【CityLinkers Business School】In-Depth Analysis of Australia’s Tax Reform: What Overseas Investors and Migrants Need to Know
From 1 July 2027, negative gearing for residential properties will only apply to newly built homes. In other words, for existing residential properties purchased after that date, rental losses may only be used to offset rental income from the same property or capital gains from other residential property investments. They may no longer be used to offset other income such as salaries, wages, or dividends. Any unused losses may be carried forward to future income years.
However, the Budget includes a grandfather clause. Existing residential properties held before 7:30 p.m. on 12 May 2026 may continue to benefit from the current negative gearing arrangements until the property is sold.
In addition, the ban on foreign purchasers acquiring existing Australian residential properties has been extended to 30 June 2029. This means overseas capital may only participate in newly built residential properties or development projects.
End of the 50% CGT Discount
From 1 July 2027, the 50% Capital Gains Tax (CGT) discount available for assets held for more than 12 months will be abolished. It will be replaced by a system under which the cost base is indexed in line with the Consumer Price Index (CPI), together with the application of a minimum tax rate of 30%. Even where an individual’s marginal tax rate is below 30%, the CGT component will still be taxed at a minimum rate of 30%.
For non-tax residents, the impact is even more complex.
The non-resident CGT regime is undergoing its most significant tightening in more than a decade. The definition of Taxable Australian Property (TAP) is being substantially expanded to cover assets that have a close economic connection with Australian real property, such as renewable energy facilities and mining equipment. Certain amendments will even apply retrospectively to 2006.
The existing AUD 750,000 threshold has been removed, the withholding tax rate has increased to 15%, and a 365-day asset testing period has been introduced.
Under the transitional arrangements, capital gains accrued before 30 June 2027 will continue to qualify for the 50% discount. For holding periods that span 1 July 2027, gains will be apportioned on a time basis.
New 30% Minimum Tax on Discretionary Trusts
From 1 July 2028, discretionary trusts will be subject to a minimum tax rate of 30%, payable directly by the trustee. Non-corporate beneficiaries may receive a non-refundable tax offset, while corporate beneficiaries will not receive any offset at all, potentially resulting in double taxation.
This reform will have a significant impact on cross-border trust structures. Many overseas investors hold Australian assets through discretionary trusts in order to distribute income flexibly among different family members or related entities.
Under the new regime, a 30% tax liability will arise at the trust level. Where beneficiaries are non-tax residents, no exemption will be available, and the overall tax burden is expected to increase significantly.
Before 30 June 2027 is the final opportunity to benefit from the 50% CGT discount. The author recommends conducting a comprehensive review of existing assets with professional tax advisers before this date and considering whether certain investments should be disposed of earlier to lock in a lower tax burden.
For overseas investors and prospective migrants, this Federal Budget is not merely a single policy adjustment, but a systematic restructuring of the entire Australian tax ecosystem.
Undertaking an early review of assets, cash flow projections, and structural reorganisation planning will be a key step in managing risk and protecting wealth.
Paxson Fung, Partner, CityLinkers Group
For original article, please visit: https://www.edigest.hk/2014105
