Foreign investors may soon be liable to Australian capital gains tax (CGT) on assets previously not considered “taxable Australian property”.
As part of its ongoing consultation process, Treasury has issued an exposure draft, Strengthening the Foreign Resident Capital Gains Tax Regime. This signals a shift toward a broader application of the foreign resident CGT rules. While framed as a clarification of existing law, the proposed changes could significantly expand the scope of assets captured, particularly to those assets with a close economic connection to Australian land.
According to the tax lawyers at Brightstone Legal, the draft “broadens the definition of taxable Australian real property to capture assets not traditionally associated with being interests in real property,” representing a material expansion of the current CGT foreign resident regime.
What is Changing?
1. Broader Definition of Taxable Australian Property
The most significant change is the expansion of what constitutes “Taxable Australian Real Property” (TARP).
Historically, this has focused on interests in “real property”, such as commercial or residential property. The draft legislation proposes extending this definition to assets with a strong economic link to land. For example, certain contractual rights associated with land (such as access licences or options to acquire) could potentially fall into the foreign CGT regime.
2. Changes to the Principal Asset Test
Under the current rules, a foreign resident is subject to CGT when disposing of shares in an entity where more than 50% of its value is derived from Australian real property at the time of sale.
The draft introduces a 365-day “look-back” period. This means the test may be triggered if the threshold is met at any point during the year prior to disposal, not just at the time of sale.
3. Increased Compliance and Reporting Requirements
The proposed reforms also introduce additional compliance obligations around ATO notifications that will need to be factored into in terms of transaction timing.
Why This Matters for Investors
While the Government has indicated that the reforms are intended to align Australia’s tax framework with international standards and protect the domestic tax base, the practical impact could be substantial.
Assets previously treated as “plant and equipment” or ancillary to land may now fall within the CGT regime. This is particularly relevant for sectors such as renewable energy, telecommunications, and infrastructure, where asset classification has historically been less clear.
Unlike broader discussions around CGT discounts for Australian property investors, these proposed changes are specifically targeted at foreign residents and the taxation of gains derived from Australian-linked assets.
An important note is that the rules will operate retrospectively to capture CGT events as far back as 12 December 2006.
Timeline and Submissions
The exposure draft is currently open for public consultation, with submissions closing on 24 April 2026.
At this stage, the legislation remains in draft form, and both its final scope and commencement date will depend on the outcome of the consultation process. However, the direction of the reforms signals a clear policy intent to broaden the reach of the foreign resident CGT regime.
What Should Investors Do Now?
Given the potential breadth of these changes, foreign investors and entities with Australian-linked assets should consider reviewing their existing structures and any planned transactions.
In particular, assets that may not have previously been treated as “real property” for CGT foreign resident purposes could require reassessment under the proposed framework.
Early advice may help identify exposure and avoid unexpected tax outcomes if the reforms proceed in their current form.
Rather than waiting for the proposed changes to take effect, investors may benefit from seeking advice from experienced tax lawyers in Sydney to assess how these developments could impact specific asset holdings or upcoming divestments.
