Big loss for Australians working abroad under Albo’s tax changes

New Tax Rules for Expats Could Result in Significant Financial Losses

Australians who move overseas for work may face a surprising financial burden due to a recently implemented budget change. This change removes a valuable capital gains tax (CGT) discount for expats on investment properties, potentially leading to losses of tens of thousands of dollars.

The new rule, set to take effect from July 1, 2027, means that expats will no longer be eligible for the CGT indexation regime on their investment properties, regardless of how long they previously lived and paid taxes in Australia. This is a significant shift from the current system, where expats only lose access to the CGT discount during their time abroad.

Impact on Expats

According to Ben Turner, an expat tax specialist at Atlas Wealth Management, the residency requirement is “surprisingly harsh.” He pointed out that the rule was included in budget legislation that passed quietly in late June. Turner emphasized that to qualify for the new CGT indexation regime, an individual must not be a foreign resident or temporary resident at any point during the testing period.

Craig Robinson, a workforce and innovation partner at KPMG, also advised expats on tax matters and confirmed that non-tax residents would be excluded from the new concession entirely. The budget legislation explicitly states that individuals must not be foreign or temporary residents at any time during the period.

Currently, Australians who move overseas and become non-residents only lose access to the CGT discount for the duration of their stay abroad. For example, someone who owned an investment property for 30 years but spent three years overseas could still claim the discount for the remaining 27 years when selling the property.

Under the new rules, however, this investor could lose access to the discount altogether, even if they had spent decades living and paying taxes in Australia before moving overseas.

Changes to Capital Gains Tax and Negative Gearing

The Albanese government’s changes include scrapping the 50% CGT discount and limiting negative gearing to newly constructed properties. Existing investments will be grandfathered, ensuring current property owners are not affected by these changes.

Prime Minister Anthony Albanese confirmed in June that he reached a deal with Greens leader Larissa Waters to pass the reforms. As part of this agreement, the Federal government will close a loophole allowing people to buy property through self-managed super funds and access a CGT rate of just 10%.

“The 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 stated in a statement.

Addressing Concerns About Grandfathering

Despite passing in the Senate, the Albanese government plans 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 CGT.

This 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 the government has stated 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,” said Foreign Minister Penny Wong.