No looking back, but a challenging road ahead: foreign resident CGT reforms enter Parliament

On 2 July 2026, the Australian Government introduced a Bill into Parliament to amend the foreign resident capital gains tax (CGT) regime. The Bill implements changes first announced in the 2024-25 Federal Budget and subsequently developed through an exposure draft process that commenced in April 2026. 

The following summarises the key differences between the Bill as introduced and the prior exposure draft legislation (which we summarised here).

1. Retrospectivity on prior exits: abandoned. 

The most significant departure from the exposure draft is the abandonment of retrospective application to prior exits. Under the exposure draft, expanded rules would have applied to exits occurring from 12 December 2006, potentially exposing foreign investors to Australian CGT on gains made up to 20 years prior. That position attracted overwhelming criticism from stakeholders and has not been carried through into the Bill as introduced. 

The regime applies to exits prospectively only (subject to the new 365-day principal asset test (PAT) lookback period), with new refunds of prior tax paid (following taxpayer wins in YTL and Newmont) limited to circumstances where the relevant assessment is within a taxpayer’s period of review or the taxpayer initiated that refund before 10 April 2026 (through an objection).

2. Breadth of prospective regime: largely unchanged with existing investments caught. 

The Government has maintained substantially the same policy position on the scope of the expanded Division 855 concepts, which will apply from the start of the first quarter following Royal Assent – which we consider will be no earlier than 1 October 2026. 

The new definition of ‘real property’, the broadened scope of TARP, and the treaty override all reflect the approach taken in the prior exposure draft. 

Foreign investors should not read the removal of retrospectivity on exits as a softening of the prospective reach of the changes. Many previously untaxable, existing investments held by foreign investors will become fully taxable (with potentially no transitional relief, as discussed further below).

There also continues to be no change to the scope of an “eligible investment business” for managed investment trusts.

3. Things fixed or installed on land for “majority of useful life”: qualification dropped. 

A change from the exposure draft is the removal of the qualification that a thing fixed or installed on land must be “reasonably expected to be situated on the land for the majority of its useful life” in order to constitute real property. The Bill as introduced contains no such qualification: a thing is within the definition simply if it is fixed or installed on land, regardless of expected duration. This is a further broadening relative to the exposure draft and may extend the scope of the new regime to assets with a temporary physical connection to Australian land.

4. Renewable energy transitional concession: widened in some respects but available for less than four years. 

The transitional concession has been amended in three respects relative to the exposure draft: 

• energy storage systems are now expressly included within the definition of qualifying assets); 

• the indirect interest threshold has been reduced from 90% to 75% of TARP value (meaning an entity’s renewable energy assets need only represent 75% of its total TARP, rather than 90%, for the discount to apply); and 

• the prior ability for assets that “facilitate directly” the generation of renewable energy to qualify for the concession has been removed, which may narrow the scope of the concession for some assets (that are not storage systems). 

There will continue to be a fixed sunset date of 30 June 2030. Given the long lead times typical of renewable energy projects, the short timeframe to access the discount is more likely to prompt near-term disposals by existing investors than to incentivise the development of new projects in Australia.

Whilst the concept of renewable energy assets is broader than before, the concession remains significantly confined and investors should carefully model their underlying asset values if they intend to exit by 30 June 2030. 

5. Increased testing, withholding and declaration matters largely unchanged: pushing ahead will increase compliance burdens on resident and non-resident taxpayers, and M&A timelines and processes affected. 

Despite significant industry feedback, there is no material change to: 

• the proposed 365-day testing window for the PAT, such that investors will need to maintain evidence to satisfy the ATO that the majority of their assets did not constitute TAP over this period. Applying the testing window based to a 365 day prior period adds, in a narrow set of circumstances, an element of retrospectivity to the broadened scope of TAP going forward, significantly increases compliance burdens on foreign investors, and may lead to valuation disputes with the ATO. 

• the previously released changes on foreign resident CGT (FRCGT) withholding and declaration processes. This substantially affects the knowledge and declaration thresholds, imposing increased compliance burdens on resident and non-resident taxpayers, and affecting M&A timelines and documentation. A purchaser who fails the increased FRCGT withholding requirement risks a penalty starting at A$7.5 million.

The government has also doubled down on leaving key elements of changes to the CGT laws to future legislative instruments, as determined by the Minister (these relate to when the new 365-day PAT testing window will apply and the scope of transactions subject to FRCGT withholding). Kicking the can down the road only increases uncertainty and compliance burdens, whilst also requiring parliamentarians to vote on laws with an unknown future scope.

The current regime

Under the existing foreign resident CGT framework, foreign residents are generally only subject to Australian CGT in respect of assets that constitute "taxable Australian property" (TAP). The TAP concept operates as a threshold requirement: if an asset is not TAP, any capital gain or loss made by a foreign resident on that asset is disregarded.

Broadly, TAP currently includes:

• taxable Australian real property (TARP), being direct interests in Australian land or mining rights;

• indirect Australian real property interests (IARPIs), being membership interests in entities whose value is principally attributable to Australian real property and where the foreign resident (together with associates) holds a 10% or greater interest; and

• certain other CGT assets that have a necessary connection with Australia, including assets used in carrying on a business through a permanent establishment.

The IARPI provisions have given rise to significant complexity and uncertainty, particularly in the context of indirect holdings in entities with diversified asset portfolios and in connection with the "principal asset test" – that is, the requirement that more than 50% of the entity's value be attributable to TARP.

The Government's announced reforms

In the 2024-25 Federal Budget, the Government announced that it would broaden the CGT base for foreign residents by expanding the scope of assets that constitute TAP. In particular, the Government signalled that the existing IARPI provisions would be reformed to capture a wider range of interests in Australian assets and to address perceived gaps and integrity concerns in the current framework.

The stated policy rationale was to ensure that Australia's taxing rights over foreign residents' gains from Australian assets are maintained in an increasingly mobile and globalised investment environment, and to align Australia's rules more closely with international norms, including the OECD Model Tax Convention.

Prior exposure draft legislation 

In April 2026, Treasury released exposure draft legislation proposing substantial amendments to the non-resident CGT provisions, which we examined in detail here. The key features of the draft legislation included:

• critically, a retrospective application of the new rules back to the introduction of the current framework in 2006;

• a significant broadening of the assets within scope of the TAP regime, including to cover: 

  • expanded taxable Australian real property (TARP), through a new statutory definition of “real property” that captures any interest in or right over land, personal rights to call for interests in land, licences and contractual rights over land, things (or combinations of things) fixed or installed on land for the majority of their useful life, and leases of or licences over such fixed things; 

  • water entitlements in relation to Australian water resources; 

  • mining, quarrying or prospecting information relating to an area in Australia (treated as TARP); and

  • options or rights to acquire any of the above;

• limited transitional relief for renewable energy generation assets sold within 4 years;

• amendments to the PAT and the non-portfolio interest threshold; and

• modifications to the tracing and look-through rules for indirect interests.

Treasury consulted on the draft legislation for two weeks. Significant stakeholder concerns were raised on all aspects of the exposure draft. Despite those concerns, in the 2026-27 Federal Budget (which we discuss here), the Government confirmed its intention to proceed with the foreign resident CGT amendments with minimal additional detail provided.

The Bill is formally titled the Treasury Laws Amendment (Strengthening Accountability for Tax Adviser Misconduct and Other Measures) Bill 2026 (Bill). 

Key features

1. Expanded definition of real property

The Bill inserts a new statutory definition of “real property” into subsection 995-1(1) of the ITAA 1997. The definition is significantly broader than the existing concept and includes:

1. any interest in or right over land (regardless of how it is treated under State or Territory law);
    
2. a personal right to call for or be granted any interest in or right over land;
    
3. a licence or contractual right exercisable over or in relation to land;
    
4. a thing (or combination of things) that is fixed or installed on land (whether or not it is a fixture at law, and disregarding any State or Territory statutory severance legislation); and
    
5. a lease of, or licence or contractual right over, any such thing.

Licence or contractual right exercisable over or in relation to land – para (c)

Of particular significance is the scope of paragraph (c) of the new definition – licences and contractual rights exercisable “over or in relation to” land. The outer limits of this limb will require careful consideration in practice.

The Explanatory Memorandum to the Bill (EM) confirms that this limb is broader than its equivalent in other tax legislation and is intended to capture rights whose value is inseparable from Australian land and natural resources. The EM expressly identifies infrastructure operating or maintenance licences and contractual rights as falling within paragraph (c), giving as examples toll roads, bridges, carparks, ports, data centres, and energy infrastructure such as pipelines. However, it remains uncertain what the value of these rights are and how this interacts with all assets and contractual rights of an infrastructure business, including those that are not “infrastructure operating or maintenance licences or contractual rights”. Forestry and agricultural licences (other than profits à prendre) are also intended to be captured.

The EM states that licences or contractual rights to access premises to perform services on-site, where that access is merely incidental (for example, hotel cleaning contracts), are not intended to be captured, though this carve-out is not within the written law itself.

A thing (or combination of things) that is fixed or installed on land – para (d)

Paragraph (d) of the new definition (things “fixed or installed on land”) is also now broader than the concept in the exposure draft. The Bill has dropped the qualification contained in the exposure draft that a thing be “reasonably expected to be situated on the land for the majority of its useful life.” Under the Bill as introduced, a thing is within paragraph (d) simply if it is fixed or installed on land, regardless of how long it is expected to remain there. 

The word “installed” is also deliberate and broader than “fixed”: it is intended to capture things that are not physically affixed to land but are placed on it with a sufficient degree of permanence – for example, certain heavy equipment that is installed but not bolted or cemented down. While no further detail is provided in the law itself, the EM provides that an item is not considered to be installed if it can be, and is intended to be, moved without affecting the underlying land or structure. The EM also provides that items that rest on their own weight may also be considered to be installed on land where they are designed and configured for ongoing use on the land. Whether an individual asset is installed on land will need to be worked through in practice for borderline cases.

The EM further provides that a “combination of things” that are physically connected or functionally integrated into a single asset, even if only some of the components are fixed or installed on land, will be treated as a single item of real property. 

The scope of (d) and (e) is intended to capture large-scale infrastructure comprised of many separate interdependent component assets, including utilities infrastructure, transmission lines and large-scale energy storage systems, as well as energy storage systems and heavy machinery.

On this point, the EM includes a number of worked examples illustrating the breadth of the new definition. These include: 

• an IT services company whose licence agreement grants access to rack space in a Sydney data centre, which is intended to fall within paragraph (c);

• a mining company whose plant and equipment are affixed to a mining lease site, which is intended to fall within paragraph (d) (notwithstanding that State law deems the items to be chattels); and

• a gas network operator whose statutory rights to install, maintain and operate equipment on and under private land, which is intended to fall within paragraphs (d) and (f) (as licences or contractual rights over things fixed or installed on land).

These examples indicate that the Government considers the new regime to apply widely across infrastructure, resources and real assets sectors. However, as the definition of “real property” is inclusive (not exhaustive), broader arrangements beyond those listed may also fall within the term’s ordinary meaning.

2. Principal asset test: 365-day lookback 

Paragraph 855-25(1)(b) is amended to extend the testing time for the PAT to a period of 365 days preceding the relevant time (previously, the test was applied at the time of the CGT event). This means a membership interest may constitute an indirect Australian real property interest if it passed the PAT at any point during the preceding year.

Whilst the EM provides that this testing window is not intended to be “overly burdensome”, in practice, the 365-day test will create a significant compliance burden for many investors and may lead to disputes with the ATO: a foreign resident vendor must be able to demonstrate that at no time during the preceding 365 days did the TARP ratio of the test entity (ie the entity that the taxpayer is disposing of its membership interest in) exceed 50%. This may be difficult to discharge where asset values fluctuate or where the vendor does not control the test entity’s day-to-day asset composition (although the EM provides the minster may exclude this latter scenario from the 365-day requirement in the future). 

3. Mining, quarrying or prospecting information 

A new subsection 855-30(6) provides that, for the purposes of the PAT, mining, quarrying or prospecting information which relates to an area in Australia is treated as if it were TARP.

This can be significant for foreign investors holding indirect interests in entities with Australian resource sector assets. Mining information is not technically a CGT asset and therefore, prior to the Bill being passed, its value could sit outside the PAT in some cases. This made it more likely to result in an overall sale of those interests not being taxable, which may be less likely to be the case going forward. 

4. Treaty override 

The International Tax Agreements Act 1953, which gives force of law to Australia’s double tax agreements (DTAs) with other jurisdictions, is amended to provide that, where an applicable double tax agreement provides that the expressions “real property”, “immovable property” or “land” have the meaning they have under Australian law (which is the case in all DTAs), those expressions will take their meaning from the expanded concept of TARP under the amended ITAA 1997. 

This effectively aligns Australia’s treaty definitions with the broader domestic law from the commencement day. The validity of this amendment, which effectively uses domestic legislation to alter how treaty terms are defined, is a point on which judicial challenge may arise, particularly where treaty partners contend that the bilateral agreement should not be so readily (and significantly) displaced by unilateral domestic law change.

5. Transitional concession for renewable energy assets 

A transitional 50% CGT discount is available for capital gains made by eligible foreign residents on “Australian renewable energy assets” and on indirect Australian real property interests that pass a “renewable energy asset test,” provided the CGT event occurs before 1 July 2030.

An Australian renewable energy asset is a CGT asset whose primary purpose is to:

• generate or produce electricity using an eligible renewable energy source (within the meaning of the Renewable Energy (Electricity) Act 2000 (Cth)); or

• operate as an energy storage system for such electricity. 

The renewable energy asset test is satisfied where the sum of market values of the entity’s Australian renewable energy assets is at least 75% of the value of the entity’s TARP. The test is applied only to CGT assets that are TARP, not to the entity’s CGT assets as a whole.

One significant limitation of the concession is that general electricity transmission infrastructure (eg “poles and wires”) is excluded from the concept of an Australian renewable energy asset. This means that foreign investors in new high-voltage transmission assets, which are critical to connecting remote renewable generation to the national electricity market, may not be eligible for the 50% discount, notwithstanding that such assets will be squarely within the broadened definition of TARP going forward. This exclusion sits uncomfortably alongside the Government’s stated policy of supporting the energy transition.

A further concern is the duration of the concession. Large-scale renewable energy projects – wind farms, solar farms and battery storage systems – typically have investment horizons of 25 to 40 years. A concession expiring on 30 June 2030, which will be available for less than four years, provides limited comfort to foreign investors evaluating projects over those timeframes. In practice, the concession is more likely to incentivise investors to sell before the discount expires – the opposite of its stated policy objective.

The 75% threshold also creates a practical difficulty for mixed-asset portfolios that are, in substance, renewable energy investments. Under the broadened TARP definition, many supporting assets of a renewable energy project – substations that also serve the broader grid, land acquired partly for buffer zones, access roads – may be characterised as “other taxable Australian real property” rather than Australian renewable energy assets, because they do not have the primary purpose of generating or storing electricity. A purpose-built wind or solar farm that a market participant would readily identify as a renewable energy investment could therefore fail the 75% test. Foreign investors in renewable energy infrastructure that intend to exit investments by 30 June 2030 should carefully model their likely test position, particularly where their portfolios include a combination of generation, storage and other assets.

6. Foreign resident capital gains withholding

Other than the introduction of additional ministerial powers (discussed below), there has been no material change to the previously proposed FRCGT withholding amendments. We discussed these changes in our prior article here. In summary: 

• foreign vendors will need to notify the ATO of a proposed sale worth A$50 million or more which the vendor considers is not IARPI (with aggregation rules if there is more than one transaction). 

• there are strict timelines – if a vendor fails a timeline, then the purchaser must withhold 15% of the purchase price or risk a penalty that starts at A$7.5 million:

  • where there are more than 31 days between the date a transaction is entered into and the time at which the purchaser becomes the owner of the interest, then the vendor must provide the ATO with at least 28 days’ notice; 

  • in other cases, the vendor must provide the ATO with notice “as soon as reasonably practicable” after the transaction is entered into, but before the purchaser becomes the owner.

• a declaration made by a vendor to a purchaser that a sale does not include IARPI will not be valid unless the vendor has notified the ATO. Practically, this will mean purchasers must seek evidence of the vendor’s notification to the ATO as part of their due diligence processes.

• the purchaser knowledge threshold will move from a subjective test (”do you know”) to a joint subjective and objective test: “do you know, or could you reasonably be expected to know, the declaration to be false”. 

Practically, these changes will require a greater degree of diligence for vendors and purchasers (subject to exclusions to be announced by the minister – see below), including resident purchasers. This is likely to negatively impact M&A timelines and compliance costs.

7. New ministerial powers

A final feature worth noting is that the Bill confers three new legislative instrument-making powers on the Minister, similar to the powers introduced in connection with recent broader CGT changes. These allow the minister to:

• adjust the PAT testing period for specified classes of transactions or investors – the default being 365 days, with the Minister able to prescribe a longer or shorter period in defined circumstances. The EM provides this is intended to be used to reduce compliance burdens in the future but no draft legislative instruments have been released and the minister may equally extend a testing period for specified arrangements (thereby increasing compliance burdens further – as well as the possibility of a foreign investor being subject to tax);

• exempt particular classes of transactions from the non-resident withholding declaration process – again, this is intended to reduce compliance burdens by accommodating transactions subject to court or administrative processes (such as schemes of arrangement or acquisitions under the merger control regime) where compliance with standard declaration requirements may be impractical or impossible but no draft legislative instruments have been released (an issue which was highlighted during the consultation process); and

• specify the circumstances in which a person is taken to be dealing with a non-resident disposer for the purposes of the withholding regime.

The use of unreleased ministerial determinations makes it difficult to assess the full compliance burden and scope of the laws as enacted, particularly for large M&A transactions.

Commencement and transitional provisions

The Bill commences on the first 1 January, 1 April, 1 July or 1 October to occur after the day it receives the Royal Assent. The Bill was introduced into the House of Representatives on 2 July 2026. If the Bill passes both Houses during the August 2026 sitting period, and receives Royal Assent shortly thereafter, the commencement date would be 1 October 2026.

Of particular significance is the restriction on the Commissioner’s power to amend prior assessments relating to pre-commencement CGT events in respect of TARP and associated assets under the pre-amendment law. The Commissioner may not amend such an assessment in connection with the relevant capital gain unless: 

• the taxpayer’s limited amendment period has not yet ended;

• the amendment is for fraud or evasion; or

• the amendment relates to an objection lodged before 10 April 2026.

This is directed at preventing refunds of tax previously paid following the taxpayer wins in the YTL and Newmont cases, which determined that certain infrastructure and mining assets were not TARP.

Whilst the removal of retrospective application is a significant and welcome development, the prospective regime as introduced will nonetheless affect a wide range of foreign investors in Australian assets. Importantly, existing, unsold investments will be caught by the expanded definitions from the commencement day onwards: investments that were not previously taxable will become taxable upon commencement without any disposal having occurred. Investors should review the composition of their investments to determine if they will be taxable going forward. 

For foreign investors in renewable energy and energy storage infrastructure, the transitional concession provides a time-limited opportunity to benefit from a 50% CGT discount on eligible disposals. However, the concession is narrow in scope, requires satisfaction of the renewable energy asset test, and expires on 30 June 2030. Investors should give careful consideration to the timing and structure of future exits in light of this sunset. 

Australian entities that are acquirers in transactions involving foreign resident counterparties should review the implications of the updated FRCGW regime. The new vendor notice framework and expanded declaration requirements, including a A$50 million threshold for related-transaction declarations, practically result in greater M&A compliance burdens and the risk of penalties that start at A$7.5 million.

Foreign vendors should also engage with the ATO as early as possible to prevent delays to tight M&A timelines.

Parliamentary process and timing

The Bill was introduced in the last parliamentary sitting. Given the significance of the amendments and the level of stakeholder interest, the Bill may be referred to a parliamentary committee for inquiry – as occurred with recent CGT amendment legislation. If referred, this would provide a further opportunity for stakeholder input.

Based on the current parliamentary sitting calendar, the earliest the Bill could pass both Houses would be the August 2026 sittings. This makes 1 October 2026 the earliest date that the Div 855 changes could take effect.