Unexpected CGT discount for partial residents uncovered in new analysis

A deep scrutiny of the interaction of the new law and the existing law has unveiled that partial tax residents will be eligible to continue to enjoy the CGT discount for post-CGT assets sold on or after 1 July 2027.

Identified through complex analysis by tax practitioners, post-CGT assets that are taxable Australian property will not be subject to indexation from 1 July 2027 where, at any time from 8 May 2012 to the date of the CGT event, the taxpayer was or will be a partial Australian tax resident — that is, an individual who is partly an Australian resident and partly a foreign or temporary resident for tax purposes. Instead, they will be eligible for the CGT discount, prorated on the basis of their residency days in that period.

Pre-CGT assets remain subject to the new rules from 1 July 2027 for partial residents.

“Together with Nicole Sammel, of Nicole Sammel Tax Lawyers, Ben Turner of Atlas Wealth Management, and my colleagues at NTAA, we have reached this conclusion,” National Tax & Accountants Association senior advocate Robyn Jacobson told Accounting Times.

Jacobson explained: “Any period of genuine foreign or temporary residency — before or after 1 July 2027, and no matter how short — takes partial residents out of the new rules for post-CGT assets altogether.”

“No deemed CGT event happens just before 1 July 2027. No deemed sale and reacquisition. No indexation from 1 July 2027. Instead, they stay subject to the existing rules: a CGT discount, pro-rated for the days they were a resident.

“To be clear, while this anomaly arises only where someone has been both a resident and a non-resident since 8 May 2012, the CGT discount applies only to the residency days of a partial resident.”

Although this discount for partial residents will be applied on a pro-rated basis, Jacobson noted that this does not mean it will be insignificant.

“A short period of non-residency across a long holding period can still deliver close to a 50 per cent discount, on a gain for which a lifelong Australian resident, selling the identical asset on the same day, gets the discount only for gains accruing before 1 July 2027.”

Jacobson stressed that eligibility for partial residency is generally not straightforward.

“Genuine non-residency would need to be established, of course — this isn’t a box you tick on the way to the airport, or by holidaying overseas. But this is the outcome from the current interaction of the rules.”

In its explanatory memorandum, the Treasury Laws Amendment (Tax Reform No.1) Bill 2026, the Treasury noted that it is still considering the application of its amendments.

“There is an intention to further consider how these amendments apply to entities that are Australian residents for only part of the period in which they hold a CGT asset,” it said.

“It is unusual for law to be passed where the accompanying explanatory memorandum indicates that the government intends to further consider how the amendments will apply in practice. I can't recall seeing that too often, if ever,” Jacobson said.

“This highlights the complexity of interacting new provisions with existing law and ... the issues that can arise when passage of legislation is rushed.”