax benefits in the USA, they also come with potential tax liabilities in Australia. 

By navigating the complexities of dual tax systems and seeking professional advice, individuals can make informed decisions to optimise their retirement savings – while ensuring compliance with both US and Australian tax laws.

Given the complexities involved, seeking advice from tax professionals with expertise in both US and Australian tax law is highly recommended.

As specialists in International Tax, we can provide tailored guidance based on your individual circumstances. This can help you with your planning for accessing retirement funding in a way that helps you to minimise your tax obligations.

Leaving Australia means leaving your home. Unless you’re intending to return to Australia in the foreseeable future, this means deciding whether you want to keep or sell that property. 

When you move overseas on a permanent basis you cease to be an Australian resident and become a resident of your new home country. This means you need to consider the tax consequences on your Australian property from both an Australian perspective and in the tax jurisdiction of your new residence. 

Convert Your Former Home Into An Investment Property

When you hold onto the residence as an investment property the rental income becomes taxable income in both Australia and in your new home country.

Australian Taxes

As a non-resident of Australia, renting out your Australian property means you will need to continue to lodge an Australian tax return.

If you have a mortgage on the property then factoring in other property costs (such as repairs, insurances, agents fees, depreciation and land tax)  then your property may be negatively geared. This may result in tax losses that you carry forward until you have other Australian income to offset against these losses.

If your rental property generates a net profit, then this profit will be taxed at the marginal non-resident tax rates. Since there is no tax-free threshold for non-residents, you would be paying Australian tax from the first dollar of profit.

Overseas Taxes

The tax consequences in your new place of residence will depend on which country you are living in. There are a vast range of rules and understanding your requirements in your new home country will be important. 

Not all countries will require you to report your Australian sourced income and some countries may have special exemptions if you don’t bring the income into the country. You may also find that there are vast differences in what deductions you can claim against this income.

Double Taxation Relief

When you are living in a country that requires you to report your Australian sourced income you will likely find some relief through a double tax agreement. Typically, a double tax agreement will ensure that you don’t pay more than the tax than would apply if you were only taxed in the country with the highest tax rate. Sometimes a double taxation agreement is not required and the residency country will provide a credit under its domestic laws for foreign tax paid on overseas income which is also taxable in the residence country.

The most common form of double tax relief is an offset foreign tax paid. This means that any Australian tax that is paid would be credited against the income tax that your new home country assesses on your Australian sourced rental income.

Selling Your Australian Residence

If you decide to sell your Australian property while you are a non-resident then you must consider capital gains tax (CGT).

Australian Capital Gains Tax

Ordinarily an Australian resident does not have to pay CGT on their main residence. However, once you become a non-resident you lose this exemption if you sell the property while you are non-resident.

This means that if  you sell your Australian property as a non-resident, you  would be required to include the capital gain (or loss) in your Australian income tax return. You would be taxed on the capital gain at your marginal non-resident tax rates and you would most likely not be able to benefit from the full 50% CGT Discount. 

There are some exceptions to this. If a specified “life event” occurs within the first six years of becoming a non-resident, then the main residence exemption may continue to apply. These life events are all events that you cannot plan for, such as death, terminal medical condition, or a marriage breakdown.

Overseas Capital Gains Taxes

In the same way as Australian rental income may or may not be taxed overseas, your capital gain may or may not be taxed in your new country of residence. Any concessions, tax relief and applicable deductions may also differ in your new home.

As with tax on rental income, there may be double taxation prevention measures through a double tax agreement.

Seek Appropriate Advice For Your Situation

Since taxation in your new home will be quite different to the Australian taxation system it is important to seek advice from a local tax adviser for specific advice. 

An Australian chartered accounting and tax advisory firm experienced in dealing with international tax issues, CST can advise you of the tax consequences of your decision to hold or sell your Australian property. 

Note that a tax agent cannot advise you on whether you should sell or keep your property. This decision needs to be made with regards to your short and long term personal and financial goals. 

Exceptionally talented individuals with the capacity to raise Australia’s standing in their field may be eligible for a Global Talent Visa. This Visa is a permanent residency Visa that offers a migration pathway to individuals who can bring exceptional skills into Australia.

Because the Global Talent Visa is not a temporary visa, the temporary resident tax concessions are not available and you will be taxed just like any other Australian citizen moving home to Australia.

As international tax specialists in Australia we are often asked by individuals moving to Australia on a Global Talent Visas, what the Australian tax implications of making this move are in relation to the assets back in their home country.

The tax implications of making this move will depend on the type of assets you have back home.

Below is an overview of what you can expect.

Moving To Australia With No Assets Other Than A Bank Account

When you move to Australia with no assets except the cash in your bank account, the tax consequences of holding onto your foreign assets are limited to foreign exchange (forex) issues. Since foreign currency is considered a taxable asset, Australia will tax realised exchange gains and will allow a deduction for realised exchange losses. 

This means that money sitting in a bank account with fluctuating values will have no tax consequence. However, if you spend or transfer that money, including bringing it into Australia at a later date, then you trigger a forex realisation event.

If the value of your qualifying forex accounts is less than AUD $250,000 then you can make an election (known as the Limited Balance exemption) which effectively allows an exemption so that you can disregard any forex gains or losses that might arise on the accounts. This is a simplicity measure for taxpayers who are considered to have low balances of foreign currency. The objective is to lower tax compliance costs. People moving to Australia should take advice on the effect of these rules on their foreign savings.

Moving To Australia With A Main Residence In Your Home Country

While an Australian resident is eligible for an exemption from capital gains tax on their main residence, it is unlikely that this exemption will apply to you. This is because you were not an Australian resident while you were living in your property, in your home country.

Once you are living in Australia the overseas property becomes a property that is not your main residence. This applies whether you rent the property out or not.

If you rent your former residence out it becomes an investment property. The rental income is taxable and the expenses associated with generating that rental income are tax deductible. This includes interest on any mortgage taken out to purchase or renovate the property, any local rates, repairs, and other costs. Travel costs incurred to inspect or repair the property are specifically precluded as an eligible deduction. If you pay income tax on the rental income overseas, then you will be able to apply that as a foreign tax credit in your Australian tax return. This way the Australian tax paid on this rental income is limited to any difference between the Australian tax assessed and the tax paid overseas.

If you don’t rent out your former residence (or otherwise earn income relating to the property), then there is no income to declare, and no ability to claim deductions relating to the cost of owning this property.

When you sell the property you will be subject to CGT. The CGT will be calculated on the difference between the value the property sells for and the value of the property at the time you moved to Australia.

Moving To Australia With Investments

If you hold assets in your country of origin, then you will be required to report any assessable income earned from those assets, as well as any capital gains or losses generated on the disposal of those assets.

Certain types of income, such as interest, royalties, and dividends, are typically covered by Double Tax Agreements (DTAs) in a way which limits the amount of tax that the country of origin can impose. This means it is important to advise your bank and investment managers when you become an Australian resident so that they can ensure the correct foreign tax rate is applied at the source.

Regardless of the tax rules in the country of origin, as an Australian tax resident you will be required to report income from all sources in your Australian tax return.

General Tax Information You Should Be Aware Of When Moving To Australia On A Global Talent Visa

It is important to keep in mind that moving to Australia on a permanent basis will mean you become an Australian tax resident.

For tax purposes this means you will need to declare your worldwide income in your Australian tax return, regardless of where the income is earned and whether the income is brought to Australia or stays in an overseas bank account.

All foreign investment income, including interest, dividends and foreign stock plans, are assessable in Australia, whether or not they are assessable in another country.

The foreign income must be reported in the relevant Australian tax year in which it was earned. This may be different to the tax year relating to foreign country in which the investment income was earned.

In general you will be able to offset the tax payable in Australia with any taxes already paid in the country of origin.

Also be aware that Australia has complicated rules if you have interests in overseas companies or trusts, even if you did not set up the relevant companies or trusts or even if they are just ‘family companies’ or ‘family trusts’.

Capital Gains Tax

Australia has a Capital Gains Tax regime. This means you may be required to pay capital gains tax on any assets that you retain in your country of origins.

CGT is assessed at the same rate as your marginal tax rate, however there is a 50% Discount on the value that is assessed on assets that have been owned for at least 12 months after becoming an Australian resident.

CGT discount example:

You purchase a property in 2020 for $500,000.

In 2024 you sell the property for $1,000,000.

This gives you a net capital gain of $500,000.

Instead of paying tax on the full $500,000 gain, tax is only applicable on 50% of the total gain, which means you only pay tax on $250,000.

Deemed Acquisition

At the time that you move to Australia, any assets that you retain overseas are considered to have been acquired for their market value on the day you arrive. This valuation will become their cost base for capital gains tax purposes in Australia.

You are also deemed to have acquired these assets on the date that you become an Australian resident. This ensures that any fluctuations in value between the original date of acquisition and your move to Australia, are ignored for CGT calculations. It also means that you need to continue to own your assets for at least 12 months from the date you move to Australia in order to access the 50% capital gains tax discount.

Summary

As an Australian tax resident you will be required to lodge an annual income tax return in which you must report:

• Income from your worldwide source

• Capital gains or losses on all assets held, regardless of the country in which they are held

• Any foreign tax paid, which may be applied as a credit to reduce the amount of Australian tax assessed on foreign earnings

When you move to Australia your assets will be deemed to be acquired at the market value on the date you become an Australian resident.    

As everyone’s situation is unique, and tax laws are frequently updated, it is important to obtain up to date advice for your specific situation. This will ensure that specific factors that may impact your situation differently are also included in the advice, as well as ensuring you are getting the most up to date information.

eBook: Key Items A Global Talent Visa Holder Should Know When Moving To Australia

Download ‘The Key Items A Global Talent Visa Holder Should Know When Moving To Australia’

If you are moving to Australia on a Global Talent Visa you are likely to become an Australian tax resident. 

This eBook covers the 5 common tax concerns that those moving to Australia on a Global Talent Visa have including:

1. When do I become a tax resident?

2. Keeping foreign assets when moving to Australia.

3. Foreign assets including foreign currencies, trusts, companies or retirement funds and pension loans.

4. Selling your foreign main residence after moving.

5. Using your foreign bank accounts.

Our principal, Matthew Marcarian, was recently published in Australia’s leading tax journal, Taxation in Australia (run by the Tax Institute), with his article titled “Australian Expatriates: Casualties of Law“.

In his article Matthew looks at how over the last 20 years, Australia’s international tax settings have changed in a way which has increased the tax burden on Australian expatriates. Too often they become “casualties of law”, their interests overlooked by poorly conceived, and sometimes politicised, tax policy and design.

The article examines these changes and analyses major tax issues facing Australian expatriates at different stages of their expatriate journey. The article demonstrates how Australian expatriates can face higher taxes and significantly more complexity than fellow Australians.

The tax issues examined include the ongoing legislative uncertainty relating to individual and corporate tax residency, the removal of both the 50% CGT discount and the main residence CGT exemption for non-residents, the forex rules, the treatment of foreign structures, and overseas retirements plans.

The article also notes that an opportunity exists for the new Albanese government to address many issues to make them less burdensome and fairer for the Australian “diaspora”.

Read the article now.

As an Australian moving to the United States, it’s important to understand what this means for your tax residency status. This is because your tax residency status will determine how your income will be treated for tax purposes.

Moving to the US on a Permanent Basis

If you move to the US on a permanent basis then it would usually be the case that you would be  considered a non-resident for Australian tax purposes from the day you leave. Note that a move can be considered permanent from an Australian tax perspective, even if you only expect to live in the US for a few years.

As someone making a permanent move to the US it is likely that you will be cutting most of your ties with Australia. Typically you may do things such as sell your Australian assets, close Australian bank accounts, resign from Australian clubs, remove yourself from the electoral roll, surrender your lease or sell your family home, all as part of and parcel of your move to the United States. In such cases usually you would become a non-resident of Australia.

However, there are exceptions and sometimes a person can become dual resident of Australia and the United States. Often this occurs because a person is living in the United States for long enough to be considered US resident but has not quite departed Australia for whatever reason. Sometimes it is because a person has employment or runs a business in the two countries and actually keeps two homes.

If you become a US tax resident and an Australian non-resident

If you leave Australia and become a US tax resident, then you will be subject to all the taxation rules that a US tax resident is subject to. We always recommend that clients obtain US tax advice before moving to the United States so that they are fully aware of how Australian assets would be treated by the IRS. 

As an Australian non-resident you would be subject to non-resident tax withholding rates on certain Australian sourced income, such as any Australian bank or unfranked dividends paid to you from Australian investments. For example this means that banks would withhold 10% of your interest income on your Australian accounts and Australian companies will deduct 15% withholding tax on unfranked dividends paid to you. BUt you will need to advise your bank and various share registrars that you have moved to the United States.

If you continue to earn any income from Australian sources (other than income that is specifically covered by non-resident withholding rates), then you would have to lodge an Australian tax return. A common example of this is rental income from an Australian property.

You would only be required to include any Australian sourced income, and this would be assessed at non-resident taxation rates. This income also needs to be declared in your US tax return as foreign income. You should also be able to claim a tax credit for any Australian tax already paid on the Australian sourced income in your US tax return.

If you have assets such as investment properties, a main residence, shares and managed funds it will also be vital for you to understand how Australia’s capital gains tax laws applied to you on your departure from Australia. Unless you make a specific choice to the contrary, becoming a non-resident of Australia gives rise to a deemed capital gain or loss arising on your assets and so obtaining income tax advice specific to your circumstances is important. At CST we can provide you with our Departing Australia Tax Review service and can also help you obtain US tax advice.

Dual tax residency?

Sometimes determining your tax residency status is not straightforward. This can happen when you meet the requirements for tax residency in both countries.

If this happens then you would first turn to the tax treaty between Australia and the US, for guidance on which country takes priority. Most of the time the tax treaty will provide sufficient rules to determine which country would be considered the country in which you have tax residency. 

In some cases, where an individual is genuinely living in both countries, regularly interchanging between locations, or having equal connections in both countries, a tax ruling may need to be sought and in some cases a treaty-based tax return is required to arrive at the correct result.

Final Words on Tax Residency

Your personal tax residency forms the basis of how all your income tax obligations are calculated, which makes the correct understanding of your tax residency vital, particularly for clients who may be travelling or moving between Australia and the United States, two high taxing countries with complicated tax systems.

When it comes to determining your tax residency it is always important to realise that tax residency is a matter of fact. Often a careful analysis of various facts will be required. Tax residency is not something that can be chosen, and therefore it is important to obtain timely advice so that income tax consequences arising either in Australia or the United States are well understood and budgeted for.