Key points
- Leaving Australia doesn’t automatically eliminate CGT. Australia’s deemed disposal rules (CGT event I1) often trigger a tax liability when residency changes, and even if deferred, the gain typically remains within Australia’s tax net.
- Timing and structure matter more than simply relocating. Moving overseas just before a sale rarely improves the outcome, as non-residents may lose access to the full CGT discount and still face Australian tax exposure.
- The US is a narrow but genuine exception. Under the Australia–US tax treaty, certain taxpayers can have gains taxed only in the US (often at lower rates), but this requires careful planning, correct asset classification, and meeting strict residency and timing conditions.
The issue
Recent Federal Budget announcements have brought capital gains tax (CGT) back into focus, particularly with the proposed increase in the effective rate on realised gains. This has led to renewed discussion around whether individuals can relocate offshore prior to a liquidity event (for example, the sale of a business) and achieve a more favourable tax outcome.
At a high level, the proposition is straightforward. If a taxpayer is no longer an Australian tax resident at the time a gain is realised, Australia should not tax that gain. In practice, the position is more constrained.
Australian position – exit does not remove CGT
Under Australian domestic law, ceasing residency does not provide a simple pathway to avoiding CGT. When an individual becomes a non-resident, the deemed disposal tax rules apply (CGT event I1 under s 104-160 ITAA 1997). Broadly, this involves a deemed sale of assets at market value at the time residency is broken. While there is an option to defer that taxing point, deferral typically results in the asset remaining within the Australian CGT net, meaning Australia will still seek to tax the gain when it is ultimately realised.
Even where a sale occurs after residency has been broken, the outcome is not necessarily improved. Non-residents are generally not entitled to the full 50% CGT discount. Instead, the discount is apportioned based on the period of Australian residency, which often increases the effective tax rate. In that context, relocating immediately prior to a sale will not usually eliminate Australian CGT exposure and, in some cases, can produce a less favourable outcome.
The US exception
The position can differ where an individual relocates to the United States and certain conditions are satisfied. This can be particularly relevant in a founder scenario where an individual holds shares in a private company and is contemplating a sale.
Where an individual ceases Australian tax residency prior to the sale, becomes a US tax resident, and holds shares that are not taxable Australian property, Article 13(6) of the treaty can alter the outcome. In those circumstances, the gain is not treated as having a sufficient connection to Australia, and Australia’s ability to tax the disposal is effectively nullified. The practical result is that the gain is taxed only in the United States, and Australia does not tax the gain at the point of sale.
This is a relatively narrow exception, and a unique feature of the Australia-US treaty, and a limited number of other treaties. It creates a unique opportunity for a taxpayer in the right circumstances to effectively shift capital gains tax from Australia to the US upon the sale of certain assets. That said, the outcome does not arise simply by moving. The exit tax position still needs to be managed, including whether a deemed disposal is triggered or deferred, and the classification of the assets must be carefully considered. Timing is also critical as the change in residency must occur prior to the transaction and be supportable on a factual basis, and Australia’s Part IVA anti-avoidance provisions must also be considered. Given the subjective nature of tax residency, obtaining a private binding ruling from the ATO can be prudent.
US capital gains tax
The relative attractiveness of this outcome is influenced by the US capital gains tax regime. At a federal level, long-term gains on assets held for more than one year are taxed at concessional rates based on the taxpayer’s level of taxable income. For the 2026 income year, the top capital gains rate of 20% applies where taxable income exceeds approximately USD 545,500 for single filers and USD 613,700 for married taxpayers filing jointly.
In addition, a 3.8% net investment income tax applies once income exceeds specified thresholds, resulting in a maximum effective federal rate of 23.8%. In practice, many taxpayers will fall below the top bracket and therefore be subject to a lower blended rate. When compared to the proposed Australian capital gains tax outcomes (in the order of 30% to 47%), the differential can be material.
It is also necessary to consider state and local taxes in the US, which vary significantly by jurisdiction. High-tax locations such as California (up to 13.3%) and New York City (up to 14.8% when state and city taxes are combined) can materially increase the overall burden. By contrast, a number of states – including Texas, Florida and Nevada – do not impose state income tax, making them much more attractive.
In addition, becoming a US tax resident brings exposure to taxation on worldwide income and introduces a separate set of compliance and structuring considerations. Australian superannuation, in particular, can give rise to adverse US tax consequences.
It should be noted that the outcomes will be materially different where assets are held through an Australian discretionary trust. In those cases, the trust itself may continue to be treated as an Australian tax resident, with the result that Australian tax can still apply to gains realised within the structure.
Key takeaway
Overall, the concept of leaving Australia to avoid capital gain tax is often over-simplified and misunderstood. For most overseas jurisdictions, the deemed disposal tax rules will continue to apply to capture any gains (as they were designed to do), however the US does provide a unique opportunity that should be considered in the right circumstances.
