Investment Property Sales and SMSFs: Essential Tax Considerations for Returning Australians
- pdbptax
- Sep 7
- 3 min read
Many Australians choose to live abroad to enjoy more flexible working arrangements, pursue international opportunities, or benefit from lower or even nil tax jurisdictions, such as Dubai. Yet for most, the long-term objective remains the same: to return to Australia. As that return approaches, early financial restructuring becomes critical to protect wealth and secure a tax-effective retirement.
Case Overview
Our clients, a married couple in their mid-60s, are Australian citizens who have spent several years living overseas. With plans to return home within the next two years, their focus is on optimising their retirement strategy. Their intended plan is to:
Sell two Australian investment properties valued at approximately $1.1 million and $850,000.
Establish a Self-Managed Superannuation Fund (SMSF) with both as members.
Contribute the sale proceeds as non-concessional contributions.
Acquire a property worth $2–3 million outright within the SMSF.
Transition the SMSF into pension phase, with rental income funding tax-free retirement pensions.
Although appealing in theory, this strategy presents several tax and compliance hurdles.
1. Capital Gains Tax (CGT) on Property Sales
No 50% CGT Discount for Non-Residents: Since 8 May 2012, non-residents are ineligible for the CGT discount on capital gains accrued during foreign residency.
Partial Discount for Pre-2012 Assets: For assets acquired before 8 May 2012, a partial discount may still apply, either by apportioning the residency period or by using market value at 8 May 2012.
Mixed Residency Periods: If ownership spans both resident and non-resident periods, the discount applies proportionally to the resident period.
Practical Strategy: Returning to Australian residency before selling may reinstate eligibility for part of the discount. This requires precise timing, documented valuations, and accurate residency records.
2. Contribution Caps and Non-Concessional Contributions
Annual Cap: $120,000 per person, provided the total super balance is below $1.66 million as at 30 June of the prior year.
Bring-Forward Rule: Up to $360,000 in one year, with scope to contribute $480,000 across two years if structured carefully.
Practical Limitation: The couple may be limited to $720,000 combined contributions without breaching caps.
3. Establishing and Maintaining SMSF Residency Status
While the plan appears attractive, establishing an SMSF while non-resident is not feasible. A complying SMSF must meet the residency requirements in s 295-95(2) ITAA 1997 and TR 2008/9. Failure risks the fund being non-complying, taxed at 45% on income and opening asset values.
Establishment Test: The SMSF must be set up in Australia with an initial contribution received by a trustee in Australia. This cannot be met if all members are offshore.
Central Management and Control Test: High-level decisions must ordinarily occur in Australia. TR 2008/9 allows a two-year temporary absence safe harbour if an intention to return is clear.
Active Member Test: An SMSF cannot accept contributions from non-residents unless at least 50% of assets are held by resident contributing members. If both members are non-residents, the test fails immediately.
Practical Guidance: It is generally safer to defer SMSF establishment until residency resumes. Until then, contributions should be directed to an APRA-regulated retail or industry super fund, with a rollover option once residency requirements are met.
4. Pension Phase and Rental Income
Up to $1.9 million per member can be transferred into a tax-free retirement phase account (increasing to $2 million from FY26).
If fully in pension phase, rental income is tax-free.
Ongoing compliance is critical to maintain this exemption.
Conclusion
For Australians preparing to return home, timing is everything. Professional advice tailored to personal timelines and asset histories will be essential to turn this strategy into a compliant and tax-effective reality.
