TL;DR
- Non-residents can negatively gear Australian investment properties and claim deductions against Australian-sourced income.
- The 50% CGT discount is not available to non-residents on gains accrued after becoming a non-resident.
- Rental losses cannot offset foreign income earned overseas, only Australian-sourced income.
- The interaction between negative gearing and future CGT exposure requires careful structuring from day one.
- Non-resident tax rules are complex and frequently mishandled by generalist accountants unfamiliar with expat-specific legislation.
What Is Negative Gearing and Does It Apply to Non-Residents?
Negative gearing occurs when the deductible expenses on a rental property exceed the rental income it generates, producing a net rental loss. Under the Australian Income Tax Assessment Act 1997, this loss can be offset against other assessable Australian income, reducing your overall Australian tax liability.
For non-residents, the key point is that negative gearing still works, but only against your Australian-sourced income. This typically means:
- Australian rental income from other properties
- Australian employment or contractor income
- Australian dividends and interest
- Australian business income
It does not shelter your Hong Kong salary, Singapore employment income, or any other foreign-sourced earnings from Australian tax. The deduction stays within the Australian income tax system.
What Deductions Can Non-Resident Property Owners Claim in 2025-26?
Non-residents are entitled to the same rental property deductions as residents, provided the expense is incurred in producing Australian rental income. Claimable deductions include:
| Deduction Category | Examples |
|---|---|
| Loan interest | Interest on investment mortgage |
| Property management fees | Agent commissions, leasing fees |
| Repairs and maintenance | Fixing damage, repainting worn surfaces |
| Council rates and land tax | Annual charges levied by local government |
| Building depreciation | Division 43 capital works allowance |
| Plant and equipment depreciation | Appliances, carpets (subject to 2017 rule changes) |
| Insurance premiums | Landlord, building, and contents cover |
| Accounting and tax agent fees | Cost of preparing your Australian tax return |
One frequently overlooked deduction for expats is the cost of travelling to inspect or manage the property. However, since 2017, travel expenses to inspect residential rental properties have been specifically disallowed under Australian tax law for all taxpayers, resident or not.
What Are Non-Residents Not Allowed to Claim?
This is where expat property owners regularly get caught out, often by accountants who apply resident rules without adjustment.
The 50% CGT Discount
This is the most consequential restriction. Australian residents who hold an asset for more than 12 months receive a 50% discount on capital gains. Non-residents do not receive this discount on gains accrued during their period of non-residence. The ATO applies a market value uplift rule: your cost base is effectively reset to market value at the date you became a non-resident (or alternatively, gains are time-apportioned). Either way, the post-non-residency gain is taxed in full.
The Main Residence Exemption
If you are a non-resident at the time you sell your former home, you generally cannot access the main residence exemption. Since 2020, this rule has been strictly applied, subject to limited legacy transitional provisions that have now largely expired.
Offsetting Foreign Income
Rental losses generated in Australia cannot reduce tax on your overseas salary or investment income. The deduction is ring-fenced to Australian income only.
How Does the 15% Foreign Resident CGT Withholding Affect Expat Property Sellers?
When a non-resident sells Australian real property for $750,000 or more (in the 2025-26 financial year), the buyer is required by law to withhold 15% of the purchase price and remit it to the ATO. This is the Foreign Resident Capital Gains Withholding (FRCGW) regime.
Key points:
- The 15% is withheld from the gross sale price, not the net gain.
- If your actual CGT liability is less than the withheld amount, you reclaim the difference through your tax return.
- If you have accumulated rental losses (carried-forward negative gearing losses), these can reduce your net taxable gain and therefore your final CGT liability.
- A withholding variation can be applied for before settlement to reduce the withheld amount if your actual liability will be materially lower.
This is an area where ODIN Tax regularly helps expat clients avoid large cash flow delays caused by over-withholding. The variation application must be submitted to the ATO before settlement.
Should Non-Residents Positively or Negatively Gear Their Investment Property?
This is a more nuanced question than most financial commentary acknowledges. For Australian residents, negative gearing is often attractive because rental losses offset high marginal income tax rates. For non-residents, the calculus is different:
- Non-residents pay a flat rate on Australian rental income (no tax-free threshold applies in the 2025-26 financial year for non-residents).
- The lost CGT discount means a negatively geared, high-growth property may produce a large taxable gain at sale that is not offset by the years of deductions accumulated.
- Carried-forward losses can be used at sale, which means a negatively geared strategy still holds value if the rental loss bank is eventually deployed against a capital gain.
The right answer depends on your specific income position, intended holding period, and the property’s income versus growth profile. These variables interact in ways that require considered analysis, not a default assumption that negative gearing is always better.
Frequently Asked Questions
Can I carry forward negative gearing losses as a non-resident?
Yes. Rental losses that cannot be offset in the current year carry forward indefinitely and can be applied against future Australian income, including capital gains when you eventually sell.
Does negative gearing still work if I have no other Australian income?
The loss accumulates and carries forward. It does not disappear, but it provides no immediate tax benefit until you have Australian income to offset it against.
What happens to my negative gearing position if I return to Australia?
When you re-establish Australian tax residency, your carried-forward losses become available to offset Australian income again, including employment income, at resident tax rates.
Do I need to lodge an Australian tax return as a non-resident with a rental property?
Yes. If you earn Australian rental income, you are required to lodge an Australian tax return, regardless of your country of residence.
Can an Australian expat claim depreciation on a property they bought while overseas?
Yes, depreciation deductions (Division 43 and plant and equipment where eligible) are available to non-resident landlords on the same legislative basis as residents, subject to the 2017 legislative restrictions on second-hand plant and equipment.
Does a Double Tax Agreement (DTA) affect my Australian rental deductions?
DTAs primarily deal with which country has the right to tax particular income. Australia’s domestic deduction rules for rental properties still apply regardless of DTA status.
Is a property manager’s fee in full deductible even if they manage the property while I’m overseas?
Yes. Property management fees are fully deductible as a cost of producing rental income, irrespective of your location.
About ODIN Tax
ODIN Tax is Australia’s specialist tax agent practice for Australian expats and non-residents (Registered Australian Tax Agent, TAN 26295891). Part of the ODIN Group alongside Odin Mortgage, ODIN Tax prepares Australian tax returns, manages overdue lodgments, and provides tax residency and CGT advice for Australian citizens living overseas. With 10,000+ clients served across 40+ countries and a 4.9/5 Google rating from 330+ verified reviews, ODIN Tax brings expat-specific depth that generalist accounting firms consistently lack. Unlike a standard accounting practice, ODIN Tax integrates tax strategy with mortgage structuring and conveyancing so that property decisions are made with full visibility of their tax consequences from the outset.
This article contains general information only and does not constitute personal tax advice. Tax outcomes depend on your individual circumstances. For advice specific to your situation, consult a registered tax agent.
Ready to understand exactly where your investment property sits under Australian non-resident tax rules? Visit odintax.com to speak with ODIN Tax’s specialist expat team.
