Foreign Residency and the New CGT Rules: Untangling the Latest Reporting

The information contained within does not constitute financial, legal, or tax advice, and does not represent a view or position held by CORALA. It is a summary of publicly reported commentary for general information only. Reach out to a qualified tax professional to discuss your specific circumstances before making any decisions.

Earlier this week, we summarised reporting on a possible gap in the government's CGT reforms: from 1 July 2027, any period of foreign tax residency during the life of an Australian investment property may exclude an owner from the new indexation regime entirely, regardless of how brief that period was. That reporting, from the Australian Financial Review (AFR), was covered in our earlier post.

Since then, further commentary, including from tax specialists quoted in the press and on industry podcasts, has focused on what happens to owners once they are excluded from indexation. The consistent picture emerging is that they "lose the discount" may be an oversimplification of what's actually reported to occur. CORALA has summarised that commentary below for general awareness only.

Some caution around early media coverage

It's worth noting that specialists commenting publicly, including Atlas Tax's Ben Turner on the Expat Chat Podcast, have flagged that some of the media coverage following the initial AFR report may have overstated the impact, with a handful of reports characterising the CGT discount as gone entirely for expats. According to that commentary, this doesn't appear to be an accurate description of how the legislation is currently drafted. 

What's being reported about the mechanic

Based on commentary from tax lawyer Nicole Sammel, the National Tax and Accountants' Association's Robyn Jacobson, and Ben Turner, the mechanic being described works roughly as follows: if an owner was a non-resident or temporary resident for any part of the time they held an asset, and they sell after 1 July 2027, they are reportedly excluded from the new indexation method. Rather than losing the CGT discount outright, they are said to fall back to the existing discount rules, applied on a proportional basis across the ownership period, calculated as the resident share of total ownership time, multiplied by 50%.

On this reported basis, the outcome varies considerably - depending on individual circumstances. Owners who spent most of their ownership period as an Australian resident, with only a short period offshore, are reportedly positioned differently to owners who were non-resident for most or all of the period, who would reportedly see little or no benefit under this pathway. Given the range of possible outcomes and the complexity involved, this is squarely a case-by-case question for a tax professional rather than a general rule of thumb.

Illustrative examples reported elsewhere

To help illustrate the scale of what's being discussed, two key examples have emerged in the reporting.

Nicole Sammel's example, reported in the AFR, involves a property scenario: two owners each buy an investment property in August 2027, hold for 20 years, and sell in August 2047. One is reported to remain an Australian resident throughout and be taxed under the new indexation method. The other is reported to spend six months overseas as a non-resident during that period, fall back to the existing discount rules, and end up with a reported discount of 48.75%, being taxed on 51.25% of the gain rather than the full amount.

A separate, and by its own description more extreme, example was discussed on Atlas’ Expat Chat Podcast: an asset purchased for $100,000 that grows to $1 million within a year. In that illustration, a resident owner taxed under indexation was estimated to pay roughly $406,000 in tax on the gain, while an otherwise identical owner who became a non-resident for a single day before selling was estimated to pay roughly $212,000, a reported difference of around $194,000. It should be noted the hosts were explicit that this example was constructed to demonstrate the mechanism at its most extreme, not to represent a typical outcome, and noted the underlying rule is reported to apply to CGT assets generally (including shares and crypto), not only property.

These figures are reproduced here only as reported illustrations of a mechanism under discussion. They should not be treated as a calculation of what any individual owner would actually pay; actual outcomes depend on individual facts and would need to be modelled by a tax professional.

Why this may not be settled

Multiple sources agree this appears to be an unintended outcome of the drafting rather than deliberate policy. A Treasury spokesman quoted in the AFR confirmed that the government is continuing to consult on "other complex and specific details such as interactions with residency changes," and the explanatory memorandum accompanying the bill reportedly includes a note stating there is an intention to further consider how the amendments apply to taxpayers who are Australian residents for only part of their ownership period. Commentators, including Turner, have also suggested that specialists who identified the gap don't expect it to necessarily remain in its current form, and that the legislation itself doesn't take effect until 1 July 2027, leaving a period during which it could be amended.

Importantly, some commentary has also raised a separate consideration: that deliberately timing a change in residency status in an attempt to access this treatment could, depending on the facts, invite scrutiny under Australia's general anti-avoidance rules, independent of whether the underlying calculation would otherwise be favourable. This is a further validation that the reported mechanic shouldn't be treated as something to plan around without professional advice.

For expat property owners: questions worth raising with an advisor

Given how unsettled this reporting suggests the area currently is, expat property owners with a residency history that includes, or may include, time spent overseas may raise the following questions with their cross-border tax advisor, rather than draw conclusions from media reports alone:

• Based on my actual residency and ownership timeline, would I currently be more likely to fall under the indexation pathway or the discount pathway, as these rules are presently drafted?

• Given that this area is reported to be under active consideration by Treasury, how much weight should I put on today's drafting when making decisions about a future sale?

• Are there risks, including anti-avoidance risk, in any changes to my residency status or timing of a sale that I should be aware of?

A note on this summary

This post is intended purely as a summary of publicly available reporting and commentary on a developing and complex area of tax law. CORALA does not offer tax advice and does not hold a view on the merits or fairness of these rules. Anyone with an Australian investment property and a residency history involving time overseas should speak with a qualified tax specialist about their own circumstances before making any decisions. CORALA's Home Ground Advantage network includes tax specialists experienced with expat property ownership. 

Contact us today for a discussion about your property investing goals or for an introduction to one of our specialist cross-border tax advisors.