What is Australia's departure tax, and why does aliyah trigger it?
On the day you stop being an Australian tax resident, CGT event I1 deems you to have sold every CGT asset that is not"taxable Australian property", in practice your shares and managed funds, at its market value on that date, and the built-in gain is taxable on your final Australian return1. You can instead make a one-time choice to disregard that gain, but the price of the choice is that those assets stay inside the Australian CGT net until you actually sell them. A lifelong Israeli never faces any of this; an Australian oleh meets it because ceasing Australian residency is itself the trigger.
Not advice
The mechanism matters. Nothing is actually sold and no money changes hands, yet the Australian Taxation Office (ATO) treats your non-taxable-Australian-property assets as disposed of at market value the moment you cease residency1. Almost every Australian oleh is blindsided that becoming a non-resident is itself a taxable act. In the US you would owe capital-gains tax only when you sell; in Australia, leaving is the event that can crystallise the gain, unless you actively choose to push it down the road.
Which assets are caught by CGT event I1, and which are excluded?
I1 catches your non-taxable-Australian-property assets and leaves taxable Australian property alone. "Taxable Australian property" (TAP) is mainly real property situated in Australia plus certain indirect interests in it; ordinary shares in a company and units in a managed fund are not TAP2. That split decides your departure-tax exposure: your portfolio is caught, your Australian house is not, but your house stays taxable in Australia on a future sale regardless2.
| Asset | Caught by CGT event I1? | What actually happens on departure |
|---|---|---|
| Listed shares (ASX or foreign) held directly | Yes, non-TAP | Deemed sold at market value; the built-in gain is taxed now unless you choose to disregard it1 |
| Managed funds / unit trusts (non-TAP units) | Yes, non-TAP | Deemed sold at market value on the departure date; gain reportable on the final return2 |
| Foreign real estate and foreign shares | Yes, non-TAP | Deemed sold at market value; gain taxed in the departure year |
| Australian real property (your home, an investment property) | No, this is TAP | Not caught by I1; stays taxable in Australia whenever you actually sell it2 |
| Indirect interest in Australian real property | No, this is TAP | Remains within the Australian CGT net as a foreign resident |
| Australian superannuation | No | Not a CGT asset disposal on departure; governed by super and preservation rules, not I1 |
The headline: a large appreciated share or managed-fund portfolio is exactly what generates a departure-tax gain, while your Australian house does not, but the house carries its own, separate Australian tax tail because real property stays taxable in Australia for foreign residents2.
Should I pay the I1 tax now, or choose to disregard it?
You have a genuine choice, and it is a real trade-off rather than a free pass. As an individual you can choose to disregard all the capital gains and losses that CGT event I1 would otherwise crystallise. If you do, the ATO then treats those same assets as taxable Australian property until a later CGT event happens to them, that is, until you actually sell1. So choosing to disregard does not erase Australia's claim; it keeps the assets in the Australian net and means Australia taxes the post-departure growth too, not only the gain up to your departure date.
| Question | Pay the I1 tax now (do not disregard) | Choose to disregard the I1 gain |
|---|---|---|
| When is the tax due? | On your final Australian return for the departure year, on the deemed gain to the departure date1 | Not now; deferred until you actually sell the asset as a foreign resident1 |
| What gain does Australia keep taxing? | Only the gain accrued up to your departure date; growth afterwards is outside the Australian net | The whole gain to eventual sale, including growth after you became a foreign resident1 |
| Do I have to tell the ATO which way I chose? | The way you prepare the return is the evidence of the choice | No separate notification; how you complete the return is treated as the choice1 |
Paying now sets a clean line: Australia takes its slice of the pre-departure gain and walks away from later growth. Disregarding defers the cash but leaves a long Australian tail. For an oleh, the question is usually whether the deferred Australian gain can later be sheltered on the Israeli side, which is where the 10-year exemption comes in.
Knowledge Check
An Australian oleh holds an ASX share portfolio with large unrealised gains and chooses to disregard CGT event I1 on departure. What is the consequence?
What happens to my Australian home and the main-residence exemption?
Your Australian home is not caught by CGT event I1, but the main-residence exemption you may be relying on is largely gone once you are a foreign resident. Australian real property is taxable Australian property, so it stays within the Australian CGT net and is taxed whenever you sell it2. Separately, the ATO removed the main-residence exemption for foreign residents who dispose of a dwelling from 30 June 2020, unless a narrow life-events test is met within six years of becoming a foreign resident (for example a terminal illness, death of a spouse or minor child, or a divorce-related transfer)3.
The practical consequence: an oleh who keeps the family home in Australia and sells it later as a foreign resident can lose the exemption on the whole ownership period, not just the years abroad3. Whether to sell before aliyah (while still a resident, when the exemption may still apply) or keep the property is a timing decision with a real tax number attached, and it is independent of the I1 choice on your share portfolio.
How does the Israeli side treat the same assets after aliyah?
Israel does not tax you on the Australian I1 deemed disposal, and it gives a new oleh a 10-year exemption from Israeli tax on foreign-source income and capital gains5. So the share or managed-fund holding that just met CGT event I1 enters the Israeli system clean: foreign-source gains you realise during the first ten years after your aliyah date are exempt from מס הכנסה (Mas Hachnasa) in Israel5.
Israel also looks at foreign assets from your residency start, giving you a fresh reference point, effectively a step-up, at the aliyah-date market value. That lines up neatly with the Australian choice. If you paid the I1 tax, Australia has already taxed the pre-departure growth and your Israeli clock starts at the same value; if you disregarded it, you can plan to sell during the Israeli 10-year window, pay the deferred Australian tax on the now-larger gain, and pay zero Israeli tax on it5. The two systems do not automatically cancel each other, so the timing of the eventual sale is the lever.
The 2026 reporting change
What about US-citizen Australian olim and PFIC?
A dual Australian-American oleh is exposed to a third system the Australian I1 choice does nothing to fix. Any pooled fund you held, an Australian managed fund, a unit trust, an ASX-listed ETF, is a Passive Foreign Investment Company (PFIC) for US tax purposes, reportable on Form 8621 and taxed under the punitive default §1291 regime, where gains are taxed at the highest rate with an interest charge layered on top6. CGT event I1 and the disregard choice are purely Australian; they say nothing about the US PFIC consequences, which run in parallel and compound for every year the fund is held.
Australia-only olim, no US citizenship, no green card, can ignore PFIC entirely; it is a US-person rule. This is the cross-border fork: the same Australian managed-fund unit is a simple CGT-event-I1 asset for an Australia-only oleh and a §1291 PFIC headache for a dual US citizen, on top of the Australian and Israeli treatment.
How should an Australian oleh sequence the move to manage the bill?
Sequence three decisions: value, choose, then time the sale. First, document the market value of every non-TAP asset on your departure date, that figure fixes both the I1 deemed gain and the reference point Israel will use1. Second, decide on your final Australian return whether to pay the I1 tax now or disregard it; the way you complete the return is the choice, so it must be deliberate1. Third, plan any later sale of appreciated holdings to fall inside the Israeli 10-year exemption window, where foreign-source gains are exempt from Israeli tax5.
- Get a defensible valuation for unlisted holdings and private-company shares, the departure-date market value is the spine of the whole calculation.
- Treat the Australian home as a separate decision: it is outside I1 but stays Australian-taxable, and the main-residence exemption is largely lost once you are a foreign resident3.
- If US-exposed, plan the PFIC position on Australian managed funds before you move, because §1291 compounds for every year held6.
- File the דוח שנתי (Doch Shenati) in Israel for foreign gains even while they are exempt, under the 2026 reporting rule.
None of this avoids the tax outright, CGT event I1 is mandatory, and disregarding it only shifts when and on how much Australia taxes you. The goal is to not pay twice, not pay sooner than you must, and not pay Israeli מס שבח (Mas Shevach)-style or income tax on a gain the 10-year exemption was designed to shelter.
When you cease Australian tax residency on aliyah, CGT event I1 treats you as having sold your non-taxable-Australian-property assets, chiefly your shares and managed funds, at their market value on your departure date. The built-in gain is taxable on your final Australian return. As an individual you can make a one-time choice to disregard that gain, but the trade-off is that those assets are then treated as taxable Australian property until you actually sell them, so Australia keeps taxing the post-departure growth too. Australian real property is not caught by I1, yet it stays taxable in Australia, and the main-residence exemption was removed for foreign-resident disposals from 30 June 2020 outside a narrow life-events test. On the Israeli side, a new oleh gets a fresh cost base at the aliyah-date market value plus a 10-year exemption on foreign-source gains, which from 1 January 2026 is report-but-still-tax-exempt. US-citizen olim face a third system: an Australian managed fund is also a PFIC (Form 8621, punitive section 1291) that the Australian I1 choice does nothing to fix.
Yes. CGT event I1 happens by operation of law the moment you cease being an Australian tax resident. You are taken to have disposed of your non-taxable-Australian-property assets, chiefly your shares and managed funds, at their market value on that date. There is no form to lodge to make it happen. What you do get to decide is whether to disregard the gain, and that decision is shown by how you prepare your final Australian return.
No. Choosing to disregard the I1 gain keeps the assets treated as taxable Australian property until a later CGT event, so Australia taxes the entire gain, including the growth after you left, when you eventually sell. The choice defers the cash and can be useful if you plan to sell inside the Israeli exemption window, but it lengthens, rather than ends, Australia's claim.
No. Australian real property is taxable Australian property and is not caught by CGT event I1. It instead stays within the Australian CGT net and is taxed whenever you actually sell it. Be aware, though, that the main-residence exemption was removed for foreign residents disposing of a dwelling from 30 June 2020, outside a narrow life-events test that can apply within six years of becoming a foreign resident.
Generally not, during the first ten years. New olim receive a 10-year exemption from Israeli tax on foreign-source income and capital gains, and Israel looks at foreign assets from your residency start, giving you a fresh reference point at the aliyah-date market value, so the pre-aliyah growth Australia crystallised is not re-taxed in Israel during the window. From 1 January 2026 you must report the foreign gains to the Israel Tax Authority, but they remain exempt from Israeli tax inside the ten years.
No. CGT event I1 and the disregard choice are purely Australian and say nothing about your US duties. As a US person you still file worldwide, and any pooled Australian fund you held, such as a managed fund, a unit trust or an ASX-listed ETF, is a PFIC reportable on Form 8621 under the punitive default section 1291 regime. A dual citizen needs the Australian, Israeli and US treatments handled together, not as if the Australian choice settles the US position.
It depends on the choice you make at departure and on your Israeli timeline. Selling before you cease residency is an ordinary Australian disposal taxed in full there. Selling after, having disregarded I1, defers the Australian tax to that sale but keeps the assets Australian-taxable. Pairing that later sale with the Israeli 10-year exemption can leave the Israeli side at zero. This is a cross-border timing decision worth taking to a qualified professional.
