Australia’s New 1-day Rule – CGT Trap for Australian Expats

Current as at 17 July 2026.

Let me tell you about a potentially very expensive change of address.

Buried inside the Government’s new capital gains tax rules is a nasty little tripwire. If you count as a “foreign resident” for tax purposes for even one day during a set testing period, you can lose a valuable tax benefit called indexation on an asset. Not trimmed. Not reduced. Gone, for that entire gain.

Not because you hid money offshore. Not because you did anything shifty. Because you took a genuine job overseas, correctly told the tax office you’d become a foreign resident, exactly as the law demands, and later sold an asset after coming home.

If you own an investment property, shares, a business, or you’re in line to inherit the family beach house, and there’s any chance of an overseas chapter in your life or your family’s, this article is for you. Settle in. We’ll take it from the top, because the details matter and headline summaries can’t carry them.

First, a two-minute refresher for normal humans

Skip ahead if you’re a tax nerd. Everyone else, here’s the plumbing.

Capital gains tax, or CGT, isn’t actually a separate tax. When you sell something for more than it cost you, the profit (your capital gain) gets added to your income and taxed along with everything else. Buy an investment unit for $500,000, sell it for $900,000, and very roughly you’ve made a $400,000 gain, before various adjustments, losses and concessions whittle it down. What the asset cost you, including things like stamp duty and certain improvements, is called your cost base.

Since 1999, the sweetener has been the 50% CGT discount. Hold an asset for at least 12 months and, if you qualify, only half your gain gets taxed. Simple. Generous. And, for most gains, now on the way out (a few special housing investments keep discount treatment).

The replacement is indexation. When you eventually sell, chunks of your cost base get topped up for the inflation between the day you spent the money and the day you sell, so you’re taxed on your real profit, not the part that’s just your dollars shrinking. A deliberately rough illustration: spend $500,000, and if the inflation adjustment works out at 3%, the taxman treats your cost as $515,000. Over ten or twenty years, that adds up to real money. Lose indexation, and more of the purely inflationary part of your gain gets taxed anyway. (One wrinkle to file away: ownership costs like rates and loan interest, which tax folk call the third element, don’t get indexed at all.)

One more idea, and it’s the hinge of this whole article: tax residency. This is not about where you’re standing. It’s not passport stamps. You can travel for months and still be an Australian tax resident. You can also take a job overseas, build a life there, and become a foreign resident for tax purposes even though you’d thump anyone who called you anything but Australian. Residency is decided by legal tests applied to your facts: where you live and work, your ties, your intentions. It’s famously grey, regularly fought over, and now worth more than ever to get right.

What just changed

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026, 29 days after the Bills were introduced into Parliament. Twenty-nine days, for a generational change to how capital gains are taxed. Crazy. Many property strata committees take longer to approve a pot plant!

The new rules generally kick in for CGT events from 1 July 2027. A “CGT event” is just the trigger that makes tax happen: usually selling, but the law has other triggers too, including one you’d never guess, ceasing to be an Australian tax resident. More on that shortly.

Here’s the change in a nutshell. If you’re an Australian resident and you sell an asset from 1 July 2027, the old 50% discount is, for most gains, gone. In its place you get indexation: your cost base gets an inflation top-up, and you’re only taxed on what’s left. The same broad idea applies to gains flowing through many trusts.

Now, Australia has done indexation before, between 1985 and 1999, so you could call this a comeback tour. But it’s not the same show. The new version comes with strict residency tests, tricky transition rules for assets you already own, special carve-outs for certain housing investments, and a new minimum-tax calculation complicated enough to make a respectable spreadsheet ask for annual leave.

That minimum-tax thing deserves one plain sentence. In some cases the new rules can add extra tax so certain capital gains bear at least a 30% rate, but the sum is done at the end, after your losses, discounts and concessions, and it only applies at all if you were an Australian resident at some point during that year. So no, it’s not a flat 30% slug on every gain, whatever the headlines implied. It’s a gap-filler. A flat slogan would have been easier. Parliament chose a method statement.

The 1 July 2027 “reset” that isn’t guaranteed

Here’s the first detail most summaries miss.

You may have heard that everything you own gets treated as sold and re-bought at market value on 1 July 2027. Old gains keep the old rules. New gains get the new ones. A fresh starting line for everyone. Tidy.

Not so fast. The reset rule only applies if you tick all of its boxes, and one of those boxes looks straight at your residency history.

In effect, if you’ve had a stint as a foreign resident or temporary resident during your ownership of the asset (any time after 8 May 2012 counts, including years still to come), the reset is generally off the table for that asset.

Stop and absorb that.

Whether your asset even gets the 2027 starting line can depend on what happens after the race begins, right up to the day you sell. Become a foreign resident in 2031 and you may discover, at sale time in 2040, that the 2027 reset never applied to you at all. Harsh? Yes, we think so, very harsh.

Assets bought before 20 September 1985, the truly old stuff that’s been CGT-free for four decades, have their own rule. If an asset still has that pre-1985 status just before 1 July 2027, it’s treated as sold and re-bought at market value around that date, and its growth from then on can be taxed for the first time. Not every pre-1985 asset still qualifies, because other long-standing rules can strip that status along the way, but if your family holds a genuinely pre-CGT property, business or inheritance, get it reviewed. Soon.

One practical note on valuations. Where a reset does apply, market value is the default number. The law lets the Government prescribe an alternative method, but unless and until it actually does, market value is the only game in town. Plan on that basis and obtain a market valuation on 1st July 2027.

The one-day rule

Now the headline act. The provision is section 114-25 of the tax law, and it should make every Australian with overseas ambitions sit up straight and take notice.

To be entitled to apply the new indexation on an asset (i.e. to adjust the cost-base of your asset upwards to account for inflation and in so doing, reduce your taxable capital gain), you must not be a foreign resident or a temporary resident at any time during the testing period.

That period starts on the later of 1 July 2027 and the day you acquired the asset. It ends the day the CGT event happens, which for most people means the day they sell.

At any time. Not “mostly a resident.” Not “a resident when you sell.” Not “close enough, mate.” There’s no partial credit for the years you did spend here. One day with the wrong residency status inside that window can kill indexation for the entire gain . . . forever!

And let’s be precise, because precision is the difference between panic and planning. This is a residency test, not a travel test. One day in Paris doesn’t do it. One day as a foreign resident for tax purposes will. And exactly when you cross that line is decided by those grey, fact-heavy residency tests we met earlier, which is precisely why an overseas move now deserves professional eyes before the move, not after.

Here’s what really stinks. The old rules weren’t built this way. Under the existing 50% discount, time spent as a foreign resident (after 8 May 2012) chips away at your discount proportionally. Spend part of the time overseas, lose part of the benefit. Harsh, but at least the punishment scaled. The new rule bins proportionality (and fairness) altogether. Parliament could have made adjustments with a screwdiver. They used a sledgehammer instead.

The fine print of the explanatory materials does mention that the Government “may consider” future changes to give part-period residents a share of indexation. Optimistic. That’s a maybe the government will modify the rules sometimes, but maybe not. Your contract date will not wait for Canberra’s to-do list. Plan around the law they passed, not the well-needed repair that they may or may not get to.

Sarah’s story

Meet Sarah. She buys an investment unit in Adelaide in 2020. She’s an Aussie tax resident right through the 2027 changeover. In 2029 she takes a five-year gig in Singapore and, on her facts, becomes a foreign resident. In 2034 she comes home for good. Years later, as a card-carrying Australian tax resident, she sells the unit.

Common sense says: she’s a resident when she sells, so she gets indexation. The law says: no. She was a foreign resident at some point for at least 1-day during the testing period. Therefore, fail. Coming home fixed nothing, because there’s nothing to fix. The law asks one question: were you ever a foreign or temporary resident during the window? Yes or no. If “yes” then that means no indexation.

It gets worse. That same Singapore stint generally knocks out the 2027 market-value reset for her unit as well. Her tax sum doesn’t disappear into a black hole; it just moves backwards onto a different path, worked out over her whole ownership using the asset’s existing cost base (purchase price plus certain other costs), the old foreign-resident discount rules, any losses and concessions, and her income and residency in the year she sells. Whether that path ends up better or worse than her stay-at-home neighbour’s depends entirely on the numbers. The law supplies the rules. It does not supply a complimentary happy ending.

Same unit as the neighbour’s. Same purchase date, same sale price. Materially different tax sums, thanks to five years spent living somewhere else. And Sarah finds out which sum applies at her accountant’s desk, a decade after the decision that decided it.

So what will it actually cost you?

Honest answer: there is no single number, and anyone waving one at you hasn’t read the legislation closely enough.

Your outcome depends on which transition rules apply to each asset. On your cost base. On your exact residency dates, before and after 1 July 2027, because both matter. On the choices made around your departure. On losses, concessions, the minimum-tax rules, and your income and residency in the year you sell. Sell while you’re a foreign resident and non-resident tax rates enter the picture too.

What can be said with confidence: over a long hold, sustained inflation can open a serious gap between an indexed and an unindexed tax bill, and the ten or twenty year holds that are normal for property and long-term portfolios give it plenty of room. For some people the difference will be modest. For others it will be the most expensive consequence of a decision made at an airport without knowing a decision was being made.

Which is exactly why the online calculator, the workmate’s spreadsheet and the forum thread are dangerous here. A generic calculation can’t know which transition rule applies to you, what your cost base really is, your exact residency dates, your losses and concessions, or whether the minimum tax bites. The only number that matters is yours, worked out on your facts.

It’s not just property people

For expats this mostly plays out through property, because Australian real estate is what the law calls taxable Australian property: the ATO keeps the right to tax the gain no matter where in the world you live when you sell. Moving to Dubai changes your residency. It does not change the ATO’s claim on your Brisbane townhouse. If you’re keeping Australian property through an overseas chapter, this belongs in your planning, not in the drawer with your broken travel adapters.

And while we’re on property, one date rule that trips up expats constantly: for an ordinary sale, the CGT event generally happens when the contract is signed, not at settlement. That contract date can decide which rules apply and whether you were a resident when it mattered. Settlement is when the money and the keys move. Tax law usually makes up its mind earlier, while everyone’s still shaking hands.

But cast the net wider.

Share and ETF investors face a decision most have never heard of, at the worst possible time. Ordinary shares and ETFs usually aren’t taxable Australian property. So the moment you stop being an Australian resident, a trigger called CGT event I1 fires automatically: the law pretends you sold the lot at market value that day, and taxes the paper profit, even though you sold nothing and received nothing. Alternatively, you can choose to switch that pretend sale off. Do that, and your investments stay inside the Australian tax net, with their existing cost base, until you actually sell them or become an Australian resident again.

Three things to understand about that choice. One: there’s no form. The choice is effectively made through your tax return for the year you leave. Report the pretend-sale gains and you’ve chosen to pay the tax now. Leave them out, and you’re generally taken to have chosen the deferral, which keeps those investments locked inside Australia’s tax net. Plenty of expats make this election by accident, without ever knowing a choice existed. Two: it’s all or nothing across your relevant investments, not a pick-and-mix. Three: neither door is automatically better. Report the gains and pay at departure and, broadly, your later growth sits outside the Australian net while you’re overseas, and if you come home still holding, the investments generally pick up a fresh market-value cost base on your return. Take the deferral, deliberately or by accident, and there’s no bill today, but the eventual Australian tax sum, including that one-day indexation test, is still waiting for you at the end.

And a timing quirk that catches people both ways. The formal choice generally isn’t due until you lodge your tax return for the year you left, and the tax office can allow extra time. So the paperwork can wait. The thinking shouldn’t, because by lodgment time the move has happened, the market values are baked in, and some of your better options will have quietly expired. The choice can still shape your future tax position even then, but it’s far smarter to understand both doors while more than the paperwork can change. Model both doors before the flight.

Business owners need their own analysis. Your goodwill and your company shares are CGT assets, and whether Australia can tax a sale after you’ve left depends on your structure, the taxable Australian property rules, that departure choice, and the small business CGT concessions. One genuine win tucked into the final law: the 50% active asset reduction, one of those small business concessions, is now open to a wider band of businesses, roughly turnover under $10 million rather than the old $2 million. Every other condition still applies. It’s a useful change, not an amnesty, and “I built this business in Australia” is a nice story, not a tax calculation.

Inherited and hand-me-down assets can carry someone else’s baggage. In some cases the law treats you as having acquired an asset when an earlier owner did, and their residency history comes along for the ride into your indexation test. So the family asset can arrive with more than sentimental value attached. It can arrive with Grandpa’s residency record. Succession plans written under the old rules deserve a fresh look, calmly but promptly.

And a word for temporary residents, because this rule catches you too. “Temporary resident” is a defined tax status, not just anyone on a temporary visa; the definition also looks at your position under social security law and, sometimes, your spouse’s. If you’re building wealth in Australia on a temporary visa, you have your own version of this problem, and it deserves its own advice.

The family home and the 15% haircut at settlement

Selling your own home while you’re an Australian resident? The ordinary main residence exemption still applies, usual conditions attached. This new law didn’t touch it.

But if you’re an expat, that ground shifted years ago. Sell while you’re a foreign resident, under a contract signed after 30 June 2020, and unless a narrow “life events” exception saves you, there’s generally no main residence exemption at all. Depending on your facts, that can drag a big slice of the gain into the tax net, including the years you actually lived in the place. It’s one of the harshest rules on the books, and it previews how this system treats residency: not as a dial, but as a switch.

Separately, since 1 January 2025, when a foreign resident sells Australian property, the buyer generally has to withhold 15% of the property’s value (in a normal arm’s-length sale, that’s basically the price) and send it to the ATO, unless the seller produces a clearance certificate (for Australian residents) or gets an approved variation. That withholding isn’t an extra tax; it’s a deposit, credited against your final bill. But it’s still 15% of your sale money holidaying at the ATO until your tax return is processed. Settlement day: rather less festive.

Why this rule deserves the criticism it’s getting

Let me be blunt, because someone should be.

This is a poorly proportioned rule, and it lands heavily on the very people Australia says it wants more of: ambitious, globally minded workers who go abroad, sharpen up, and come home.

It’s all or nothing. One day with the wrong residency status and the entire indexation benefit for that gain can vanish. No pro-rata. No sliding scale. No credit for the years you spent here paying Australian tax on everything you earned. The old discount rules managed proportionality for over a decade. This rule couldn’t be bothered.

It stings the people who do everything right. To be precise, there’s no penalty for honest reporting. But the benefit is stripped even where you identified your residency correctly and disclosed everything, exactly as the law demands. Get it right, lose it anyway. Whether that’s fair policy is a question Parliament answered in 29 days flat.

And it continues a pattern. From 2012, time as a foreign resident started eroding the CGT discount. From mid-2020, foreign residents lost the main residence exemption in all but narrow cases. From 2025 came the 15% withholding with no minimum. And from July 2027, one day of foreign residency can strip indexation. If you’re an Australian building a life across borders, the tax system has spent fifteen years laying tripwires on your path. That’s not an oversight. That’s a habit.

Doing nothing is a strategy too. Just an unmodelled one.

Here’s what makes this rule particularly dangerous: no warning necessarily arrives. Nothing turns up explaining that your change of residency may have just killed your future indexation or knocked out your 2027 reset.

For property, the consequences can sit quietly for decades until the year you sell. For shares caught by the departure rules, the tax consequence can land in the very year you leave, whether you noticed or not. Either way, the discovery tends to arrive late, when your options have already thinned.

Do nothing at the departure gate, and the pretend sale of your investments applies automatically, whether or not it suits you.

Do nothing about your records, and future you will be reconstructing purchase costs, improvements, valuations and exact residency dates from faded emails and a shoebox. Possibly mid-dispute.

Do nothing about working out which rules apply to your assets, and you can’t sensibly decide anything: hold, sell, restructure, or just change the timing.

To be fair, doing nothing isn’t automatically the worst outcome. Some consequences arrive automatically; what’s not automatic is that the default result will be the best one for you. An unmodelled default is still a decision. It’s just one made without the inconvenience of knowing what it costs.

What to do now

So, here’s the playbook.

1. Map your assets against the rules before doing anything else. For each asset: is it taxable Australian property, could the 2027 transition rules apply to it, and what do its cost base and history actually look like? Don’t order valuations of everything on reflex; first work out which assets a reset can even apply to. Where it genuinely can, solid market-value evidence around 1 July 2027 could be worth a lot later.
2. Map your residency, precisely. Every period of Australian, foreign and temporary residency since 8 May 2012, with dates. Those dates can drive the old discount sums, the 2027 reset and your future indexation. If an overseas move is anywhere on your horizon, get residency and CGT advice before the move, not after you land. This is not a DIY job, and it is not a “someone online reckons” job.
3. Model the departure choice on your investments properly, before you fly. Work out the pretend-sale gain, then run both doors with real numbers and realistic plans. Remember: silence means the pretend sale stands, and the choice is all or nothing. The paperwork isn’t due until you lodge that year’s return, but the useful thinking belongs before the move, while both doors are still worth comparing.
4. Treat any sale, restructure or transfer as case-specific. Clever-looking moves can trigger immediate CGT, stamp duty, foreign tax, financing costs and unwanted ATO attention. What saved your colleague money could cost you plenty. And always check the other country’s tax rules too: an Australian answer on its own can be perfectly correct and financially disastrous.
5. Keep the records. Residency evidence, purchase documents, improvement costs, valuations, every tax choice you’ve ever made. Far easier to gather before a dispute than during one.
6. Watch for amendments, but don’t bet your retirement on them. If Canberra restores some fairness for part-period residents, terrific, planning gets easier. If it doesn’t and you waited, you gambled on a footnote.

The bottom line

The one-day rule is real. It is not one day spent overseas; it is one day of foreign-resident or temporary-resident status during the testing period. That single day can deny indexation for an entire gain, and the same residency history can shift you off the 2027 reset and onto a materially different tax path you didn’t know existed, one that can be much worse and has to be modelled, not assumed.

The people this will touch aren’t caricature tax exiles. They’re nurses doing a stint in the NHS, engineers on a Gulf rotation, business owners chasing one big overseas contract, young Australians living the London chapter, and families whose inherited assets carry residency histories nobody has ever mapped.

Much of this can be managed, sometimes elegantly, with early advice built on your facts. But planning options narrow as events pass: some disappear the moment residency changes or a deal completes, while others stay open only until the ordinary deadlines for making tax choices. Waiting rarely expands your options, and the most valuable decisions are the ones made while they can still change the outcome.

This is precisely the work we do at Expat Taxes Australia, every day, for Australians on every side of a border. If your future involves a passport and your present involves assets, get in touch and let’s map your position while the wider range of practical options is still available.

This article is general information only. It does not take into account your objectives, financial situation or needs, and it is not tax, legal or financial advice. The legislation discussed is newly enacted, generally applies to CGT events from 1 July 2027, and may be affected by future amendments, legislative instruments, ATO guidance and judicial interpretation; the position described is as at the date of writing. The scenarios are illustrative and simplified, and outcomes turn entirely on individual facts, particularly tax residency, which is itself a complex, fact-specific question spanning Australian and foreign law. Before acting on anything in this article, obtain advice from a registered tax agent or appropriately qualified adviser who has reviewed your complete circumstances.

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References

1. Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (Act No. 49 of 2026), Schedule 1, https://www.legislation.gov.au/C2026A00049
2. Income Tax Rates Amendment (Tax Reform No. 1) Act 2026 (Act No. 50 of 2026), available via the Federal Register of Legislation, https://www.legislation.gov.au
3. Income Tax Assessment Act 1997: sections 102-5 (net capital gain), 103-25 (making choices), 104-160 and 104-165 (CGT event I1 and the choice to disregard), 110-36 (indexation), 112-155 to 112-185 (transitional cost base provisions), 114-1, 114-10, 114-25 and 114-30 (indexation eligibility), 115-30 (acquisition timing for certain inherited and rollover assets), 115-100 to 115-125 (discount percentages and foreign resident adjustments), 119-5 to 119-15 (minimum rate of tax on capital gains), 152-10, 152-200 and 152-205 (small business conditions and the active asset reduction), 328-110 (small business entity turnover test), Subdivision 118-B (main residence exemption), sections 855-10 to 855-25 (foreign residents and taxable Australian property), 855-45 (cost base on becoming an Australian resident), 960-275 (indexation factor) and 995-1 (definition of temporary resident)
4. Income Tax Rates Act 1986, section 12AA (minimum tax rate)
5. Taxation Administration Act 1953, Schedule 1, Subdivision 14-D (foreign resident capital gains withholding)
6. Explanatory Memorandum to the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 and Income Tax Rates Amendment (Tax Reform No. 1) Bill 2026, available via the Bill homepage on ParlInfo, Parliament of Australia, https://www.aph.gov.au
7. Australian Government, Budget 2026-27, Budget Paper No. 2, Part 1: Receipt Measures (policy background), https://budget.gov.au
8. Australian Taxation Office, “CGT discount for foreign residents,” https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/foreign-residents-and-capital-gains-tax/cgt-discount-for-foreign-residents
9. Australian Taxation Office, “How changing residency affects CGT,” https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/foreign-residents-and-capital-gains-tax/how-changing-residency-affects-cgt
10. Australian Taxation Office, “Main residence exemption for foreign residents,” https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/foreign-residents-and-capital-gains-tax/main-residence-exemption-for-foreign-residents
11. Australian Taxation Office, “Foreign resident capital gains withholding overview,” https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/foreign-residents-and-capital-gains-tax/foreign-resident-capital-gains-withholding/foreign-resident-capital-gains-withholding-overview
12. Australian Taxation Office, “Clearance certificates for Australian residents,” https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/foreign-residents-and-capital-gains-tax/foreign-resident-capital-gains-withholding/australian-residents-and-clearance-certificates
13. Australian Taxation Office, “Variations to foreign resident capital gains withholding,” via ato.gov.au
14. Australian Taxation Office, “Tax reform: boosting home ownership, reforming negative gearing and capital gains tax” (new legislation guidance), https://www.ato.gov.au/about-ato/new-legislation/in-detail/individuals/tax-reform-boosting-home-ownership-reforming-negative-gearing-and-capital-gains-tax
15. Australian Financial Review, “Budget’s nasty CGT surprise for Australians doing a stint overseas,” July 2026 (media commentary, not legal authority), https://www.afr.com/wealth/personal-finance/budget-s-nasty-cgt-surprise-for-australians-doing-a-stint-overseas-20260706-p60cyt