CGT When a Client Leaves Australia: Event I1, the Choice to Disregard and the 50% Discount

Published 3 November 2026 by Steffan Kharmaaiarvi, founder

CGT when leaving Australia catches many clients by surprise: nothing is sold, yet the year they stop being an Australian resident can carry a capital gain on a whole share portfolio. The rule is CGT event I1. This note covers what it reaches, the choice to disregard it and its later cost, the 50% discount, and what is left out, with an illustrative worked example and what Borderfolio for Advisors computes. It is decision support for a professional conversation, not tax advice.

CGT event I1: a deemed sale on the day residence ends

Under section 104-160 of the Income Tax Assessment Act 1997, CGT event I1 happens when an individual or company stops being an Australian resident, at the time residence ends. For each CGT asset owned just before that time, the client makes a capital gain if its market value is more than its cost base, and a capital loss if its market value is less than its reduced cost base. The ATO calls this a ‘deemed disposal’.

• Taxable Australian property is left out. Australian real estate and assets used in a business in Australia stay taxable in Australia after the client leaves, so they are not deemed sold. A CGT event happens when they are actually disposed of.
• Pre-CGT assets are left out. A gain or loss on an asset acquired before 20 September 1985 is disregarded (s104-160(5)).
• Indirect Australian real property interests, and options or rights to acquire them, are taken to be immediately re-acquired at market value.

In practice the scope is the client's shares, ETFs and managed funds held outside super, in Australia and abroad.

The choice to disregard, and what it costs later

An individual can choose to disregard every capital gain and loss from the assets covered by event I1 (s104-165(2)). The choice is all or nothing: the client cannot keep the losses and defer the gains. The ATO says no form is needed; the way the return is prepared is generally sufficient evidence of the choice.

The consequence is in s104-165(3): each of those assets is then taken to be taxable Australian property until the earlier of a CGT event in which the client stops owning it, or the client becoming an Australian resident again. Australia then taxes a later sale on the whole gain, including growth after departure.

That matters because of the discount. The ATO states that the full CGT discount is not available on an asset acquired after 8 May 2012 and sold after the client has become a foreign resident; an apportioned discount may apply for the part of the ownership period when the client was resident.

The 50% discount on the deemed disposal

On the deemed disposal itself the ATO is explicit: a client who has always been an Australian resident while owning an asset can claim the full 50% discount on it. The general conditions still apply. The asset must have been owned for at least 12 months before the CGT event, counting neither the day of acquisition nor the day of the event, and capital losses are subtracted before the discount is applied. Within a category of gains, s102-5 lets the client choose the order in which losses reduce them, so a loss is usually applied first against gains that would get no discount.

A parcel bought less than 12 months before departure gets no discount. A client with a cost base reset on arrival in Australia (see cost base on arrival in Australia) starts the 12 months again from the arrival date.

The ATO's CGT discount page also notes that changes to capital gains tax announced in the 2026–27 Federal Budget do not apply to Tax Time 2026. This note describes the rules as the ATO and the Act state them today; check the position for the year your client actually leaves.

Who is outside event I1

• Temporary residents. A client who is a temporary resident when residence ends is not taken to have disposed of any assets (the ATO page; s768-915 ITAA 1997). A temporary resident broadly holds a temporary visa, and neither the client nor their spouse is an Australian resident within the meaning of the Social Security Act 1991. Someone who has been an Australian resident without those conditions after 6 April 2006 cannot later become a temporary resident.
• Super. A member's interest in a super fund is not a portfolio asset of the member: s118-305 disregards a capital gain or loss from a CGT event relating to a right to an amount payable out of a super fund, or to a right to an asset of the fund. The fund's own assets belong to the trustee, and the fund's own residence status is a separate question for the trustees.
• Australian real estate is outside the deemed disposal, as above, but stays inside the Australian tax net.

An illustrative worked example

The figures are invented to show the arithmetic. An Australian-born client, always resident, leaves for Singapore and stops being a resident on 15 March 2027. They keep a rented apartment in Brisbane and an SMSF, and hold three share parcels outside super:

• Losses first. The A$4,000 loss is applied first against the A$3,000 gain that gets no discount, leaving A$1,000 of loss to apply against the discountable gain: 35,000 − 1,000 = A$34,000.
• Discount. 34,000 × 50% = A$17,000. The net capital gain on the deemed disposal is A$17,000, taxed at the client's marginal rate in the year of leaving.
• Left out. The Brisbane apartment (taxable Australian property) and the SMSF.
• If the client chooses to disregard. No gain or loss is reported now. All three parcels become taxable Australian property. If the ETF is later sold abroad for A$120,000, the gain of A$60,000 is taxed in Australia, and because the client was a foreign resident for part of the ownership period the full discount is not available on it; only an apportioned discount for the resident period may apply.

Paying on A$17,000 now against exposure on all later growth with a reduced discount: the answer depends on how long the client will be away, whether they return, and how the next country taxes the sale.

What Borderfolio shows

• The deemed disposal finding. For a client resident in Australia with a planned move on the profile, the Cross-Border tab shows each holding in taxable accounts at today's value against its cost, the deemed gain, and the taxable part after losses and the 50% discount, applied per parcel with the 12-month test at the departure date.
• Cost from the ledger. Cost is replayed from the confirmed transactions at each trade's own exchange rate, parcels taken first in, first out (an assumption: in Australia the client identifies the parcels sold). A holding whose purchase history is missing reads as unknown, and no total is given.
• The choice as a step. The choice to disregard is listed as an optional step, with its consequence: the assets become taxable Australian property and later gains count in Australia.
• Super excluded. Accounts set up with an Australian super wrapper (accumulation or retirement phase) are left out of the disposal.

Not modelled: the tax itself (it depends on the marginal rate in the year of leaving), temporary residents (the screen assumes the client is not one), pre-CGT assets, indirect Australian real property interests, the apportioned discount on a later sale after the choice, the Budget changes announced for 2026–27, and the destination country's tax. The relocation documentation shows how a planned move is entered.

Sources: ATO, how changing residency affects CGT, ATO, CGT discount, ITAA 1997 s104-160, s104-165, s768-915, s118-305, s102-5.

Frequently asked questions

What is CGT event I1?

CGT event I1 happens when an individual stops being an Australian resident (s104-160 ITAA 1997). Each CGT asset the client owns just before that time, other than taxable Australian property, is treated as disposed of for its market value, so a gain or loss arises although nothing is sold.

Can a client choose not to pay CGT on leaving Australia?

An individual can choose to disregard every gain and loss from event I1 (s104-165). The assets are then taxable Australian property until they are sold or the client becomes resident again, so Australia taxes later growth too, and the full 50% discount is not available for the period of foreign residence.

Does the 50% CGT discount apply on departure?

Yes, for assets owned at least 12 months, not counting the day of acquisition and the day of the event, by a client who was always an Australian resident while owning them. Capital losses are subtracted before the discount.

Is super caught by the deemed disposal?

No. Section 118-305 disregards a capital gain or loss from a CGT event relating to a right to an amount payable out of a super fund or to a right to an asset of the fund. Temporary residents are also not taken to have disposed of any assets when they stop being resident.

Not tax advice. This article is general information for financial advisers, current as at 3 November 2026. Confirm each client's position with a registered tax agent or lawyer before acting.