The May 2026 federal budget delivered some of the biggest proposed changes to Australian tax in decades, and if your social media looked anything like mine, the headlines were scary and the details were thin. So six days out from the end of the financial year, I sat down with Pau Lam, who leads the tax services division at Odin Mortgage & Tax, for our monthly Expert Q&A to cut through it all for Australians living in the US.
Pau has spent more than a decade helping Australian expats and overseas investors navigate Australian tax, and this session covered the four budget changes that matter most to those of us living abroad: trusts, negative gearing, capital gains, and what stayed the same. Below is a summary of what we covered. You can watch the full session on YouTube or listen on our Moving to America podcast.
An update since we recorded. When Pau and I spoke on June 24, the legislation was still before the Senate, and much of our conversation reflects that uncertainty. Things have moved since. The Senate Economics Legislation Committee recommended on June 19 that the Reform Bill pass, and the ATO now lists the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 among new legislation, indicating the capital gains and negative gearing package has been legislated. The trust measure is on a separate track: it was not included in that bill and remains subject to change. Where the final law differs from what was known on the night, the final law wins — and this is exactly the kind of moment to get personal advice.
What changed in the 2026 federal budget for Australian expats?
Pau grouped the changes into four big buckets, and importantly, he started with what didn’t change: the tax residency rules for non-residents stayed exactly as they were. If you were a non-resident for Australian tax purposes before the budget, nothing about that status shifted.
The four changes that do matter:
- A 30% minimum tax on discretionary trust income, proposed to start from July 2028
- Changes to negative gearing, with grandfathering for existing properties
- The replacement of the 50% capital gains discount with an indexation method from July 1, 2027
- A minimum 30% tax on capital gains, working alongside the indexation change
Pau’s blunt summary of the expat position: this budget offered the downside without much of the upside. Australian residents got offsetting tax cuts. Non-residents largely didn’t.
How does the 30% minimum trust tax affect expats?
Australia has around a million trusts, and Pau explained that roughly 800,000 of them are discretionary family trusts — the structure the government is targeting. The traditional appeal was distribution: trust income could be spread across beneficiaries on lower tax rates, bringing the family’s overall tax down.
Under the proposal, from July 2028 the trustee pays a minimum 30% tax on trust income, with beneficiaries receiving a non-refundable credit. No refunds below that floor.
For expats, Pau’s take was that the direct impact is smaller than it first appears. As a non-resident, you already pay 30% from the first dollar on income distributed to you. Where it bites is distributions to family in Australia. Pau gave the example of distributing $80,000 each to retired parents who previously paid little or nothing — under the new rules, that income carries a minimum 30% tax. As he put it, trusts aren’t useless going forward, they’re just less effective: the saving becomes 45% down to 30%, not 45% down to zero.
Two carve-outs worth knowing: the measure targets discretionary trusts specifically. Unit trusts and testamentary trusts (those set up under a will) are not affected.
What is the restructuring window?
The government has proposed a three-year window, from July 2027 to 2030, for people to restructure assets out of trusts — moving a property back into personal names, for example — with a rollover exemption from capital gains tax on that transfer. One catch Pau flagged: stamp duty is a state matter, so whether states waive stamp duty on those transfers is a separate question that isn’t settled.
His advice for trust holders right now: no need to rush. The window doesn’t open until July 2027, so monitor the final legislation, and if the 30% minimum becomes law, that’s the trigger to review whether a company, personal names, or another structure suits you better.
What changed with negative gearing for Australian expats?
The headline change: rental losses on established residential property can no longer be used to offset employment income. That offset was the engine of negative gearing for decades.
The grandfathering matters most, and Pau was clear on it. If your property was negatively geared before budget night in May 2026, you’re exempt — you keep the existing treatment until the property becomes positively geared or the ownership changes. He flagged one late development to watch: under a proposed update, a change in ownership between co-owners, such as through death or divorce, could break the grandfather rule. That detail was still moving when we recorded.
For properties bought after budget night, losses aren’t gone — they’re quarantined. You can still use them against future rental income or capital gains on the property, just not against your salary. And in the change Pau saw as the government’s housing-supply play, new builds keep full negative gearing.
Why the negative gearing change barely touches most expats
Here’s the part that surprised people on the night. If you live in the US, you probably have no Australian employment income to offset anyway — so you were never using negative gearing the way an Australian resident does. Instead, your losses accrue, and they accrue indefinitely. Pau confirmed that if you move back to Australia and start earning there, those carried-forward losses can offset your income, right up to a full refund through PAYG in your first year back.
The practical shift is for future purchases. If you plan to return to Australia, Pau suggested the economics now tilt toward new builds, where the full offset survives, over established properties, where it doesn’t.
One audience question covered offset accounts: Pau noted that parking money in an offset account, rather than paying down the mortgage directly, preserves flexibility — you can withdraw later and return to a negatively geared position, which matters more under the new rules than it used to.
What replaces the 50% capital gains discount?
From July 1, 2027, the 50% CGT discount is replaced by cost base indexation. Instead of halving your gain, your cost base is adjusted for inflation, and you pay tax on the real gain above it. Pau’s example: a property worth $1 million at July 2027, with inflation running around 30–34% over a decade, gets roughly that much added to its cost base over ten years. Over a 15–20 year hold, indexation can actually exceed the old 50% discount — there’s no cap — but it rewards long holds rather than quick wins.
Here’s the expat wrinkle Pau highlighted: non-residents already lost the 50% discount back in 2012. So the removal itself doesn’t take anything from us. The live question is whether expats get access to the new indexation method, and on the night, that was genuinely unresolved. Pau laid out three scenarios:
- Best case: indexation applies to everyone, including non-residents — which would leave expats better off than today.
- Neutral case: non-residents miss out while abroad but regain indexation when they return to Australia — roughly today’s position.
- Worst case: an all-or-nothing rule where anyone who has been a non-resident after July 2027 loses indexation on that asset permanently, even after moving home. That was the reading of the proposal at the time we recorded, and it’s the version that would genuinely sting.
This is the single area where the final legislation matters most for expats, and the one to confirm against the passed law — or with your accountant — before making decisions.
Do you lose the discount you’ve already built up?
No — and Pau was emphatic that there’s no forced deadline. Gains are calculated pro rata: everything accrued up to July 1, 2027 is treated under the existing rules, including the 50% discount for any period you qualified, and only gains after that date fall under the new method. So “must I sell before July 2027?” gets a clear answer: no. Whether to sell is a market and personal-circumstances question, not a tax deadline. Pau’s read was that the market may stay soft while investors wait for certainty, but that’s a timing judgment, not an obligation.
A few related points from the session:
- The 30% minimum capital gains tax changes little for non-residents, who already pay 30% from the first dollar. Its future relevance is if you move home: gains that might have fallen under the $18,200 tax-free threshold will instead carry a 30% minimum.
- The main residence exemption didn’t change. Non-residents lost access to it a few years back, so the guidance stands: if you have a former family home, selling while overseas forfeits the exemption, but selling after you’ve returned to Australia can restore it. Pau’s rule of thumb — if you need to sell something, the family home should be the last asset you touch while abroad.
- New builds get an election. Buyers of new residential property can choose between the 50% discount and indexation — another deliberate incentive toward new housing stock, and potentially the strategy if the worst-case expat scenario becomes law.
- Inheritance: Australia still has no inheritance tax, and the budget didn’t change that. You inherit the asset and its capital gains history — a family home your parents lived in resets differently from an investment property, where their original purchase price carries over.
Australian tax residency and tax time: the essentials
With questions still rolling in about residency, Pau recapped the basics — unchanged by the budget. The tests are the same ones that have applied for decades: the 183-day test, the resides test, the domicile test, and the Commonwealth superannuation test. His rule of thumb: if you’ve genuinely lived overseas for three years or more, or intend to, and your life demonstrably happens overseas, you’re on safe ground as a non-resident. Visa type is one factor among many — an E-3 with a real job and life in the US generally supports non-residency.
Why file an Australian return even with little or no income there? Pau gave two reasons. First, the late lodgment penalty currently runs to $1,650 per year. Second, compliance is protection: lodging (or filing a return-not-necessary notice) each year puts on record that you’re a non-resident and your US income is none of the ATO’s business. If withholding tax has correctly come out of, say, Australian interest income, you don’t re-report that income — but you still want the annual status on file.
The cautionary tale from the session: Odin recently helped an expat who left Australia in 2000 and filed 25 years of backlogged returns in one go. They’d assumed the tax-free threshold covered their Australian rental income; it didn’t apply to them as a non-resident. The saving grace was that the property was negatively geared, so the bill was small — but the lesson stands. The ATO’s data-matching has improved dramatically, and heads in sand get found.
For the broader end-of-financial-year checklist, our EOFY guide for Australian expats covers the essentials in more depth.
Quick answers from the audience
A few rapid-fire questions from registrants, with Pau’s short answers:
Bought an investment property in 2019 — am I grandfathered? Yes for negative gearing, fully. For capital gains, existing rules apply to gains accrued up to July 2027, then the new method applies after.
Are family trusts still worth having? Case by case. If you’re abroad long-term with no plan to return and the trust holds nothing, winding it up may make sense. If it holds assets, it’s still useful — just less tax-effective than it was.
Self-managed super funds? Out of scope for the night, but Pau flagged a fresh development: the government has signaled it will limit or abolish SMSF borrowing for property purchases. One to watch.
US tax interaction? Odin specializes in the Australian side and works with US-side partners for the full picture. The double tax agreement between the US and Australia means you won’t be taxed twice on the same income, but the reporting obligations on each side are separate — and your local US accountant generally can’t handle the Australian half.
Get your own situation assessed
Everything above is general information from a group session — and as Pau said on the night, the whole point of the assessment call is to turn general into personal. Odin has offered the America Josh community a free budget impact assessment: a chance to walk through your specific holdings, your residency position, and what these changes mean for you.
Get an Odin budget impact assessment
You can catch the full conversation on YouTube, and every Expert Q&A lands on our Moving to America podcast, available on Apple Podcasts, Spotify, and wherever you listen.
The information in this article is general in nature and does not constitute financial, tax, or professional advice. It does not take into account your individual objectives or circumstances. Before acting, seek advice from a qualified professional. Legislation discussed was evolving at the time of recording and may have changed.
