Quick answer: owning an Italian house costs an Australian nothing unusual. Leaving Australia does. CGT event I1 deems a disposal of every asset that is not taxable Australian property on the day residency ends, and an Italian house is one of them. The election to defer exists and applies to your whole non-Australian portfolio at once, so it cannot be used selectively.
Australians buy in Italy for reasons that have nothing to do with tax and everything to do with family, and a large share of them eventually think about moving. That last thought is where the Australian tax system becomes relevant, because it charges for the move rather than for the house.
What does CGT event I1 actually do?
Section 104-160 of the Income Tax Assessment Act 1997 provides that when an individual stops being an Australian resident, they are taken to have disposed of each asset they own that is not taxable Australian property, for its market value at that time.
Taxable Australian property is essentially Australian real estate and interests connected to it. An apartment in Bologna is not taxable Australian property, so it falls inside the deeming rule. So do foreign shares, foreign managed funds and most other non-Australian assets.
The consequence is a capital gain calculated on paper. If the Italian house was bought for €260,000 and is worth €370,000 on the day residency ends, roughly €110,000 of gain enters the final Australian return, translated into Australian dollars. No buyer exists, no proceeds arrive, and the tax is nonetheless assessed.
| On ceasing Australian residency | Treatment |
|---|---|
| Italian house | Deemed disposal at market value |
| Foreign shares and funds | Deemed disposal at market value |
| Australian real estate | Stays in the Australian net, no deemed disposal |
| Cash | Not a CGT asset in this sense |
- The event is dated to the cessation of residency, which is a question of fact rather than a date you nominate
- Market value on that date is the number, so evidence of it has to exist
- The gain is computed in Australian dollars, so exchange movements since purchase form part of it
Why is the deferral choice all or nothing?
Subsection 104-165(2) allows an individual to choose to disregard the capital gains and losses that CGT event I1 would otherwise produce. The effect is that the assets stay within the Australian capital gains system until they are actually sold or until the person becomes an Australian resident again.
The constraint that catches people is scope. The choice applies to the whole portfolio of non-taxable Australian property, not asset by asset. An Australian leaving for Italy cannot defer the gain on the house while crystallising a loss on a share portfolio, or realise a modest gain on the shares while postponing a large one on the property.
That turns a property decision into a balance-sheet decision. Where the Italian house carries a large unrealised gain and the rest of the portfolio carries losses or small gains, deferring everything is usually right. Where the portfolio holds a substantial gain that would attract a better rate now than later, the arithmetic can point the other way even though it means paying tax on a house that has not been sold.
- Risk: discovering the all-or-nothing scope after the departure date has passed
- The choice is made in the return covering the cessation, so the modelling has to happen before then
- Deferring keeps future Australian exposure alive, which matters if the intention is never to return
What does the departure timing actually look like?
Residency for tax purposes does not end when the plane leaves. It ends when the tests in the law are satisfied, which can be earlier or later than the physical move and turns on where the person’s permanent place of abode is, on family and on the pattern of their affairs.
For an Australian moving to Italy, the practical sequence usually looks like this: the Italian property is bought while still resident, the move happens, and residency ends at some point around it. The value of the Italian house on that date determines the deemed gain, so the date matters as much as the house does.
Two consequences follow. First, a valuation of the Italian property should be obtained around the departure, not reconstructed years later. An Italian perizia costs a few hundred euros and fixes the figure. Second, where the Italian market has run hard since purchase, the gap between purchase and departure is the whole exposure, so the sequencing of a move relative to a purchase is worth thinking about rather than letting fall out of other plans.
- Obtain a dated Italian valuation at departure, not from memory afterwards
- Residency cessation is a factual test, and the date is arguable in both directions
- The Italian side of a move brings its own consequences, including the Italian regimes for incoming residents
What applies while you simply own it from Australia?
Very little that is Australia-specific, which is worth saying because the rest of this page is about an event that many owners never reach.
Australia taxes residents on worldwide income, so Italian rental income enters the Australian return. Italy taxes it first at 21% on the first short-let unit or 26% beyond it under the flat regime, or under ordinary IRPEF, as covered in our cedolare secca guide. Australia then allows a foreign income tax offset for the Italian tax, capped at the Australian tax on that income. Because Italian rates on let residential property are substantial, the offset commonly absorbs most of the Australian liability.
The distance imposes its own discipline. The Schengen limit of 90 days in any 180-day period, covered in our stay-limit guide, interacts badly with a 24-hour journey: Australian owners tend to visit less often and stay longer, which uses the allowance faster than a European pattern of frequent short visits. Owners who want a full season need a visa route, and the investor visa guide covers one of them.
- The purchase itself triggers nothing in Australia
- Rental income is reported annually with the offset, and the Italian tax evidence has to be kept
- There is no Italian equivalent of the Foreign Investment Review Board approval Australians know from home
Can superannuation pay for it?
Not for a house the family will use, and this is worth being exact about because the question is asked constantly and answered loosely.
A self managed superannuation fund is bound by the sole purpose test in section 62 of the Superannuation Industry (Supervision) Act 1993: the fund must be maintained for retirement benefits, not for present-day member benefit. Alongside it, the in-house asset and related-party rules restrict a fund’s dealings with members and their relatives. A property the members holiday in is definitionally present-day benefit, so an SMSF cannot hold an Italian house for that purpose whatever the paperwork says.
A fund can in principle hold foreign residential property as a genuine investment, let at arm’s length to unrelated tenants and never used by members or their relatives. That is a real structure and a demanding one, since the constraint applies to a single night’s use as much as to a season.
Financing it is where the practical difficulty sits. A borrowing SMSF must use a limited recourse borrowing arrangement, with the asset held on a bare trust and the lender’s recourse confined to it. Italian mortgage lending is conventional ipoteca lending with full recourse, and Italian law has no bare trust, so satisfying the Australian structural requirements against Italian security is not a routine matter. This is the point on which to take specialist SMSF advice rather than a general answer, since the structure has to satisfy Australian superannuation law and Italian property law simultaneously, and the consequences of getting it wrong fall on the fund’s compliance status rather than on the property.
- Personal or relative use of an SMSF-held property breaches the fund, with no de minimis
- An arm’s length letting to unrelated tenants is the only viable use
- Borrowing arrangements are the hard part, and specialist advice belongs before any offer
What happens to the house when the owner dies?
Australia has no inheritance tax, no estate duty and no death duties, which makes the Australian position unusually simple and puts the whole question on the Italian side.
Italy charges its own succession tax on Italian property regardless of where the deceased lived. For a spouse or child the rate is 4% on the value above a franchigia of €1 million per beneficiary, which means most family holiday homes pass with no Italian charge. Where the beneficiary is more distantly related the rates rise and the allowance falls or disappears.
Two Australian points sit behind that. Capital gains tax can arise on death in Australia in some circumstances rather than through a separate estate duty, so the absence of inheritance tax does not mean the absence of any tax consequence. And an Italian succession declaration must be filed in Italy within 12 months of death, by the heirs, which is an administrative obligation Australian families routinely discover late and from a great distance.
- No Australian inheritance tax means the Italian charge is usually the only one, and usually nil for close family
- The Italian succession declaration is due within 12 months and is the heirs’ responsibility
- An Australian will should say something explicit about the Italian property rather than leaving it to general words
Which Australian buyer scenarios does this change?
The buyer who will never leave Australia. CGT event I1 is irrelevant, and the Italian house behaves like any other foreign investment: annual rental reporting with an offset, and a real capital gain on an eventual actual sale. Most of this page can be filed away.
The buyer planning to retire to Italy. The most exposed profile and the one this page is written for. The decision framework is to model the deemed disposal on the whole non-Australian portfolio before setting a departure date, because the choice is portfolio-wide and irreversible for that departure.
The dual national with an Italian passport. The Australian analysis is identical, since CGT event I1 turns on tax residency rather than on citizenship. What the Italian passport changes is the Italian side: no reciprocity question, no Schengen limit, and the right to live at the property indefinitely.
The buyer letting the property for income. Italian licensing applies in full, remote management costs are real at this distance, and the Australian offset mechanism handles the tax. This profile should read the Italian rules first and the Australian ones second.
For the purchase mechanics, which carry no Australian complication, see the step-by-step sequence and the money transfer guide, which matters more than usual when the funds start in Australian dollars. For the Italian rates an Australian resident owner pays throughout, the prima casa comparison explains the second-home position, and the selling guide addresses a real sale, which is a wholly separate event from the deemed one described above.
Frequently Asked Questions
Section 104-160 of the Income Tax Assessment Act 1997 triggers a deemed disposal when an individual stops being an Australian resident. It applies to assets that are not taxable Australian property, and an Italian house is squarely in that category. You are treated as having sold it at market value on the day you cease residency, with the gain taxable in that final Australian return, even though nothing was sold.
Yes, under the choice in subsection 104-165(2), which lets you disregard the capital gain or loss on ceasing residency. The deferral is not free of consequences: the assets remain within the Australian capital gains net until you actually dispose of them or return to Australia, so you have postponed the charge rather than escaped it.
No, and this is the constraint people meet too late. The choice applies to your entire portfolio of non-taxable Australian property. You cannot defer the house and realise the shares, or vice versa. Whichever way the decision goes it goes for everything, which is why it belongs in a departure plan built around the whole balance sheet rather than around the property alone.
No. The purchase is not a taxable event and neither is ownership. Australia taxes the rental income annually with an offset for Italian tax, and that is the whole of it while you remain a resident. The event this page is about is departure, which is why an Australian who never leaves may never encounter it at all.
Italy taxes it first, at 21% on the first short-let unit or 26% beyond it under the flat regime, or under ordinary IRPEF. Australia then includes the income in your assessable income and allows a foreign income tax offset for the Italian tax paid, capped by the Australian tax on that income. Because Italian rates on let property are substantial, the offset frequently absorbs most of the Australian charge.
It is a resident's concession, and residency status over the ownership period determines how much of it survives. An Australian resident holding an asset for at least 12 months has historically accessed a 50% discount on the gain, and access for periods of foreign residency has been restricted since 2012. Where a deemed disposal happens on departure, the discount position at that moment is part of the calculation and is worth modelling rather than assuming.
The allowance is 90 days out of every rolling 180, counted across the whole Schengen area rather than Italy alone, and the Entry/Exit System logs it automatically from 2026. Owning the house adds nothing to it. The distance is what makes this bite: Australians travel less often and stay longer, which exhausts the allowance faster than a European pattern of short frequent visits.
No. Australia satisfies the reciprocity condition, so an Australian citizen buys on the same civil terms as an Italian one, and the notary's check is procedural. There is no Italian equivalent of the Foreign Investment Review Board approval that applies to foreign buyers of Australian residential property.
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