Worst Tax Rule Coming to Australia. The Same Home Could Cost You $128,000 more in Tax ｜APS180

On 14 October, the federal government introduced two tax bills into Parliament. If you're leaving Australia on PR or an Australian passport, whether for a job in Singapore, a move back to the UK, or retirement, one of the changes looks like tax relief. Run the numbers, and it may not be. I've been through the 100-plus-page explanatory memorandum, and on the same $1.4 million Sydney home, one owner pays no tax while another pays more than $100,000. The difference comes down to a few dates. I'm counting federal tax only, not state taxes or depreciation.

So does the tax office, the ATO, treat PR holders and citizens differently when they leave? And does your status on the day you bought change the tax you pay later?

Section 1: Two Bills, Three Changes

What do these two bills actually change? The first round of federal tax changes became law on 26 June. Right now, if you've held an investment property for a year, the 50% capital gains tax discount means only half the gain is taxed. From 1 July 2027, individuals get indexation instead: your purchase cost goes up with inflation so only the real gain is taxed, and residents pay a 30% minimum tax on that gain. Gains are split at 30 June 2027, and earlier growth keeps the discount.

The first round left three gaps: trusts, people who leave Australia, and new builds. The 14 October bills fill those gaps. On 15 October, they went to the Senate Economics Legislation Committee, which reports on 13 November, so they could still change.

Start with trusts. Discretionary trusts pay at least 30% on net income from the financial year starting 1 July 2028, unless they restructure within three years.

Today I'm focusing on people leaving Australia. Under the first round, one day as a non-resident or on a temporary visa after July 2027 wipes out your indexation. The new bill counts days, so the discount before July 2027 and indexation after it are both cut back in proportion to your resident days. If you leave after 1 July 2027, you keep the full discount on the earlier growth.

That sounds like relief, but compared with the law passed in June, you could end up paying more. That law denies former residents indexation but doesn't split the gain, so the whole gain gets a discount based on their days here. The National Tax and Accountants' Association pointed out that loophole in July, and this bill closes it from the financial year starting July 2027, with daily indexation and no 50% discount after 2027. Indexation only strips out inflation, so when a property grows faster than inflation, the discount is worth more, and the faster it grows, the more you lose. From here on, every number assumes the bill goes through unchanged.

New builds keep negative gearing against your salary and can still take the 50% discount, but the first round left it to this bill to define them, and people misunderstand that definition most. It covers four cases. Building on a vacant block counts, and so does adding homes to a block, like replacing one house with three on separate titles. Turning non-residential buildings into homes counts too. The fourth case is buying a home from a developer or any previous owner and getting the keys within 24 months of the first occupation certificate. That's the official approval to live in a finished building. This fourth case covers most off-the-plan purchases.

So when you sell, your tax depends first on how the ATO sees you on the day you sign the contract.

Section 2: Your Status on Sale Day

How does the ATO see you on that day? I run everyone through five questions. When and why did you buy? Has your status changed since? When will you sell, and who's on the title? The date that counts is the day you sign, not settlement, and status means tax residency, which depends on more than location.

Is there a difference between PR and citizenship? For income tax, there's none. The ATO's ruling TR 2023/1 looks at where you live, your permanent home, and your days here. You may well still be a resident if you've been gone less than two years or your spouse and kids are still here. If your job and home have genuinely moved overseas, you're most likely not.

If you're a non-resident on the day you sign a sale contract after 30 June 2020, you lose the main residence exemption entirely, however long you lived there. The only way out is the life events test: six years or less as a non-resident, plus a terminal illness, a divorce or separation, or the death of a spouse or a child under 18.

Mark's case is made up and simplified. In July 2022, as an Australian citizen and resident, he bought a Sydney home for $1 million to live in. In July 2026, he took a job in Singapore and rented it out. The home is in his name alone, and he signed a $1.4 million sale contract in July 2029 while living overseas. Without the exemption, it's taxed like an investment property, and if the bills pass as they stand, he pays about $128,000. If he'd sold as a resident before leaving, he'd have paid $0. The only difference is his residency on the day he signed.

Could he fly back for two months and sign? Generally, that won't work while he still lives and works overseas. But if he lives and works in Sydney from January 2029 and signs six months later, he pays nothing. The six-year absence rule lets a home you rent out keep its exemption for up to six years, and he's only been away two and a half years.

Now say Mark and his wife Sarah own the home half each, and she stays in Sydney with the kids. The ATO looks at each half separately. Sarah's half stays tax-free, and Mark's half costs him about $53,000, unless he's still a tax resident because his family is here.

That's sale day. But many of you haven't left yet, and this bill's biggest change is how it treats the date you leave.

Section 3: The Date You Leave

What does your departure date change? It decides how many resident days you have after July 2027, and those days determine your indexation. Time here on a temporary visa like a 482 counts as non-resident days.

Take three Australian citizens who each bought a $1 million Sydney investment property in July 2022, in their own name, and rented it out. Each one is worth $1.15 million on 30 June 2027, inflation comes to 6% over the next two years, and each sells for $1.4 million in July 2029. That's $150,000 of growth before 2027 and $250,000 after. Mark leaves in July 2026, a year before the 1 July 2027 cut-off, David leaves a year after it, and Tom stays.

Mark was a resident for four of the first five years, so his discount is cut back and about $90,000 is taxable. After 2027 he has no resident days, so all $250,000 is taxable. On about $340,000, he pays about $128,000 at non-resident rates, starting at 30% from the first dollar.

David keeps the full discount on the early growth, leaving $75,000. He was a resident for one of the last two years, so he gets half the indexation. 6% inflation pushes the $1.15 million cost up by $69,000, and half of that, about $35,000, cuts his later gain to about $215,000. On about $290,000, he pays about $106,000, roughly $22,000 less than Mark.

Tom's full discount leaves $75,000, and his full $69,000 of indexation leaves $181,000. On $256,000 at resident rates, plus the 2% Medicare levy, he pays about $86,000.

David still pays about $20,000 more than Tom, because with half indexation, his taxable gain is about $34,000 higher. He also pays 30% from the first dollar, while Tom's first $18,200 is tax-free and his next bracket is 14%.

Should you push back your move, then? I'm not saying ignore 1 July 2027. I'm saying an extra $20,000 or so isn't a reason to change your plans. You're moving for work or for family, and that matters more, so just build the date into your timeline.

And if you keep the home and rent it out after you leave, how is that taxed?

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Section 4: Renting From Overseas and the 15% Withholding

What happens to the rent while you're away? With no tax-free threshold, Mark pays 30% from the first dollar on his net rent, but no Medicare levy. On $20,000 of net rent, that's about $6,000, close to the $6,400 a resident on a $100,000 salary pays on it.

The real hit comes when he sells from overseas. For contracts signed from 1 January 2025, whatever the price, the buyer holds back 15% at settlement for the ATO. On Mark's $1.4 million sale, that's about $210,000, roughly ten years of his rent. Residents get around it with an ATO clearance certificate for each owner. Non-residents can only apply for a lower withholding rate based on their expected tax, which usually takes about 28 days. Mark owes about $128,000, so he gets about $80,000 back at tax time, after the ATO has held it for more than a year without interest.

We've gone through sale day, your departure, and your years overseas. That leaves the day you buy, and it matters more than most people think.

Section 5: Four Things Set on the Day You Buy

So what does the day you buy lock in? It decides your timing, new-build status, whether you'll own the property on 30 June 2027, and your residency at the time.

Timing means the day you sign the purchase contract. Contracts signed before this year's federal Budget night keep negative gearing against your salary, even off-the-plan ones that settle later. For established homes bought after Budget night, rental losses from July 2027 can only offset rent and capital gains from residential property.

New builds get six advantages. First, losses still offset your salary. Second, when you sell, you choose the 50% discount, or indexation plus the 30% minimum tax, and fast growth usually favours the discount. Third, taking the discount means no split or valuation at 30 June 2027. Fourth, trusts can take the discount, and fifth, people who leave can too, in proportion to their resident days. Sixth, a home resold within 24 months of the first occupation certificate still counts as new, so more buyers will want it.

Established homes miss out, and so do homes certified before Budget night, so you can't discount the whole gain. The one exception is developer stock still unsold on Budget night that sells within 24 months of its first certificate, so ask for that date before you buy.

Off-the-plan buyers should track three dates: contract, first certificate, and handover. A resident investor who signed in January 2022 keeps negative gearing either way, because the contract came before Budget night. If the certificate and keys came in January 2026, also before Budget night, the property isn't a new build. If delays pushed both back to January 2028, it is, so when it's sold, the investor can pick whichever option means less tax.

You've probably heard a resold house-and-land package counts as established for the second buyer. Under the Budget night announcement, it did. Under this bill, it's still new if the first certificate came after Budget night and the second buyer gets the keys within 24 months.

Next comes 30 June 2027. If you still own a property that isn't a new build on that day, its gain is split in two. A home you've always lived in isn't affected, but for a home you've rented out for a while, the ATO hasn't put out details yet.

Finally, there's your status at purchase. You may have heard that buying as a non-resident rules out the main residence exemption. That's only half right. The exemption depends on sale day, but your status at purchase still changes how much discount and indexation you get, even on a home you've lived in.

Take Chris, for example. In July 2022, on a 482 work visa with foreign investment approval from FIRB, he bought an established Sydney home for $1 million to live in. He got PR in July 2025, left in July 2028, and sold from overseas in July 2029 for $1.4 million, losing the exemption. His three years on a 482 don't count as resident time, so only 20% comes off the same $150,000 of growth before 2027. With half the indexation on the rest, he pays about $126,000, versus about $106,000 with PR from the start. Buying on a 482 cost him about $20,000.

Ben, an Australian working in London, bought off the plan in Sydney for $1 million in July 2022, rented the place out, then came home in July 2024 and moved in. He sold as a resident in July 2029 for $1.4 million. He'd lived there five of the seven years, so about 71% is exempt, but his overseas years eat into his discount. He pays about $19,000. That includes about $2,400 of top-up, because his own tax rate on the post-2027 gain comes out under 30%, and the minimum tax makes up the difference.

So before you sign, there are three things you can do.

Section 6: Three Things to Do Before You Sign

What are those three things? First, while you're still in Australia, map out your timeline by running each property through the five questions, adding the contract, occupation certificate, and handover dates for new builds. The biggest call is whether to sell your home as a resident before you leave, which depends on your cash flow and whether you'll live here again.

Second, keep your records: the purchase contract and costs like stamp duty and legal fees, any improvements like a granny flat, and your depreciation schedule. If a property isn't a new build and you'll own it on 30 June 2027, you'll need its value that day, from a registered valuer or the government's draft formula for working it out.

Third, deal with withholding early. Get a clearance certificate for each owner before signing, or if you're overseas, apply for a lower rate about 28 days ahead, so settlement doesn't bring a 15% surprise.

All this assumes you hold property in your own name. For trusts and self-managed super funds, inheritances, or tax in your new country, get professional advice rather than guessing.

Ending

So where do these bills go from here? I think the daily indexation rule will most likely survive unchanged until the new rules start next July, because the government wants rules it can explain. The open question is the 30% minimum tax on trusts, which the Greens and the Opposition both have concerns about.

Our VISION All-Weather Investing system has the 541 Rule: a property's return is 50% location, 40% holding time, and 10% timing. This tax change mostly affects the timing part, so don't let it decide when you sell.

The way I see it, even with daily indexation, your tax still comes down to your residency on the day you sign, your resident days while you owned the property, and whether it's a new build. Before you leave Australia, have a registered tax agent run the numbers, because that's far safer than scrambling once you're overseas.

Watch the video version of the blog on YouTube.

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