Hidden capital gains tax rule could leave Australians working overseas worse off under Albanese government’s reforms

A little-known tax detail could change the way Australians working overseas handle personal investments.

Rules buried in the government’s budget night overhaul of negative gearing and capital gains tax (CGT) discounts could cut expats’ access to the new indexation regime on investment properties.

Those who have relinquished Australian tax residency while abroad would lose access to the discount on investment properties from July 1 next year.

To qualify under the new indexation regime, Australians must “be neither a foreign resident nor a temporary resident at any time during the period”, the legislation reads under the headline “residency requirements for individuals for indexation to be included in a cost base”.

Wealth advisors cited in the Australian Financial Review confirmed their understanding was a period spent abroad for tax purposes would cost Australians their eligibility.

Atlas Wealth Management expat tax specialist Ben Turner told the masthead the residency requirement was “surprisingly harsh”.

“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 said.

KPMG partner and expat advisor Craig Robinson said he understood the legislation meant non-tax residents would be excluded from the concession as well.

H&R Block director of tax communications Mark Chapman told SkyNews.com.au: “Your residency status on the date of the CGT event, not your citizenship, and not where you were living when you bought the asset, is likely to be the deciding factor”.

“Depending on how long an asset is held and how much of the gain is ‘real’ growth versus inflation, some taxpayers could actually end up better off under the new model,” he said of the May 12 CGT changes.

“For expats specifically, the change is more muted… non-residents have historically been excluded from indexation-style concessions.”

He advised Australian expats take special note of grandfathering dates.

The Albanese government’s tax package was the subject of intense criticism in the weeks following budget night.

Under the changes, negative gearing is to be restricted only to new residential builds, but will be grandfathered for existing properties.

The 50 per cent CGT discount for individuals, trusts and partnerships will be replaced with cost base indexation and a 30 per cent minimum tax rate.