Treasury ruffles feathers with proposed expansion of the Australian foreign resident CGT regime
Ahead of the Deal - Australian M&A briefing
Key insight
- Treasury has released exposure draft legislation for the proposed changes to Australia’s foreign resident CGT regime announced in the 2024–25 Budget.
- The measures are broader than the previous announcements and contain several unexpected elements (including application of elements of the measures with retrospective effect back to 2006) that have been met with general consternation within the tax profession and the international investment community.
- The proposals broaden the scope of assets that fall within Australia’s foreign resident CGT regime (with some retrospective effect), strengthen the rules applying to indirect disposals, and introduce additional compliance requirements for certain higher-value transactions.
- The short 2 week public consultation process closed on 24 April 2026. Ashurst has lodged a submission, and we expect that Treasury has received a multitude of submissions requesting that the more extreme elements of the proposals be pared back.
- The proposals are relevant for foreign investors in real estate, resources, infrastructure, energy, utilities and other assets whose value is linked to Australian land, installed assets or natural resources. They will have significant implications for transaction structuring, diligence, withholding processes and exit planning for existing investments.
"If the retrospective aspects of the measures are implemented unchanged, some foreign resident taxpayers will be technically exposed to Australian tax in connection with past disposals that were not taxable under the law as it existed at that time. Others will have made current investments based on an understanding of the CGT regime as it existed at that time only to now discover that their understanding was incorrect.”
On 10 April 2026, Federal Treasury released exposure draft legislation and explanatory materials for the proposed changes to Australia’s foreign resident CGT regime announced in the 2024–25 Budget.
The short public consultation process, of only 2 weeks, closed on 24 April 2026. Ashurst has reviewed the exposure draft legislation and related materials in detail and lodged a submission with Treasury.
The proposed measures are broader than the previous announcements; they contain several unexpected elements that have been met with general consternation within the tax profession and the international investment community. There are likely to be a multitude of submissions requesting the more extreme elements be pared back.
If enacted in their current form, the measures would broaden the scope of assets that fall within Australia’s foreign resident CGT regime, strengthen the rules applying to indirect disposals, and introduce additional compliance requirements for certain higher-value transactions.
The key proposed changes are summarised below.
Expansion of assets within the scope of foreign resident CGT regime
Broadly, the proposal would expand the concept of "taxable Australian real property" (TARP) beyond conventional freehold and leasehold interests, mining, quarrying and prospecting rights.
In particular, the concept will be expanded to include:
- Interests in or rights over land, to be ascertained without regard to provisions of State law which may "sever" items that would be common law fixtures from the land. This will overcome, in particular, the 2025 decision in YTL Power Investments Limited v FCT, where the Federal Court held that State statutory severance laws can operate to sever a fixed asset so that it is personal property, and not real property, for the purposes of the TARP test under current law;
- Personal rights to call for or be granted such interests;
- Licences and contractual rights exercisable over or in relation to land;
- Things fixed (whether or not fixtures at common law) or installed on land where they are, or are expected to be, situated on the land for the majority of their useful life. The effect of this is that it will no longer be necessary to ascertain whether an item is a fixture at common law, and will also overcome the recent decision in Newmont Canada FN Holdings ULC v FCT (No 2) which held, consistent with the High Court's previous decision in TEC Desert Pty Ltd v Commissioner of State Revenue (WA), that assets fixed to a mining tenement are personal (not real) property;
- Leases, licences and contractual rights over those fixed or installed assets; and
- Water entitlements over Australian water resources.
These measures are considerably broader than anticipated. In particular, the expansion to assets "installed" but not necessarily fixed on land, contractual rights exercisable "in relation to" land, and leases, licences and contractual rights over assets fixed to or installed on land, were not anticipated and are potentially very broad in scope. They also go far beyond comparable provisions in State and Territory stamp duty laws.
As a related measure, the International Tax Agreements Act 1953 will be amended to ensure that the terms "real property" and "immovable property" in Australian double tax agreements have the same meaning as TARP in the domestic tax legislation.
Retrospectivity
There is no grandfathering or transitional regime, except for a temporary concessionary regime in respect of certain renewable assets (discussed below).
A particularly notable and contentious feature of the package is its retrospective aspect. Although the prospective amendments would apply to CGT events occurring from commencement (and would thereby capture unrealised accrued capital gains), the draft also provides that certain elements of the meaning of real property are taken to apply back to 12 December 2006 (although the ATO has publicly indicated it will only review transactions going back 4 years, unless the transaction is already under review or in certain other limited scenarios).
If this aspect of the measures is implemented unchanged, some foreign resident taxpayers will be technically exposed to Australian tax in connection with past disposals that were not taxable under the law as it existed at that time. Others will have made current investments based on an understanding of the CGT regime as it existed at that time only to now discover that their understanding was incorrect.
This is unprecedented and inconsistent with past examples of law changes that either took effect prospectively or permitted grandfathering or rebasing. Media commentators have raised the prospect of the proposals amounting to a form of sovereign risk that will discourage future investment.
The ATO and Treasury are describing the retrospective changes as "clarificatory". However, it has been the clear understanding of the taxpaying community, and confirmed by the YTL and Newmont cases, that real property as used in the current TARP rules takes its technical legal meaning.
Changes to the principal asset test
The second major element is a significant change to the principal asset test for indirect Australian real property interests.
Broadly, this test is satisfied if the value of the TARP assets of the entity whose membership interests are being sold is greater than the value of its non-TARP assets. At present, the test is generally applied at the time of the CGT event.
Under the draft, a non-portfolio membership interest may be an indirect Australian real property interest if the relevant entity derived the requisite proportion of its value from taxable Australian real property at any time during the preceding 365 days. This is broadly the position under Australia's more recent double tax agreements, and international treaty practice more generally, including under the OECD "Multilateral Instrument".
This measure was anticipated and should not be controversial, although it will require detailed consideration in circumstances where assets are being indirectly disposed of.
CGT declaration regime
The third principal element is an additional compliance regime for certain higher-value disposals of shares, units and other membership interests.
Under the current CGT declaration regime, where a foreign resident vendor gives a declaration that a membership interest is not an indirect Australian real property interest, the purchaser can rely on the declaration (and not withhold or pay any amounts to the ATO under the CGT withholding regime) unless the purchaser has actual knowledge that the declaration is false.
The proposals make two changes to this regime. First, a purchaser will not be able to rely on the declaration if they know "or could reasonably be expected to know" the declaration is false. Second, where a foreign resident vendor wishes to give a declaration that a membership interest is not an indirect Australian real property interest, and the relevant transaction and related transactions are valued at A$50 million or more, the vendor will need to notify the ATO in the approved form prior to the disposal. The purchaser can then rely on the declaration only if the required notification steps have been taken.
This new measure adds a further regulatory burden on foreign investors who otherwise fall out of the Australian tax net in connection with their sale and will most likely require additional representations and warranties to be included in sale agreements, as well as at least some level of due diligence by the purchaser to satisfy the new criteria of reasonableness in relying on the declaration.
Temporary concession for renewable energy assets
In addition to those base-broadening measures, Treasury has also released draft legislation for a temporary renewable energy concession. This would provide a 50% CGT discount for certain foreign residents in relation to gains from qualifying Australian renewable energy assets and certain indirect interests in those assets (broadly, where the underlying value of the entity's TARP assets is at least 90% attributable to qualifying Australian renewable energy assets).
The concession would apply only to CGT events occurring from commencement until 30 June 2030.
