For an Australian relocator with serious offshore income, Italy in 2026 is the highest-priced flat-tax regime in Europe — and the one that, above a certain income threshold, finally beats the alternatives. Italy’s Neo-Domiciled Regime under Article 24-bis TUIR caps tax on all foreign-source income at €300,000 per year (raised from €200,000 by the 2026 Budget Law) for up to 15 years, with each qualifying family member added for a further €50,000 flat. Below roughly €700K–€800K of foreign income the math doesn’t work; above €1.5M it tends to dominate Greece, Cyprus and Portugal-IFICI on combined cost, certainty and infrastructure. The Australian side, however, is identical to every other departure: CGT Event I1 under section 104-160 of the Income Tax Assessment Act 1997 triggers a deemed disposal of every non-Australian CGT asset on the day you cease residency, and the new Italian flat tax does nothing to soften that final-year Australian bill. The case for Australia → Italy in 2026 is therefore narrower than Australia → UAE or Australia → Portugal — it is a high-foreign-income founder, rentier or fund principal who values an EU passport pathway, G7 banking and inheritance-tax exemption on foreign assets enough to write a €300,000 annual cheque for up to fifteen years.
The Tax Delta at a Glance
| Australia (current) | Italy (after move) | |
|---|---|---|
| Personal income tax | 0–45% progressive + 2% Medicare levy (top marginal 47%) + up to 1.5% Medicare levy surcharge | €300,000 flat on all foreign income (Neo-Domiciled, 15 yr) + standard IRPEF 23–43% on Italian-source income + regional/municipal surcharges (~47% top) |
| Capital gains tax | Marginal rate; 50% CGT discount on individual assets held >12 months; discount denied to non-residents on TAP gains accrued post-8 May 2012 | Inside the €300K flat for foreign-asset gains; 26% on Italian-source gains; 5-year anti-abuse on disposals of qualifying foreign shareholdings (>25%) |
| Dividend tax | Marginal rate; franking credits offset Australian-company dividends; 30% non-resident withholding on unfranked dividends, 15% under AU-IT treaty | Inside the €300K flat for foreign dividends, no remittance trigger; 26% withholding on Italian-source dividends |
| Wealth / inheritance | No estate or inheritance tax; CGT on death deferred for non-resident beneficiaries | No general wealth tax; flat-tax residents exempt from IVIE/IVAFE on foreign assets; inheritance tax exempt on foreign assets during the 15-yr regime; 4–8% on Italian-situs assets with generous spouse/descendant thresholds |
| Worldwide vs territorial | Worldwide for residents; CGT Event I1 deemed disposal on cessation | Worldwide in form, but Article 24-bis caps foreign-income tax at €300K flat regardless of amount earned — effectively a residence-based forfait |
| Effective rate (NSW founder, AUD $5M foreign income) | ~45–47% | ~10% blended (€300K on ~€3M = ~10% effective) |
| Effective rate (NSW founder, AUD $1M foreign income) | ~44–47% | ~47% — flat tax does not work below ~€700K of foreign income |
The numbers tell a sharply non-linear story. A New South Wales resident with AUD $5M of foreign-sourced dividends, fund distributions and capital gains pays roughly AUD $2.2M+ in combined Australian federal income tax, CGT and Medicare levies. The same income earned through Italian residency under the Neo-Domiciled regime is capped at €300,000 (~AUD $490,000) — a real annual saving north of AUD $1.7M even after Italian advisory fees and family add-ons. The trap is at the lower end: at AUD $1M of foreign income, the €300K flat tax exceeds what you would have paid in Australia, and the regime is a money-loser. The breakeven for an Australian principal sits around €700K–€800K of foreign income; the regime becomes genuinely powerful from €1.5M upward.
Step-by-Step Move
Step 1: Confirm you can legally cease Australian tax residency
Australia uses a multi-test residency framework, not a single day-count rule. Four tests apply, and satisfying any one of them keeps you Australian-resident: (a) the “resides” test — a common-law facts-and-circumstances test of where you ordinarily live; (b) the domicile test — an Australian-domiciled person remains resident unless the Commissioner is satisfied their permanent place of abode is outside Australia; (c) the 183-day test — physical presence for ≥183 days in the income year, unless the Commissioner is satisfied that your usual place of abode is outside Australia and you do not intend to take up residence here; and (d) the Commonwealth superannuation fund test for certain government employees and eligible spouses.
The two tests that consistently catch departing Australians are the domicile test and the resides test. Australian domicile is “sticky” — Australian-born or Australian-domiciled individuals retain it by default, and the burden is on you to demonstrate a permanent place of abode outside Australia. Taxation Ruling IT 2650 sets out the controlling factors: intended and actual length of stay overseas, intention to return, establishment of an overseas home, abandonment of any Australian residence, and continuing economic, social and family ties. The Harding v Commissioner of Taxation [2019] FCAFC 29 decision confirmed that “permanent” means meaningful permanence in a single overseas country — temporary expat assignments and serviced-apartment stays do not qualify, but settled long-term housing in Italy, with family relocation, will.
A clean Australia → Italy departure typically requires: leasing or selling the Australian principal place of residence on a long-term arm’s-length basis, moving the family unit, surrendering Medicare entitlement, transitioning the Australian state driver’s licence to an Italian patente di guida, closing or non-residentialising routine Australian banking, and establishing a settled Italian home with a registered tenancy contract or property deed and anagrafe registration at the local comune.
Step 2: Plan around Australia’s CGT Event I1 deemed disposal
The single largest gotcha for departing Australians is CGT Event I1 under section 104-160 ITAA 1997: at the moment you cease to be an Australian resident, you are treated as having disposed of each CGT asset you own at its market value at that time, and any resulting gain or loss flows into your final-year Australian assessment. There is no de minimis — every non-Australian listed share, private-company shareholding, cryptocurrency holding, foreign rental property, partnership interest, foreign trust interest and option is in scope.
A category of property is excluded: Taxable Australian Property (TAP) under section 855-15 — direct interests in Australian real property; indirect Australian real-property interests (broadly, ≥10% holdings in entities whose value is principally Australian land); business assets used through an Australian permanent establishment; and options or rights over the foregoing. TAP is not deemed-disposed because Australia retains taxing rights over it indefinitely under section 855-10. The 50% CGT discount is denied to non-residents on the portion of TAP gains accrued from 8 May 2012 onwards (section 115-115) — for retained Sydney or Melbourne real estate, obtain a market valuation at the date of departure and keep it on file.
For everything else, section 104-165 offers the only structural relief: an individual ceasing residency may elect to disregard CGT Event I1 for any or all non-TAP assets, in which case those assets are deemed to be TAP going forward and remain in the Australian CGT net until actual disposal. The election is made on the final-year tax return and is all-or-nothing per asset — there is no partial deferral, no security-posting mechanism (unlike Canada’s T1244), and no automatic discharge after a set period.
The Italian dimension changes the section 104-165 calculus materially compared to Portugal or the UAE. Under the Neo-Domiciled regime, gains on the disposal of foreign assets fall inside the €300K flat tax — they do not generate an additional Italian tax layer. There is, however, an important anti-abuse carve-out: gains realised on disposals of qualifying foreign shareholdings (broadly, holdings >25%) within the first five years of opting into Article 24-bis are excluded from the flat tax and taxed in Italy at 26%. For an Australian founder planning an exit liquidity event in years 1–5 of the Italian regime, the tax architecture is: (a) CGT Event I1 deems disposal at AU departure date with the 50% individual discount, producing an effective Australian tax of ~23.5% on long-held holdings; (b) the section 104-165 election would defer that crystallisation but lock the asset back into the Australian net; and (c) the Italian 26% qualifying-shareholding rule still bites for the first five years regardless. For most Australian founders heading to Italy with a planned 1–5-year exit on a >25% holding, paying CGT Event I1 in cash with the 50% discount and timing the actual sale beyond Italy’s five-year window is the cleanest combined outcome. Below the 25% threshold or beyond year 5, the qualifying-shareholding carve-out falls away and the €300K flat tax fully absorbs the gain.
Step 3: Establish Italian tax residency and the Neo-Domiciled election
Italian tax residency under Article 2 TUIR requires, for the greater part of a tax year (i.e. >183 days), one of: (a) registration in the anagrafe of an Italian comune; (b) domicile in Italy in the civil-law sense — your principal centre of business and personal interests; or (c) habitual residence in Italy. The flat tax piggybacks on tax residency, so the 183-day rule applies — there is no Cyprus-style 60-day shortcut.
The Article 24-bis flat-tax election has two hard pre-conditions: you must not have been an Italian tax resident in 9 of the last 10 calendar years (a longer clean-residency bar than NHR’s 5 of 10 ever was), and you must hold a valid legal basis for residency. For Australian passport holders the practical visa pathways are:
- Investor Visa for Italy — €500,000 in an Italian limited company; €250,000 in an innovative startup; €2,000,000 in Italian government bonds; or €1,000,000 in philanthropic donations. Fast-tracked, well-defined route. Best for founders and HNW principals who want a clean EU permit with a clear investment record. Total set-up advisory AUD $20,000–AUD $60,000 plus the qualifying investment.
- Elective Residence Visa — no fixed investment, but applicants must demonstrate stable passive income (rule of thumb is €100,000+/yr to clear without friction). Best for retirees and rentiers with substantial foreign dividends or royalty streams. Advisory AUD $15,000–AUD $40,000.
- EU Blue Card / Self-Employment — for high-skilled employees of Italian-affiliated entities or self-employed professionals with Italian clients. Less common for Article 24-bis principals.
Run the interpello (advance ruling) with the Agenzia delle Entrate — it is optional but strongly recommended, particularly if you hold complex foreign trust interests, controlled-foreign-corporation holdings, or qualifying-shareholding positions. The response window is typically 120 days. The full destination-side breakdown — Investor Visa tracks, anagrafe registration, codice fiscale, the interpello mechanics, family add-ons at €50,000 each — sits on the Italy country page.
Step 4: Document the break and the new tie
Collect contemporaneously: Italian codice fiscale, residence permit, anagrafe registration certificate at the comune of residence, Italian rental contract or property deed, utility bills (water, electricity, gas, telecom), private health insurance or SSN registration, school enrolment for any dependants, and Italian bank statements. Apply early in your first full Italian tax year for an Italian certificate of fiscal residence from the Agenzia delle Entrate — that is the document the ATO will examine first if your departure is challenged.
Australia and Italy have a comprehensive double-tax treaty in force: the Convention between Australia and Italy for the Avoidance of Double Taxation, signed in Canberra on 14 December 1982 and in force since 1985, with later overlays from the OECD Multilateral Instrument (both countries are MLI signatories, importing the principal-purpose test). Article 4 provides the standard tie-breaker cascade — permanent home → centre of vital interests → habitual abode → nationality → mutual agreement — giving Australian relocators a binding mechanism to resolve dual-residency disputes if the ATO contests cessation. The treaty also caps Australian non-resident withholding on Australian-source dividends, interest and royalties paid to Italian residents at treaty rates of approximately 15% on dividends, 10% on interest, 10% on royalties — materially better than the unreduced statutory rates.
Step 5: First-year compliance in both jurisdictions
The departure-year Australian tax return is a “part-year resident” return covering worldwide income up to the date of cessation, the CGT Event I1 deemed disposal gains, the section 104-165 election if any, and post-departure Australian-source income at non-resident rates (no tax-free threshold for non-residents — 32.5% from dollar one to AUD $135,000, then 37% to AUD $190,000, then 45%, no Medicare levy). Continuing Australian-source income stays in the Australian net at non-resident rates with treaty caps.
A specific nuance: Australian superannuation is not deemed-disposed under CGT Event I1. Super interests are not CGT assets in the ordinary sense, and standard preservation rules continue regardless of where you live. Australian citizens and permanent residents are not eligible for the Departing Australia Superannuation Payment (DASP), which is restricted to former temporary residents. Once you reach preservation age, Australian-source pension flows are taxable, but for a flat-tax Italian resident with substantial private foreign income, super is generally a side-issue rather than the planning anchor it is on a Portuguese D7 retirement route.
In Italy, you file Modello Redditi PF annually (typically by 30 November for the prior calendar year), declaring all foreign-source income for transparency and paying the €300,000 flat tax in two instalments — an acconto in June and the balance in November. The Article 24-bis election runs automatically from year to year, up to year 15, unless revoked. Family member add-ons are elected separately on each member’s return at €50,000 each.
Cost & Timeline
| Phase | Cost | Time |
|---|---|---|
| Tax planning + Australian/Italian legal review (pre-move) | AUD $20,000–AUD $50,000 | 2–4 months |
| CGT Event I1 modelling, market valuations, section 104-165 analysis | AUD $10,000–AUD $30,000 | 1–3 months |
| Italian Investor Visa / Elective Residence + interpello (optional) | AUD $25,000–AUD $90,000 + qualifying investment | 4–8 months |
| Move + setup (lease, anagrafe, utilities, school, health) | AUD $20,000–AUD $60,000 | 1–3 months |
| Departure-year AU return + Italian Modello Redditi PF | AUD $10,000–AUD $25,000 | Annual |
| Annual flat tax (principal) | €300,000 (~AUD $490,000) | Annual, up to year 15 |
| Annual flat tax (per family member) | €50,000 (~AUD $82,000) each | Annual, up to year 15 |
| Total year-1 advisory cost (excl. flat tax + investment) | AUD $85,000–AUD $255,000 | 8–14 months |
Add €500,000–€2,000,000 for the Investor Visa qualifying investment if that is the chosen track. For a NSW founder on AUD $5M of foreign income, the post-move annual saving (~AUD $1.7M+) recovers the full set-up cost in the first year and continues compounding for up to 15 years. For a NSW founder on AUD $1M of foreign income, the regime is a net cost — Greece’s €100K flat tax, Cyprus’s reformed non-dom or Portugal’s IFICI are materially better targets at that income level.
Treaty Considerations
The Australia-Italy Convention for the Avoidance of Double Taxation (1982) is in force, with MLI overlays. The practical implications for an Australia → Italy mover are:
- Article 4 tie-breaker is available if the ATO contests cessation — permanent home → centre of vital interests → habitual abode → nationality → mutual agreement. Article 24-bis residency satisfies the treaty residence definition because the flat tax is a residence-based forfait, not a special-status exemption.
- Withholding caps on Australian-source income paid to Italian residents: typically 15% on dividends, 10% on interest, 10% on royalties.
- Pension treatment generally allocates periodic Australian government and superannuation pension flows to Italian residence-state taxation — relevant for retirees, but largely irrelevant for the typical Article 24-bis principal whose planning anchor is foreign passive income, not Australian super.
- MLI principal-purpose test (PPT) applies — purely tax-driven structures with insufficient substance can be denied treaty benefits. Italian flat-tax residency with anagrafe registration, family relocation and a settled Italian home generally clears the PPT comfortably; Article 24-bis has not been challenged as inherently abusive at treaty level.
- CRS information exchange continues automatically — Italian-held accounts are reported to the ATO each year.
The treaty turns Australia → Italy from a high-evidence-burden move (as Australia → UAE is) into a more conventional cross-border relocation where Article 4 backstops the residency analysis and the 1982 Convention’s withholding articles cap Australian-source flows.
Common Mistakes
- Electing Article 24-bis without first running the breakeven. The €300K flat tax is a forfait — fixed, not percentage. At AUD $1M of foreign income it costs more than Australian residency. Confirm a stable AUD $1.5M+ foreign income base before opting in.
- Disposing of a >25% foreign shareholding in years 1–5 of the regime. The Article 24-bis anti-abuse rule pulls the gain out of the flat tax and into Italian 26%. Time the exit for year 6 onward, or accept the 26% layer.
- Failing the 9-of-10 clean-residency test. Italy’s bar is stricter than most. Any Italian tax residency in the prior 9 years — including incidental cases like inherited anagrafe registration not properly cancelled — disqualifies the election. Check carefully before lodging.
- Leaving the family in Australia while you move alone. A spouse and minor children remaining in an Australian dwelling are a near-fatal residential tie. Even with the AU-IT treaty tie-breaker, the centre of vital interests will frequently land back in Australia.
- Treating the Australian principal residence as “available” for visits. A house kept furnished, vacant, and ready for the family to return defeats the IT 2650 / Harding “permanent place of abode overseas” test. Sell, or put it on a 12-month-plus arm’s-length lease.
- Selling the Australian principal residence after departure. The main residence exemption is largely denied to foreign residents under the post-30 June 2020 rules — sell before the cessation date to preserve the exemption.
FAQ
Will I still have to file in Australia after moving?
Yes, in two scenarios. (1) The departure-year Australian tax return covers your worldwide income up to the date of cessation, the CGT Event I1 deemed disposal gains, the section 104-165 election if any, plus post-departure Australian-source income at non-resident rates. (2) Continuing Australian-source income — rental from retained Australian real estate, Australian-source business income, royalties, and CGT on the eventual disposal of TAP — generally requires an annual non-resident return. Withholding handles most passive flows, capped at AU-IT treaty rates: 15% on unfranked dividends, 10% on interest, 10% on royalties.
Can I keep my Australian super, bank accounts and property?
Yes to all three. Banks reclassify the account as non-resident and apply 10% non-resident interest withholding (capped at the 10% treaty rate, neutral). Australian super stays in place and remains tax-advantaged — preservation rules continue, contributions cease when employment income ceases, and access is restricted to preservation-age conditions of release. Citizens and PRs cannot use DASP. Australian real estate can be retained but the 50% CGT discount is denied on the portion of gain accruing post-8 May 2012 in non-resident periods, and the main residence exemption is largely denied to foreign residents post-30 June 2020 — selling the principal residence before departure typically preserves an exemption that a post-departure sale will lose.
How much income do I really need before Italy’s flat tax pays for itself?
The clean answer is ~€700K–€800K of foreign income for breakeven against Australian residency, and €1.5M+ to make the regime genuinely powerful. Below those thresholds, Greece’s €100K flat tax, Cyprus reformed non-dom, or Portugal-IFICI usually win on combined cost. Above €3M of foreign income the breakeven is overwhelming — €300K on €5M is a ~6% effective rate.
What happens after 15 years?
The Article 24-bis option automatically expires at the end of year 15. From year 16 onward you fall under standard Italian taxation on worldwide income (top marginal ~47%). Most flat-tax residents either move on at that point — Switzerland’s lump-sum, Cyprus, or back to a non-EU tax-free jurisdiction — or restructure their holdings into Italian-domiciled vehicles in advance. There is no extension and no “second cycle”.
Does Australia and Italy share financial information?
Yes. Both countries are OECD CRS signatories; Italian-held financial accounts are reported automatically to the ATO each year, and vice-versa. The 1982 AU-IT DTA also includes a standard exchange-of-information article. See CRS & Tax Transparency for the mechanics.
Can I move back to Australia later?
Yes. If you re-establish residency under any of the four tests, you become Australian-resident again on that date, with a new acquisition cost equal to fair market value on the day of becoming resident for assets that were previously deemed-disposed under CGT Event I1 (the section 855-45 step-up). Assets in respect of which you elected under section 104-165 retain their original cost base on re-entry. Most cross-border advisors recommend a minimum 3–5-year non-residence horizon — and a 15-year Italian flat-tax run usually settles the question.
Next Step
For the full destination-side breakdown — Article 24-bis mechanics, the €300K + €50K family scaling, Investor Visa tracks, anagrafe and codice fiscale — see Tax-Free Residency in Italy. For the Australian-side machinery — CGT Event I1, section 104-165 election, the IT 2650 framework and Harding — see How to Legally Exit a High-Tax Country. To compare at lower income levels, see Australia to Portugal (NHR closed, IFICI 20%) and Australia to UAE (clean 0% personal layer, no treaty backstop).
Book a free consultation — we run CGT Event I1 modelling, Article 24-bis breakeven analysis and interpello drafting in parallel for Australia → Italy moves.
Last updated: 2026-04-27
Sources:
– Australian Taxation Office — Residency tests for tax purposes and Taxation Ruling IT 2650 — https://www.ato.gov.au/individuals-and-families/coming-to-australia-or-going-overseas/your-tax-residency
– Australian Taxation Office — CGT and changing residency (CGT Event I1, section 104-160 / 104-165 election) — https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/foreign-residents-and-capital-gains-tax/changing-residency
– Convention between Australia and Italy for the Avoidance of Double Taxation (signed Canberra, 14 December 1982) — Australian Treaties Database — https://www.dfat.gov.au/treaties
– Italian Revenue Agency (Agenzia delle Entrate) — Article 24-bis TUIR Neo-Domiciled Regime guidance — https://www.agenziaentrate.gov.it/
– Italy 2026 Budget Law (Legge di Bilancio 2026) — €200K → €300K flat-tax adjustment — official text via Gazzetta Ufficiale
– PwC Worldwide Tax Summaries — Australia and Italy individual taxation — https://taxsummaries.pwc.com