Australia's Deemed Acquisition for Indians: How Becoming a Resident Resets Your Cost Base and Leaving Triggers a Deemed Disposal

You move to Sydney in 2026 with a portfolio of Indian shares you have held for a decade. They cost you Rs 30,00,000 and they are worth Rs 50,00,000 the week you land. You assume Australia will eventually want a slice of that Rs 20,00,000 gain when you sell, because you built most of it after you left India and Australia taxes residents on their worldwide income. You are wrong, and pleasantly so. Australia does not reach back to your original Indian cost. It treats you as if you bought those shares on the day you became a resident, at their market value that day, so the Rs 20,00,000 you accrued before arriving falls completely outside the Australian net. Only what the shares gain from your arrival onward is ever Australia's to tax.

This is the deemed acquisition rule, the cost-base reset that greets every Indian who becomes an Australian tax resident holding appreciated foreign assets. It is one of the few genuinely generous rules in cross-border tax, a clean step-up that hands you a higher cost base for nothing. The mirror image, the one that costs money rather than saving it, arrives when you leave: CGT event I1, the deemed disposal that taxes your accrued gains on the way out even though you have sold nothing. The same mechanism that protects you on arrival bills you on departure, and the gap between the two is where the planning lives.

The 30-second answer: When you become an Australian tax resident, you are deemed to have acquired every CGT asset that is not taxable Australian property (so your Indian shares, mutual funds and foreign portfolios) at its market value on the day you became resident. Only the gain accruing after that date is taxed by Australia, a clean step-up. Document the arrival-day market value. When you cease to be a resident, CGT event I1 deems you to have disposed of those same assets at market value, triggering Australian CGT on the accrued gain, unless you elect under subsection 104-165(2) ITAA 1997 to disregard the deemed gain and instead treat the assets as taxable Australian property until you actually sell. The 50% CGT discount is restricted for foreign and temporary residents for periods after 8 May 2012, so gains accruing after you leave lose discount entitlement (apportioned). Timing your realisations around the residency change is the whole game.

This guide explains both halves of the rule and the join between them: what the deemed acquisition does and which assets get it, a worked example on Indian shares that cost Rs 30,00,000 and are worth Rs 50,00,000 on arrival, the departure side under CGT event I1, the election to disregard the deemed gain and what you trade away to use it, a second worked example on the way out, the post-8-May-2012 restriction on the 50% discount, and the edge cases that trip up Indians the most. The arrival rule is a gift. The departure rule is a bill. Knowing both before you move either direction is how you keep more of your own money.

What the deemed acquisition actually does

Australia taxes its residents on their worldwide income, including capital gains, and it taxes a gain only when a CGT event happens, normally a real sale. The question Australia has to answer for a new arrival is simple: when you bring in an asset you already owned, where does Australia's claim begin? It cannot fairly tax the gain you built up while you were living and earning in India, before Australia had any connection to you. So it draws a line at the date you become a resident and says, in effect, that everything before that line belongs to India and everything after it belongs to Australia.

The mechanism is the deemed acquisition. When you become an Australian tax resident, the law treats you as having acquired each of your CGT assets that is not taxable Australian property at its market value on the day you became resident. You did not buy anything. No money changed hands. But for Australian CGT purposes your cost base in those assets is reset to their arrival-day market value, and the clock on your ownership, for the purpose of working out gains, starts then.

The consequence is a cost-base step-up. If your Indian shares had risen from Rs 30,00,000 to Rs 50,00,000 before you arrived, Australia does not see a Rs 20,00,000 latent gain waiting to be taxed. It sees an asset you "acquired" at Rs 50,00,000. When you later sell, Australia computes your gain from that Rs 50,00,000 base, not from your original Rs 30,00,000. The pre-arrival growth is simply outside the Australian system. This is the opposite of what catches Indians leaving Canada or the UK, where the foreign cost is often dragged in or ignored to your detriment. Here the rule works for you.

The honest framing: the deemed acquisition is not a loophole and it is not Australia being kind for its own sake. It is the logical bookend to the departure rule. Australia only wants to tax the gain that accrues on its watch, so it resets your cost base on arrival to mark the start of its watch, and it deems a disposal on departure to mark the end. The symmetry is the point. The reason it feels like a gift is that you usually arrive holding gains you have already built, and the reset wipes those out of Australia's reach.

Which assets get the step-up, and which are carved out

The deemed acquisition applies to your CGT assets that are not taxable Australian property. That phrase, taxable Australian property (often shortened to TAP), is the hinge of the whole regime, so it is worth pinning down precisely because it appears on both the arrival side and the departure side.

Taxable Australian property is the narrow category of assets that Australia keeps the right to tax even when you are a non-resident. It is mainly:

• Australian real property: land and buildings in Australia, including your Australian home and any Australian investment property.
• An indirect Australian real property interest: broadly, a substantial holding (a membership interest of 10% or more) in an entity whose value is principally Australian real property.
• Assets used in carrying on a business through a permanent establishment in Australia.
• Options or rights to acquire any of the above.

Everything else you own is not taxable Australian property. That includes the assets that matter most to an arriving Indian:

• Indian shares held in an Indian demat account.
• Indian mutual fund units.
• Foreign portfolios generally, including US stocks and US-domiciled funds.
• Listed Australian shares held as a portfolio investor (a normal minority shareholding in BHP or CBA is not taxable Australian property, because shares in companies are not real property and a small holding is not an indirect real property interest).

So when you become a resident, your Indian shares, your Indian mutual funds, your foreign portfolios, and your ordinary Australian share holdings all get the deemed acquisition at market value. Your Australian home, if you somehow already owned one before becoming resident, does not: taxable Australian property keeps its original cost base and is excluded from the reset, because Australia can tax it whenever you sell regardless of your residency.

The line to hold in your head: your worldwide investment portfolio gets the step-up; Australian real estate does not. For an Indian arriving with appreciated Indian equity, that is exactly the right side of the line, because the assets carrying your big latent gains are the ones being reset. For how those Indian assets are taxed on the Indian side once you are an NRI, see capital gains tax for NRIs on shares and mutual funds, and for the framework of how Indian and Australian residency interact, see the India-Australia DTAA deep dive and NRI residency and the RNOR rules.

The arrival worked example: Indian shares stepped up

Take a concrete case. Vikram has held a portfolio of Indian listed shares since 2015. His total cost across the holdings is Rs 30,00,000. He accepts a role in Sydney and becomes an Australian tax resident in 2026. On the day he becomes a resident, his Indian portfolio is worth Rs 50,00,000. He does not sell anything. He simply keeps holding the same shares.

The deemed acquisition applies, because Indian shares are not taxable Australian property:

• Deemed acquisition cost base (market value on residency date): Rs 50,00,000
• Original Indian cost (irrelevant for Australian CGT): Rs 30,00,000
• Pre-arrival gain outside Australia's net: Rs 20,00,000

From Australia's standpoint, Vikram "acquired" these shares for Rs 50,00,000 on his residency start date. The Rs 20,00,000 he built up between 2015 and arrival is invisible to the Australian system. It is neither taxed by Australia now nor taxed by Australia when he eventually sells.

Now run it forward. Suppose Vikram holds the shares as an Australian resident and they grow to Rs 65,00,000 before he sells them three years later, still resident. His Australian capital gain is:

• Sale proceeds: Rs 65,00,000
• Less deemed acquisition cost base: Rs 50,00,000
• Australian capital gain: Rs 15,00,000

Australia taxes the Rs 15,00,000 of post-arrival growth, not the Rs 35,00,000 total gain since 2015. And because Vikram held the shares for more than 12 months and accrued this gain while an Australian resident, he is entitled to the 50% CGT discount on it, so only Rs 7,50,000 is included in his assessable income, taxed at his marginal rate. The Australian dollar figures depend on exchange rates at each date, which you must convert using the rules in force, but the structure is what matters: the step-up shrank the taxable gain from Rs 35,00,000 to Rs 15,00,000, and the discount halved the assessable portion of that.

Contrast the counterfactual where Australia ignored the deemed acquisition and taxed Vikram from his Rs 30,00,000 original cost. His gain on sale would have been Rs 35,00,000, more than double, and a large chunk of it would have been gain he earned as an Indian resident before Australia had any claim on him. The deemed acquisition is the rule that stops that from happening. The single action it asks of Vikram in return is administrative, not financial: document the Rs 50,00,000 market value on his residency date, because that figure is now his cost base and he will need to evidence it when he files the sale years later.

The departure side: CGT event I1

Now the bill. The same logic that gives you a step-up on arrival produces a deemed disposal on exit, because Australia wants to capture the gain accrued on its watch before it loses the right to tax you as a non-resident.

When you cease to be an Australian tax resident, CGT event I1 happens. You are treated as having disposed of each of your CGT assets that is not taxable Australian property for its market value at the time you stop being a resident, and you are treated as having immediately reacquired each asset at that same market value. The accrued gain on each asset, measured from your cost base (which, for assets you brought in, is the deemed-acquisition value from when you arrived) up to the departure-day market value, is a capital gain reported in your final Australian tax return for the year you cease residency. As with the arrival rule, no money changes hands and no asset leaves your account. The disposal is deemed.

CGT event I1 catches the same broad category that the deemed acquisition rewarded: your Indian shares, your Indian mutual funds, your foreign portfolios, and your ordinary Australian listed shares, because none of those is taxable Australian property. Your Australian real estate is excluded, because it remains taxable Australian property that Australia can tax whenever you actually sell it, even as a non-resident, so there is no need to deem a disposal on departure. That separate departure-and-property interaction is its own subject, covered in Australia NRI property CGT on departing.

The reacquisition at market value matters, because it resets your cost base going forward in the same way the arrival rule did. If you do nothing to defer, you have paid Australian CGT on the gain up to departure, and your new cost base is the departure-day value, so only post-departure growth could ever be taxed again. But you may not want to pay now, on gains you have not realised, in the year you are also funding an international move. That is what the election is for.

The election to disregard the deemed gain, and what you give up

CGT event I1 is not a take-it-or-leave-it tax bill. You have a choice, written into subsection 104-165(2) of the ITAA 1997. You can elect to disregard the capital gain or loss that the deemed disposal would otherwise crystallise. If you make that choice, the deemed disposal effectively does not bite on departure. Instead, each of those CGT assets is deemed to be taxable Australian property and stays that way until the earlier of two events:

• you have a real CGT event, normally an actual sale of the asset, or
• you become an Australian resident again.

In plain terms, the election lets you defer the tax. Rather than paying CGT on paper gains the moment you leave, you keep the assets inside the Australian CGT net and settle up only when you genuinely sell, or you escape the net if you return to Australia before selling. There is no separate form for a private individual; the choice is made by the way you complete your return, and once made it is generally irrevocable, so it is not a decision to drift into.

Two hard rules constrain the choice. First, no cherry-picking. The election applies to your entire portfolio of non-taxable-Australian-property assets as a block. You cannot elect to defer the gain on your appreciated Indian shares while crystallising a loss on a fallen holding to use elsewhere. It is all in or all out. Second, the assets you defer become taxable Australian property for the deferral period, which means Australia retains the right to tax their eventual sale even after you have left and become an Indian resident again, and a future CGT event will trigger the gain or loss then.

So what do you actually trade away by electing to defer? Three things, and they are the heart of the decision:

• You stay in the Australian CGT net. Deferring is not escaping. The gain up to departure plus any further gain to the eventual sale remains assessable in Australia when you finally sell, unless a treaty overrides it.
• You lose discount on the post-departure gain. Because you are now a non-resident holding the assets, the gain accruing after you leave loses 50% discount entitlement, as the next section explains. The longer you hold after departure, the more of the gain falls into the no-discount band.
• You add a future Australian filing obligation on assets you may otherwise have thought you were done with, and you have to track the deferral across years and a residency change.

Against all that, the upside is real and often decisive: you do not pay tax on unrealised gains in the year you move, which can be the difference between a manageable exit and a painful one. The treaty layer can also help, because certain Double Taxation Agreements override Australia's taxing right on gains that were subject to a deferral choice on ceasing residency, so the India-Australia position is worth checking specifically against the India-Australia DTAA deep dive and, where both countries claim you in the transition year, the DTAA tie-breaker for dual residency.

The honest read on the election: for an Indian leaving Australia to return home, deferring is usually right where the deemed gain is large and you intend to sell well after departure or possibly return to Australia, and crystallising now is often better where the gain is small, where you will sell soon anyway, or where you want a clean break with no lingering Australian tax tail. It turns on the size of the gain, your sale horizon, and how the discount apportionment falls, which is the next piece.

The departure worked example: with and without the I1 election

Return to Vikram, but now run the exit. He spent four years in Sydney. His Indian portfolio, deemed acquired at Rs 50,00,000 on arrival, is worth Rs 70,00,000 on the day he ceases Australian residency to move back to Bengaluru in 2030. He has not sold anything. CGT event I1 deems him to have disposed of the portfolio at the Rs 70,00,000 departure market value.

Option A: let the deemed disposal stand and pay now.

• Deemed proceeds (departure market value): Rs 70,00,000
• Less deemed-acquisition cost base (arrival value): Rs 50,00,000
• Capital gain on departure: Rs 20,00,000

Because Vikram accrued this entire Rs 20,00,000 while he was an Australian resident and held for more than 12 months, the full 50% CGT discount applies. His assessable capital gain is Rs 10,00,000, added to his final-year Australian income and taxed at his marginal rate. He pays now, his Australian cost base resets to Rs 70,00,000, and he walks away with no further Australian CGT exposure on these shares. Clean break, tax paid on a gain he has not turned into cash.

Option B: elect under subsection 104-165(2) to disregard the deemed gain.

The Rs 20,00,000 deemed gain is set aside. Vikram pays nothing on departure. His shares are now deemed taxable Australian property, so they stay in the Australian CGT net until he actually sells. Suppose he sells two years later, as an Indian resident, when the portfolio is worth Rs 85,00,000.

• Sale proceeds: Rs 85,00,000
• Less cost base (arrival deemed-acquisition value): Rs 50,00,000
• Total capital gain: Rs 35,00,000

Now the discount apportionment bites. Of that Rs 35,00,000 gain, the portion that accrued while Vikram was an Australian resident (broadly the Rs 20,00,000 built up to departure) can attract the 50% discount, but the portion that accrued after he became a non-resident (broadly the Rs 15,00,000 from departure to sale) gets no discount and is taxed in full. So instead of discounting the whole Rs 35,00,000, only the resident-period slice is halved:

• Resident-period gain (discountable): Rs 20,00,000, discounted by 50% to Rs 10,00,000 assessable
• Non-resident-period gain (no discount): Rs 15,00,000 assessable in full
• Total assessable capital gain: Rs 25,00,000

Vikram has deferred the cash for two years, which has real value, but he has also exposed the Rs 15,00,000 of post-departure growth to Australian CGT with no discount, and he is filing an Australian return on a sale that happened while he lived in India. The actual day-by-day apportionment uses the number of resident days versus non-resident days over the holding period after 8 May 2012, so these figures are illustrative of the mechanism rather than an exact statutory calculation, and the Australian-dollar amounts depend on exchange rates at each date. The lesson stands: the election defers the tax but converts future growth into fully taxed, undiscounted non-resident gain, and whether that beats paying Rs 10,00,000 of assessable gain cleanly on departure depends entirely on Vikram's sale horizon and how much the shares move after he leaves.

The 50% discount restriction and why it matters here

The piece that quietly drives the whole departure decision is the restriction on the 50% CGT discount for foreign and temporary residents, which applies to ownership periods after 8 May 2012.

The general discount rule is simple: an Australian resident individual who holds a CGT asset for more than 12 months includes only half the capital gain in assessable income. That is the 50% discount Vikram enjoyed in full on his resident-period gains.

The restriction is equally simple in concept. For periods after 8 May 2012, the discount is not available for the part of a gain that accrues while you are a foreign or temporary resident. If you were a foreign or temporary resident for your entire ownership period after that date, you get no discount at all. If you had a period of Australian residency, the discount is apportioned: the gain is split by reference to the days you were a resident versus a non-resident over the holding period, the resident-period portion can be discounted, and the non-resident-period portion is taxed in full.

This is why electing to defer under CGT event I1 has a real cost beyond merely keeping you in the Australian net. Every day you hold a deferred asset as a non-resident after leaving Australia, you are accruing gain that will be taxed without any discount when you finally sell. The deferral buys you time on the cash, but it slowly converts what could have been discounted resident-period gain into undiscounted non-resident-period gain. Hold long enough as a non-resident and the no-discount band can dominate the eventual bill. The arithmetic in Vikram's Option B is exactly this effect in miniature.

There is one technical alternative worth knowing. If you were a foreign or temporary resident on 8 May 2012 and held the asset then, you may be able to use a market value method as at 8 May 2012 instead of the simple day-count pro rata. That is a niche path for assets held across that 2012 date, not the typical case for an Indian who arrived in Australia years later, but it exists. For most Indians moving in the 2020s, the day-count apportionment is the rule that applies, and the planning instinct it should create is to align your sale with your residency rather than letting deferred assets drift in the non-resident, no-discount band for years.

Edge cases

Temporary residents are treated differently, and often better. The deemed acquisition on becoming a resident applies except where you are a temporary resident at that point. Australia's temporary resident rules (broadly, holders of certain temporary visas who are not Australian residents for social security purposes and whose spouse is not such a resident) carry their own concessions: a temporary resident is generally not taxed on capital gains from non-taxable-Australian-property assets at all, so the foreign shares of a temporary resident sit largely outside Australian CGT while the temporary status holds. The complication is the transition. When a temporary resident becomes a permanent resident for tax purposes (for example on getting permanent residency), the deemed acquisition can apply at that later date instead of the original arrival date, resetting the cost base to the market value when temporary status ends. If you arrive on a 482 or similar temporary visa and later transition to PR, the date your CGT cost base is set is not necessarily your arrival date, and getting that date right is essential to documenting the correct market value. This is a genuinely technical corner and one to confirm against your specific visa history.

Documenting market value is the one job the rule actually gives you. The deemed acquisition and CGT event I1 both turn entirely on market value at a specific date, your residency start date on the way in and your residency end date on the way out. The ATO can and does require you to substantiate these values, and the burden is on you. For listed Indian shares this is straightforward: keep a dated statement showing the closing price and the number of units on the relevant date, and record the AUD conversion using an accepted exchange rate for that date. For mutual funds, keep the NAV statement. For anything unlisted or illiquid, you may need a proper valuation. Do this at the time, not years later when you file the sale, because reconstructing a market value for a date long past is painful, disputable, and sometimes impossible. A reset cost base you cannot prove is a reset cost base the ATO can decline to accept. Treat the arrival-day and departure-day valuations as filing records you keep from day one.

The CGT event I1 election is all-or-nothing and effectively permanent. Two traps inside the election deserve repeating. First, no cherry-picking: it applies across your whole non-taxable-Australian-property portfolio, so you cannot keep gains deferred while crystallising losses, or vice versa. Model the portfolio as a block. Second, the choice is generally irrevocable once made through your return, so you cannot defer, watch the market, and then unwind the election if it turns out badly. Decide deliberately, with the discount apportionment and your sale horizon in front of you, not as an afterthought at filing time.

The boundary of taxable Australian property is the boundary of both rules. Everything in this guide hinges on the split between taxable Australian property and everything else. Get the classification wrong and you mis-apply both the arrival step-up and the departure disposal. The traps are at the edges: a large or controlling stake in a company that is principally Australian real property can be an indirect Australian real property interest and therefore taxable Australian property, which would pull it out of the deemed-acquisition reset and out of CGT event I1. A normal portfolio shareholding will not, but a founder-sized holding might. If you hold concentrated positions, especially in property-heavy or unlisted Australian entities, confirm the classification before assuming the rules apply the way they do to your liquid portfolio. For the property-specific departure interaction, see Australia NRI property CGT on departing, and for how Australia taxes the Indian-asset side while you are resident, see Australia NRI Indian investments CGT.

The foreign tax credit and DTAA layer is where double tax is avoided, or not. When you eventually sell, both India and Australia may have a claim on the same gain, and which country taxes what depends on your residency at the moment of sale, the I1 election, and the treaty. India does not automatically mirror Australia's deemed-acquisition step-up, so the cost base India uses for its own capital gains tax may differ from the AUD cost base Australia uses, and the years in which each country taxes the gain may not line up. Where both tax the same slice, relief runs through the foreign tax credit and Form 67 mechanism and the treaty's allocation of taxing rights. This is the area least suited to self-filing, because the deemed events have no real-sale counterpart in the other country and the credit timing can mismatch. Treat it as a cross-border advice question, not a do-it-yourself one.

The closing read

Australia's residency cost-base rules are unusually symmetrical, and once you see the symmetry the planning becomes obvious. On the way in, the deemed acquisition resets your foreign assets to market value, so Australia only ever taxes the gain you build as its resident. For an Indian arriving with appreciated Indian shares, that is a clean, valuable step-up that costs nothing and asks only that you write down the arrival-day market value. On the way out, CGT event I1 mirrors it: a deemed disposal that taxes the gain accrued on Australia's watch, payable in your final-year return on assets you have not sold, unless you elect under subsection 104-165(2) to defer.

The recommendation I will commit to, scoped to an Indian moving to or from Australia. First, on arrival, document the market value of every foreign asset on your residency start date, in writing, at the time, because that figure is your cost base and the ATO will ask you to prove it. If you arrive as a temporary resident and later get PR, confirm which date sets your cost base, because it may not be your arrival date. Second, while resident, remember the step-up has already protected your pre-arrival gains, so plan sales around the 12-month discount and your marginal rate, not around a phantom Indian cost. Third, on departure, decide the CGT event I1 election deliberately: crystallise and pay now for a clean break where the gain is small or you will sell soon, or elect to defer where the gain is large and you will hold well past departure or may return, but go in knowing the post-departure gain loses the 50% discount and stays in the Australian net until you sell. Fourth, treat the boundary of taxable Australian property as load-bearing, because it defines what both rules touch. And fifth, do not self-solve the India interaction: the absent step-up mirroring, the timing of each country's claim, and the Form 67 credit position are genuinely fiddly, and one session with a cross-border adviser costs far less than paying India and Australia on the same gain. The arrival rule is a gift you should bank by documenting it. The departure rule is a bill you can shape by choosing the I1 election with your eyes open. Both are decisions you make once, around a single date, and getting that date and that election right is most of the money.

Related guides

• The India-Australia DTAA deep dive
• NRI residency and the RNOR rules
• Foreign tax credit and Form 67
• Capital gains tax for NRIs on shares and mutual funds
• The DTAA tie-breaker for dual residency
• Australia NRI Indian investments CGT
• Australia NRI property CGT on departing
• NRI portfolio and asset allocation
• Tax-efficient investing for NRIs
• NRI retirement planning across two countries
• Building an India corpus as an NRI

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This guide is general information, not tax or legal advice. Australian CGT treatment on a change of residency depends on the precise date you become or cease to be a tax resident (a facts-and-residency test), the market value and cost base of each asset at that date, whether an asset is taxable Australian property, and your temporary-resident status if any. The deemed acquisition rule, CGT event I1, the election to disregard the deemed gain under subsection 104-165(2) of the ITAA 1997, and the restriction on the 50% CGT discount for foreign and temporary residents for periods after 8 May 2012 are current as of June 2026; confirm the rules, thresholds and apportionment method with the ATO. The interaction with India, including India's treatment of the Australian cost base, your residency on the date of an eventual sale, and the foreign tax credit position under Form 67, is situation-specific and in places unsettled. Confirm your position with a qualified cross-border tax adviser before acting.