Foreign resident CGT legislation introduced to Parliament

In brief

The Australian Government has introduced to Parliament the legislation that will reshape how foreign residents are taxed on capital gains connected to Australian land and natural resources. The measures form part of the Treasury Laws Amendment (Strengthening Accountability for Tax Adviser Misconduct and Other Measures) Bill 2026 (the Bill) and represent the most significant overhaul of the foreign resident CGT provisions since Division 855 was introduced in 2006.

The Bill:

introduces a new statutory definition of "real property" to broaden the tax base, capturing assets with a close economic connection to Australian land and natural resources;

amends the principal asset test applicable to indirect Australian real property interests, moving from a single point in time to a 365-day look-back period;

strengthens the foreign resident capital gains withholding (FRCGW) regime for large transactions;

provides a targeted, time-limited 50% CGT discount for certain foreign investors disposing of Australian renewable energy assets; and

achieves broader tax treaty alignment by confirming that treaty references to “real property”, “immovable property” or “land” mean taxable Australian real property.

The Bill follows the release of exposure draft legislation on 10 April 2026 and reflects a number of changes responding to stakeholder feedback. The most significant development is that there is no longer any retrospective application of the expanded definition of "real property". The exposure draft would have applied the broadened meaning to CGT events going back to 12 December 2006, a period of almost 20 years. The revised legislation instead applies the expanded definition prospectively, from commencement, and separately limits the Commissioner's ability to reopen past assessments. A number of concerns raised in consultation remain unresolved.

The measures will apply from the first 1 January, 1 April, 1 July or 1 October to occur after the Bill receives Royal Assent, so foreign investors, fund managers and their advisers should begin assessing the impact now.

In detail

Australia generally taxes foreign residents only on gains from "taxable Australian property", broadly comprising taxable Australian real property (TARP), indirect Australian real property interests (IARPI) and certain business and other assets. These rules are contained in Division 855 of the Income Tax Assessment Act 1997 (Cth). A gain on an asset that is not taxable Australian property is generally disregarded.

The measures now before Parliament reflect the Government’s announcement in the 2024-25 Budget that it would strengthen the regime to confirm that assets with a close economic connection to Australian land and natural resources are brought within scope of the foreign resident CGT provisions. It released an exposure draft on 10 April 2026, consulted for a two-week period that closed on 24 April 2026, and has now introduced revised legislation to Parliament. The revised Bill reflects several changes from the exposure draft.

The broadened definition of "real property" and TARP

The Bill inserts an inclusive statutory definition of "real property" into the income tax law. In addition to the term's ordinary meaning, real property is proposed to include:

any interest in or right over land;

a personal right to call for or be granted any interest in or right over land;

a licence or contractual right exercisable over or in relation to land;

a thing (or combination of things) fixed or installed on land, whether or not it is a fixture; and

a lease of, or a licence or contractual right over such a thing.

Importantly, whether an asset is real property would be determined irrespective of State and Territory property laws, including statutory severance provisions.

The practical reach of this definition is broad. It is intended to capture assets whose value is inseparable from Australian land and natural resources, such as the examples provided in the Explanatory Memorandum (EM) to the Bill that cover forestry and agricultural licences, and infrastructure operating or maintenance rights (for example, over toll roads, bridges, ports, car parks, data centres and energy infrastructure such as pipelines). A licence that merely permits access to premises to perform incidental services on the land, such as a cleaning contract, is not intended to be caught. It is also intended to capture heavy machinery and equipment that is fixed or installed on land, for example mining plant and equipment, transmission lines and large-scale energy storage systems, even where State law would treat those items as chattels.

The EM to the Bill indicates that "fixed" generally requires physical attachment and integration such that removal would cause damage, while "installed" involves a lower degree of affixation and can include items placed on land for ongoing use, such as heavy mining machinery that rests on its own weight and is not of the character of a movable object that can be, and intended to be, moved without affecting the underlying land or structure.

Consistent with the new definition, the scope of TARP is expanded. TARP will include real property situated in Australia, real property relating to land situated in Australia, and real property relating to a thing fixed or installed on land in Australia. The amendments also expressly confirm that a water entitlement in relation to an Australian water resource is TARP, and that an option or right to acquire a TARP asset is itself TARP.

These changes apply prospectively to CGT events happening on or after commencement.

A 365-day principal asset test

The principal asset test determines whether a foreign resident's non-portfolio membership interest in an entity is an indirect Australian real property interest, and therefore taxable Australian property. Broadly, the test is met where more than 50% of the market value of the entity's assets is attributable to TARP. Previously, the test was applied at a single point in time, just before the relevant CGT event, which created an integrity risk because the composition of an entity's assets could be altered immediately beforehand so that the test was not satisfied at the moment of sale.

The Bill expands the test so that it may be satisfied if the threshold is met at any time during the 365 days preceding the CGT event, aligning with the current OECD Model Tax Convention and the OECD Multilateral Instrument. The Minister may determine, by legislative instrument, an alternative testing time for certain foreign residents who do not have ready access to the information needed to apply the full 365-day period, for example non-controlling investors that can only rely on publicly available financial reports - the 365-day test is otherwise expected to be the default.

The Bill also provides that value attributable to mining, quarrying or prospecting information is treated as TARP but only for the purposes of applying the principal asset test, reflecting the commercial reality that mining information and the associated mining rights are interdependent and typically valued together.

Changes to the foreign resident capital gains withholding regime

Under the FRCGW regime, a purchaser of certain Australian assets must generally withhold a proportion of the purchase price (currently 15%) and remit it to the Commissioner of Taxation where the vendor is a foreign resident, unless an exception applies. A vendor can currently avoid withholding by declaring to the purchaser that a membership interest is not IARPI.

The Bill strengthens this regime in two main ways. First, for transactions with an aggregated value of $50 million or more, a vendor's non-IARPI declaration will not be valid unless the vendor has also notified the Commissioner, in the approved form and within the required time, giving the Commissioner visibility of high-value transactions. Related transactions are aggregated so that a single transaction cannot be split into smaller parts to fall below the threshold. A further pathway allows a purchaser to rely on a vendor’s non-IARPI declaration for transactions or circumstances specified by legislative instrument. The EM indicates that this could apply to transactions subject to court or regulatory oversight, such as schemes of arrangement or acquisitions under the merger control regime.

Second, the knowledge threshold for purchasers is lowered: rather than only being required to withhold where they know a declaration to be false, purchasers must now turn their mind to information that could indicate the declaration is reasonably expected to be false, supported by proportionate, documented due diligence. Furthermore, the Commissioner may notify the purchaser that he believes there are grounds for withholding or that there is reasonable belief that a declaration is false.

A transitional 50% CGT discount for renewable energy assets

Recognising the importance of foreign investment to Australia's energy transition, the Bill provides a targeted, time-limited 50% CGT discount for certain foreign investors that dispose of Australian renewable energy assets. The discount applies to CGT events happening from commencement until 30 June 2030, and is available only to foreign residents that are not individuals, such as corporate entities and foreign institutional investors (including through foreign trusts where the gain flows to non-individual beneficiaries).

For direct disposals, the asset must be a TARP asset whose primary purpose is generating or producing electricity in Australia from an eligible renewable energy source either now or in the future, or operating as an energy storage system for such electricity. The EM clarifies that general electricity transmission infrastructure (e.g. poles and wires) would not qualify.

For indirect disposals, a membership interest must first pass the principal asset test and then satisfy a separate "renewable energy asset test", which now requires the market value of the entity's Australian renewable energy assets to be at least 75% of the value of all its TARP (that is, at least three times the value of its other TARP).

The EM provides some useful comments and examples in relation to the application of the concession to pre-development and development stage renewable energy projects. In particular, it confirms that an Australian renewable energy asset can qualify even where electricity generation or production is only expected to occur in the future, provided the asset’s primary purpose is to generate or produce electricity in Australia from an eligible renewable energy source, or to operate as an energy storage system for such electricity.

The EM indicates that objective evidence will be critical for projects that have not yet commenced construction, including land identified for the project, grid connection agreements, development approvals, environmental impact studies and rights to future income under an offtake agreement. However, the EM makes clear that merely holding land that is suitable for renewable development will not be enough where there are no material approvals, committed development steps or evidence that renewable generation, production or storage is the asset’s dominant intended use. For foreign investors, the practical point is that eligibility for the concession is likely to turn not only on the nature of the underlying asset, but also on the quality of the contemporaneous project evidence demonstrating that the asset is objectively committed to a renewable energy project.

Integrity rules apply to prevent the artificial inflation of renewable energy asset values and the double counting of assets within a corporate group, and the general anti-avoidance rules in Part IVA continue to apply.

Broader tax treaty alignment

The International Tax Agreements Act 1953 (Cth) is amended so that treaty references to “real property”, “immovable property” or “land” mean TARP, confirming alignment between the treaty meaning and the domestic CGT framework, consistent with the approach of Australia’s treaty partners and the OECD Model.

What has changed since the April 2026 exposure draft

The Bill largely follows the exposure draft legislation released on 10 April 2026 for consultation but reflects several important changes responding to stakeholder feedback.

Retrospectivity removed

The most significant change is the removal of retrospective application. The exposure draft contained provisions that would have applied the expanded meaning of “real property” retrospectively to CGT events on or after 12 December 2006, a period of almost 20 years. The revised legislation removes this approach entirely. Instead:

The broadened definition now applies prospectively to CGT events on and from commencement.

The Commissioner's power to amend past assessments is expressly limited where the limited amendment period has ended, except in cases of fraud or evasion, or to give effect to an objection made before 10 April 2026 (the date the exposure draft was released). This means assessments made before commencement, and outside the amendment period, generally cannot be reopened simply because of the new definition.

Assessments made before commencement where the limited amendment period has not ended are unaffected.

Other refinements from the exposure draft

A number of other refinements have been made since the exposure draft:

A clearer definition of “real property”: The exposure draft required that a “thing fixed or installed on land” must be situated on the land “for the majority of its useful life”. That qualifier has been removed, broadening the definition while simplifying its application. While this simplifies the definition, it also broadens it such that assets that are periodically relocated, rotated between sites or installed on land for less than the majority of their useful life may now be captured. This is particularly relevant for mobile infrastructure assets such as relocatable mining plant, modular data centre equipment and temporary generation facilities.

Principal asset test flexibility: As noted above, the Minister may now determine an alternative testing time for the principal asset test in certain circumstances, easing compliance for investors who do not have ready access to the information needed to apply the full 365-day period.

Renewable energy discount – energy storage: The definition of “Australian renewable energy asset” has been expressly expanded to include energy storage systems, directly addressing industry concerns about the treatment of battery storage.

Renewable energy discount – qualifying threshold: The renewable energy asset test threshold for indirect disposals has been reduced from 90% to 75%, making the discount more achievable for genuine renewable energy businesses that also hold ancillary TARP assets.

Key issues that remain unresolved

While the removal of retrospectivity and other refinements are welcome, a number of concerns raised in consultation, including in PwC's submission, have not been addressed in the revised legislation and remain important considerations that current and proposed investors should note:

No transitional cost base relief: There is no market value cost base reset for assets that are newly brought within the regime under the expanded definition. As a result, gains that accrued before commencement may still be taxed on a later disposal, notwithstanding precedents for such relief when Division 855 was first introduced and when the sovereign immunity rules were codified.

The renewable energy discount remains time-limited: The 50% discount applies only to CGT events before 30 June 2030 and has not been made a permanent feature of the regime. This window is short relative to the 20 to 30-year investment horizons typical of renewable energy projects. Moreover, the practical window for the discount may be narrower than it appears. Assets reaching financial close and commencing construction in 2027 or 2028 are unlikely to be disposed of before 30 June 2030. The discount is therefore most likely to benefit secondary market transactions involving operating renewable energy assets, rather than incentivising new greenfield investment. Investors should assess whether a contract for disposal can realistically be entered into within the discount window and, if not, factor the full rate of CGT into investment return modelling.

The scope of the renewable energy discount remains narrow: Although energy storage assets are now expressly included, the discount remains confined to renewable electricity generation, production and storage. It does not extend to the wider sustainable infrastructure value chain, such as sustainable fuel production, carbon capture and storage, electric vehicle charging networks or critical minerals processing.

No legislated safe harbour for the 365-day test: No statutory safe harbour, de minimis or averaging method has been enacted for the 365-day principal asset test. If any practical relief is to apply it will be left to future ministerial instruments and ATO guidance, so compliance costs for affected investors may remain significant.

Key terms remain undefined in the law: Terms such as "fixed", "installed" and "contractual right ... in relation to land" are not defined in the legislation itself. While the EM to the Bill provides additional guidance and examples, the absence of statutory definitions may leave scope for differing interpretations.

Commencement

The foreign resident CGT measures are proposed to commence on the first 1 January, 1 April, 1 July or 1 October to occur after the Bill receives Royal Assent. The Division 855 amendments apply to CGT events happening on or after commencement, while other income tax amendments apply to assessments for income years starting on or after that day.

The measures are currently before the House of Representatives. Based on current Parliamentary timetables, the Bill could be passed and enacted before 30 September 2026, allowing commencement as early as 1 October 2026.

The renewable energy discount applies to CGT events from commencement to 30 June 2030.

The takeaway

The removal of retrospectivity as was proposed in the draft law is a significant and welcome change that provides greater certainty for foreign investors. Even so, these reforms materially broaden the foreign resident CGT base and tighten its integrity settings on a prospective basis, but will apply to investments that are already held as at commencement and absent any transitional cost base relief. The new statutory definition of real property is likely to bring a wider range of infrastructure, energy and resource-related assets and rights within scope, and to reduce the uncertainty that previously arose from differing State and Territory treatments. Foreign investors and fund managers should review their Australian holding structures and consider how the broadened definition, the 365-day principal asset test and the treatment of mining information may affect the taxation of both direct and indirect disposals.

For share and unit transactions of $50 million or more, vendors and purchasers should factor the Commissioner notification step into deal timetables and settlement processes, and purchasers should ensure their due diligence is robust enough to meet the lower knowledge threshold.

As the measures may progress quickly with the potential to first apply to CGT events happening as early as 1 October 2026, we recommend that affected clients begin modelling the impact and reviewing their documentation now. Please contact your PwC adviser to discuss how these changes may affect your circumstances.