Major blow as Aussies who work overseas will lose huge benefit under Albo’s tax reforms

Australians who move overseas for work could be hit with a surprise tax sting worth tens of thousands of dollars under a little-noticed budget change that strips expats of a lucrative capital gains tax discount (CGT) on investment properties. 

Tax specialists say the change, due to take effect from July 1, 2027, means expats will lose access to the new GCT indexation regime on investment properties regardless of how long they previously lived and paid tax in Australia. 

Atlas Wealth Management expat tax specialist Ben Turner described the residency requirement as ‘surprisingly harsh’, warning it was buried in budget legislation that quietly passed parliament in late June.

‘To qualify for the new CGT indexation regime, an individual must not be a foreign resident or temporary resident at any time during the testing period,’ he told the Australian Financial Review.

KPMG workforce and innovation partner Craig Robinson, who also advises expats on tax, said his reading of the legislation showed non-tax residents would be shut out from the new concession altogether.

‘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,’ he said.  

Currently, Australians who move overseas and become non-residents only lose access to the capital gains tax discount for the period they are living abroad.

That means someone who owned an investment property for 30 years but spent just three years overseas could still claim the discount for the remaining 27 years when they sold the property.

Under the new rules, however, that same investor could lose access to the discount altogether – even if they had spent decades living and paying tax in Australia before accepting an overseas posting.

Under the Albanese government’s changes, the 50 per cent capital gains tax (CGT) discount will be scrapped, while negative gearing will be limited to newly constructed properties.

Existing investments will be grandfathered, ensuring current property owners are not affected.

Prime Minister Anthony Albanese confirmed in June he had reached a deal with Greens leader Larissa Waters to secure the passage of the reforms. 

Under the deal with the Greens, the Federal government will close a loophole where people can buy property through self-managed super funds and access a capital gains tax rate of just 10 per cent.

‘These changes don’t in any way change the tax arrangements for superannuation, don’t impact any existing SMSF borrowing arrangements and provide time to finalise arrangements that are in train,’ the government said in a statement.

Despite passing in the Senate, the Albanese government will move to amend its tax legislation to ensure Australians who take full ownership of a property after a death or divorce can retain grandfathering protections under changes to negative gearing and capital gains tax.

The shift comes after pressure from Senator Pocock, who raised concerns about the so-called ‘widows tax’, a scenario where surviving partners could lose access to existing tax concessions.

Labor voted against an amendment to fix the issue in the current bill, but says it will address the problem in subsequent legislation.

‘In relation to the issues that were raised by the senator, and I think Senator Gallagher discussed yesterday, I can indicate the government does intend to address these issues in subsequent legislation,’ Foreign Minister Penny Wong said.

more to come