The mythical 45-day rule, and the tax facts every owner of Australian property should know

Australia’s property market remains a major lure for investors, homeowners, and expatriates, but navigating its tax landscape can be complex.

Whether you’re a resident or non-resident, understanding property-related taxation is crucial to avoid costly surprises.

From residency rules to capital gains tax (CGT) and international agreements, here’s a guide to the key considerations for 2025.

Are you a resident or non-resident for tax purposes?

Your tax obligations hinge on your residency status, determined by the Australian Taxation Office (ATO) using four tests.

Annie Zhu, Tax Manager, Australasian Taxation Services, said the primary Resides Test determines whether you “live” in Australia, based largely on your physical presence, but also on factors like your intentions, daily behaviour, and whether your lifestyle resembles an Australian resident’s.

If this doesn’t apply, three statutory tests come into play.

There is the Domicile Test, to examine whether your domicile (permanent home) is in Australia, unless you can prove you have a permanent place of abode overseas. To assess this, the ATO looks at factors like how long you’ve stayed abroad, if you’ve established a home overseas, and your family and economic ties both here and abroad.

There is also the 183-Day Test (residing in Australia for more than half the tax year), and the Commonwealth Superannuation Test (for certain government employees who are covered by specific government superannuation schemes). If none apply, you’re a non-resident, taxed only on Australian-sourced income.

“The residency test is not necessarily set in stone and the ATO will take into account a range of factors beyond just the amount of time spent in the country.

“This can include your behaviour while in Australia, family and business or employment ties, maintenance and location of assets and social and living arrangements.”

As the ATO website states, “We consider that six months is a considerable time when deciding whether your behaviour is consistent with residing here.

“That's not to say that if you’re here for less than six months, you'll always be a foreign resident, and if you’re here for more than six months, you'll always be an Australian resident.

“Generally, it's a combination of the factors of time and behaviour while in Australia that will determine your residency status.”

Australian expats are often concerned that staying in Australia for more than 45 days will make them Australian tax residents, leading to potential taxation on their worldwide income.

For Australian expats managing property from overseas, working with a mortgage broker who specialises in expat lending can be just as important as understanding residency and tax obligations.

This misconception relates to the proposals announced by the previous Coalition Government in the 2021-22 Federal Budget based on the Board of Taxation’s tax residency recommendations from their 2019 report. The Albanese Government has not progressed the changes to the residency rules for individuals. The reforms announced in the 2021-22 Federal Budget are not law.

As it currently stands, the ruling specifies anyone who spends 183 days a year and intends to take up residence in Australia will be deemed a tax resident for tax purposes.

“The 183-day rule does not automatically make you a non-resident for tax purposes, and staying abroad for 183 days or more is not a definitive test for losing Australian tax residency,” Ms Zhu said.

Retirement funds

Superannuation, or retirement savings, is an important aspect of the Australian tax system. Residents are eligible to contribute to superannuation and enjoy tax benefits such as concessional tax rates on contributions and tax-free withdrawals after preservation age.

Non-residents can still contribute to their superannuation, provided they meet the age and work test requirements, and both concessional (tax-deductible) and non-concessional (after-tax) contributions are allowed from non-residents.

They can, however, only contribute to retail/industry funds but not a self-managed super fund (SMSF). Non-resident and resident taxpayers have the same contribution caps.

There are additional tax considerations for non-residents, such as the application of withholding taxes on certain types of income, including interest, unfranked dividends, and royalties. Non-residents may also be subject to specific tax treaties between Australia and their home country, which could impact their tax liabilities.

“Non-residents are subject to Capital Gains Tax (CGT) in Australia only on the sale of Taxable Australian Property (TAP),” Ms Zhu added.

“Assets acquired during the non-resident period or assets purchased prior to ceasing tax residency but subject to a deemed disposal are generally exempt from CGT, provided they are not classified as TAP.”

Changes to taxation laws around high superannuation balances also demand attention.

Tax rates: residents vs non-residents

For the 2024–25 financial year (1 July 2024 to 30 June 2025), Australian residents enjoy a tax-free threshold of $18,200, with progressive rates: 16 per cent for income between $18,201 and $45,000, 30 per cent for $45,001 to $135,000, 37 per cent for $135,001 to $190,000, and 45 per cent above $190,000.

A 2 per cent Medicare Levy applies to most residents. Non-residents, however, face no tax-free threshold, paying 30 per cent on income up to $135,000, 37 per cent from $135,001 to $190,000, and 45 per cent thereafter.

Capital Gains Tax (CGT) obligations

CGT applies to profits from selling property acquired on or after 20 September 1985, added to your taxable income and taxed at your marginal rate.

Residents benefit from a 50 per cent CGT discount on assets held for over 12 months, reducing the taxable gain. Non-residents are ineligible for this discount on gains accrued after 8 May 2012.

Both residents and non-residents must pay CGT on taxable Australian property, such as real estate. For example, selling a $800,000 property bought for $600,000 yields a $200,000 gain, taxed after deductions like sale costs.

Since 1 January 2025, the Foreign Resident Capital Gains Withholding (FRCGW) scheme requires non-residents selling property to remit 15 per cent of the sale price to the ATO, up from 12.5 per cent, with the $750,000 threshold removed. Australian residents selling property need a clearance certificate to avoid withholding.

Double Taxation Agreements (DTAs)

Australia has DTAs with more than 50 countries and territories, including major countries such as the UK, US, and Japan, right through to smaller jurisdictions such as Aruba, Iceland and Fiji, to prevent double taxation.

For instance, an Australian resident with UK rental income can claim a foreign tax credit for UK taxes paid, offsetting their Australian tax liability.

DTAs clarify which country taxes specific income, like property rental or capital gains, ensuring fair treatment.

Tax filing deadlines

The Australian tax year runs from 1 July to 30 June. For 2024–25, individuals must file by 31 October 2025 using myTax via the ATO’s myGov portal. Engaging a registered tax agent before this date can extend the deadline to 15 May 2026, depending on circumstances.

Non-residents with Australian-sourced income, like property sales, must also file if not fully covered by withholding taxes.

Under the FRCGW rules, the amount withheld by the purchaser is not a final tax.

“The vendor must report the full assessable capital gain in their Australian tax return for the income year in which the contract was signed, and any withholding that has already occurred is then treated as a credit against the tax liability,” Ms Zhu explained.

Medicare Levy Surcharge

Residents with taxable income above $27,222 (or $45,907 for families) pay a 2 per cent Medicare Levy. High-income residents (over $97,000 for singles, $194,000 for couples) without adequate private health insurance face an additional 1 per cent to 1.5 per cent Medicare Levy Surcharge.

Non-residents are exempt from both the levy and surcharge, as they typically cannot access Medicare.

Seeking tax advice

With 2025 bringing changes like the FRCGW rate increase and upcoming tax cuts (16 per cent rate dropping to 15 per cent in 2026–27), staying informed is key, according to Ms Zhu.

“Property investors should consult tax professionals to navigate residency rules, CGT, and DTAs, ensuring compliance and optimising returns in Australia’s dynamic property market.”

“Understanding the difference in Australian tax treatment between residents and non-residents is essential for individuals to fulfil their tax obligations and optimise their tax positions.

“Residents are subject to tax on worldwide income, while non-residents are generally taxed only on Australian-sourced income.

“Different tax rates, exemptions, and concessions apply to each category.

“It is advisable to seek professional advice from a tax specialist to ensure compliance and take advantage of concessions that may be available to you,” Ms Zhu said.