How do the new CGT rules affect Australian Expats from 1 July 2027
- Mitchell Kelsey
- Jul 20
- 6 min read
Key points
From 1 July 2027, the 50% CGT discount will be replaced with a cost-base indexation model, but Australian Expats who are foreign residents or temporary residents may not be eligible for this benefit.
The new rules introduce a 30% minimum tax rate on certain capital gains accrued after 1 July 2027, limiting the effectiveness of traditional tax planning strategies such as using deductible super contributions to offset capital gains.
The government has acknowledged that future amendments may be considered regarding residency complexities, meaning further updates to the rules may occur.
How do the new CGT rules affect Australian Expats from 1 July 2027?
Australia’s landmark capital gains tax (CGT) reforms are set to significantly change how capital gains are taxed from 1 July 2027. While much of the discussion surrounding these changes has focused on property investors and housing affordability, the impact extends well beyond these areas.
For Australian Expats living overseas, understanding how the new CGT rules affect Australian Expats will be critical. The changes introduce new rules around the taxation of capital gains, residency requirements, and tax planning opportunities that may influence Australians who hold assets while living abroad or who return to Australia after spending time overseas.
Following the passage of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, the existing 50% CGT discount available to individuals, trusts and partnerships will be replaced from 1 July 2027 with a cost-base indexation model. The reforms also introduce a new 30% minimum tax rate on certain capital gains.
Replacement of the 50% CGT discount with cost-base indexation
Currently, Australian resident individuals who hold an asset for more than 12 months may generally be eligible for a 50% CGT discount. From 1 July 2027, this approach will change.
Under the new rules, the 50% discount will be removed and replaced with cost-base indexation for eligible Australian resident individuals and trusts. Instead of automatically reducing a capital gain by 50%, the cost base of an asset will be increased to reflect inflation from the relevant date, reducing the taxable capital gain.
For Australian Expats, the key issue is that access to cost-base indexation is linked to residency.
The Explanatory Memorandum confirms that the new indexation regime applies to capital gains made directly or indirectly by Australian resident individuals and trusts. However, foreign residents and temporary residents will not be eligible for cost-base indexation.
This creates an important consideration for Australians living overseas. If an individual is a foreign resident or temporary resident during the relevant testing period, they may lose access to the new indexation benefit.
Residency requirements and the impact on Australian Expats
When considering how the new CGT rules affect Australian Expats, residency is one of the most important factors.
For CGT events occurring on or after 1 July 2027, cost-base indexation will only be available where the individual holding the asset has been an Australian resident throughout the testing period.
The testing period begins from either:
1 July 2027; or
the date the CGT asset was acquired, if acquired after 1 July 2027;
and ends on the date of the CGT event.
The individual cannot have been a foreign resident or temporary resident at any point during this period.
This means an Australian who owns an investment property, shares, or other CGT assets may not receive the benefit of cost-base indexation if they move overseas and become a foreign resident before selling the asset.
For many Australian Expats, this creates a significant difference compared with the current CGT discount rules. Under the previous system, residency was already relevant in determining eligibility for the CGT discount, but the new indexation rules introduce different considerations and may affect long-term planning decisions.
Transitional rules: assets held before 1 July 2027
The new rules do not simply apply the new system to an entire capital gain where an asset was acquired before 1 July 2027.
Instead, transitional rules require the capital gain to be separated into two components:
the capital gain accrued before 1 July 2027; and
the capital gain accrued from 1 July 2027 onwards.
The pre-1 July 2027 portion generally continues to receive the existing 50% CGT discount (unless specific exclusions apply, such as the period of time where the individual was a non-resident).
The post-1 July 2027 portion will be calculated under the new cost-base indexation rules.
For example, an individual who purchased an asset before 1 July 2027 and sells it several years later will need to determine the value of the asset at 1 July 2027. The gain before this date may receive the existing 50% discount, while future growth after this date will be calculated using the indexed cost base.
This split approach means the timing of ownership, residency, and disposal decisions will become increasingly important for Australian Expats.
The new 30% minimum tax rate on capital gains
Another major change is the introduction of a 30% minimum tax rate on capital gains accrued from 1 July 2027.
Under the new rules, realised capital gains accrued after 1 July 2027 will generally be taxed at the higher of:
the taxpayer’s marginal tax rate; or
the 30% minimum tax rate.
The minimum tax applies to the net capital gain remaining after applying available capital losses.
Importantly, capital gains accrued before 1 July 2027 will continue to be taxed under the existing rules.
This change has broader implications for tax planning, particularly strategies involving deductible superannuation contributions.
Impact on tax-deductible super contributions
Historically, some taxpayers have used personal deductible concessional super contributions as a strategy to reduce taxable income in years where significant capital gains are realised.
For example, an individual who realises a large capital gain may make a deductible super contribution, reducing their taxable income and potentially lowering the tax payable on the capital gain.
However, the introduction of the 30% minimum tax rate changes the effectiveness of this strategy.
From 1 July 2027, if the capital gain relates to growth accrued after that date, the minimum tax rate may apply regardless of deductions claimed through superannuation contributions.
This means that even where an Australian Expat makes a deductible concessional contribution, the post-1 July 2027 capital gain component cannot necessarily be reduced below the 30% minimum tax rate.
The contribution may still provide benefits, including taxation of the contribution at the concessional superannuation tax rate of 15%, but the ability to completely eliminate tax on the capital gain through deductible contributions will be significantly restricted.
For Australian Expats, this highlights the importance of reviewing broader financial strategies, including superannuation contributions, asset ownership structures, and timing of disposals before these changes commence.
Future amendments may be considered
The government has recognised that residency issues may create complexity under the new rules.
The Explanatory Memorandum specifically notes that future amendments may be considered in relation to situations where entities are Australian residents for only part of the period they hold a CGT asset.
This may be particularly relevant for Australians who move overseas, return to Australia, or experience changes in residency status during the ownership period of an asset.
While the current legislation provides the framework from 1 July 2027, further updates may be required as practical issues emerge. Australian Expats should continue monitoring developments, as future amendments could affect how indexation applies to individuals with changing residency circumstances.
What should Australian Expats consider before 1 July 2027?
Understanding how the new CGT rules affect Australian Expats is essential for anyone who owns Australian assets or is considering a move overseas.
Key considerations may include:
reviewing existing investment assets before the new rules commence;
understanding potential CGT outcomes if selling assets after becoming a foreign resident;
assessing the timing of asset disposals;
reviewing superannuation contribution strategies; and
monitoring future legislative changes.
The CGT reforms represent one of the most significant changes to Australia’s capital gains tax system in decades. For Australian Expats, the interaction between residency, asset ownership, and tax planning will become increasingly important.
Seeking advice before 1 July 2027 can help ensure decisions are made with a clear understanding of the future tax environment.
Reference:
Runway Wealth Management is the trusted Financial Adviser to the Australian Expat community. Our tailored advice is backed by expertise, education and experience, which allows us to be at the forefront of Australian Expat Financial Planning.
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General Advice Disclaimer: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.
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