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On 10 April 2026 Treasury commenced consultation on proposed measures to materially reform Australia’s foreign resident capital gains tax (CGT) regime.
The proposed measures, which build on measures announced in the 2024-25 Budget and initial public consultation that followed, seek to:
- ‘Clarify’ the relevant definition of taxable Australian real property (TARP);
- Bolster the Principal Asset Test (PAT) under the indirect Australian real property interests (IARPI) definition by replacing the manipulable point-in-time test with a 365-day test period;
- Institute Australian Taxation Office (ATO) notification requirements where a foreign resident disposes of non-IARP membership interests valued at $50 million or more; and
- Provide transitional relief until 2030 for the sale by non-residents of renewable energy assets situated in Australia.
Proposed transitional relief for renewable energy assets notwithstanding, these proposed measures will, if enacted, significantly broaden Australia’s revenue base, to the detriment of foreign investors. The proposal for the ‘clarified’ (expanded) definition of TARP to apply retrospectively to CGT events occurring since the establishment of the foreign resident CGT regime nearly 20 years ago will doubtlessly compound such detriment.
1. ’Clarified’ TARP definition
Foremostly, the Government is proposing to introduce a statutory definition of the term ‘real property’, which will inform the statutory definition of TARP and in turn the scope of the foreign resident CGT regime.
There is presently no statutory definition of ‘real property’, which is critical to the definition of TARP. As a result, foreign residents only pay CGT on gains referable to Australian real estate or similar property interests (for example, land, buildings, or mining rights). The proposed statutory definition of ‘real property’ will expand the definition of TARP to encompass assets that are economically linked to Australian land. This will capture things like long-term leases and licences over land, water rights, and infrastructure installed on land (e.g. pipelines, cell towers, solar and wind installations). In simple terms, if an asset’s value is tied to Australian soil or resources, a foreign investor will be liable to tax on any capital gain from it.
Although these proposed measures are purported to clarify the policy intent underlying the Tax Laws Amendment (2006 Measures No. 4) Bill 2006, which introduced foreign resident CGT, this claim is difficult to reconcile with recent Federal Court of Australia decisions, such as YTL Power Investments Limited v Commissioner of Taxation [2025] FCA 1317 and Newmont Canada FN Holdings ULC v Commissioner of Taxation ULC v Commissioner of Taxation (No 2) [2025] FCA 1356, as well as the relevant Explanatory Memorandum itself.
2. Revised reference period for PAT
The PAT determines whether a foreign resident’s non-portfolio membership interest in an assets or interests holding entity is an IARPI and therefore subject to Australian CGT. Broadly, the PAT is satisfied if the sum of the market value of an entity’s TARP assets exceeds the sum of the market value of its non-TARP assets.
The foregoing has given rise to the avoidance of Australian CGT with investors temporarily changing an entity’s asset mix – for instance, selling off property or adding non-land assets right before selling the shares, so it doesn’t satisfy the PAT at that moment. This proposed reform tackles this by introducing a 12-month look-back rule. When determining if a company satisfies the PAT, it will be necessary to consider whether the 50% threshold was met at any time in the year preceding the sale, not just at the point of sale. This means foreign residents will be unable to avoid Australian CGT through last-minute reshuffling – if the company was mainly invested in Australian property at any point in the 12 months preceding the sale, the sale of shares can be taxed. There will also be a significant compliance burden for relevant non-resident investors.
3. ATO notification requirements
Currently, non-resident vendors may provide purchasers of membership interests with a non-IARPI declaration to stop the application of foreign resident CGT withholding tax at 12.5% of the sale price.
This proposed amendment will require foreign resident vendors disposing of membership interests to notify the ATO within a prescribed timeframe when making a declaration to a purchaser that their membership interests are non-IARPI, failing which the non-IARPI vendor notification will be invalid.
This proposed measure targets information asymmetries, particularly instances where foreign resident investors may be incentivised not to engage with the Australian tax system. A specific aggregation provision requires the inclusion of related transactions and counteracts any potential artificial splitting of transactions into smaller transactions to circumvent the notification requirements.
Purchasers will need to exercise caution – if a reasonable person in the purchaser’s position would conclude that the foreign vendor’s declaration is false, the buyer could be held liable for failing to withhold. In practice, this pushes purchasers to perform due diligence (for example, verifying the property holdings and tax residency of the vendor) and not simply accept questionable declarations.
4. Transitional relief for renewable energy investments:
Recognising the significance of foreign investment in Australian renewable energy assets, and potentially the adverse impact of the foregoing proposed measures thereon, a targeted and time-limited 50% CGT discount is proposed for eligible disposals of Australian renewable energy assets and qualifying indirect interests in such assets (i.e., where 90% of the relevant taxable Australian real property of the test entity is attributable to renewable energy infrastructure investments) .
This proposed measure will apply to sales occurring from the law’s start date (expected in 2025) until 30 June 2030. For example, if a foreign investor bought an Australian wind farm and later sold it for a $10 million profit, normally Australian tax would apply to the full $10 million. Under the proposed rule, only $5 million of that gain would be taxable, effectively halving the tax bill.
This discount does not apply to individual investors; it’s targeted at foreign companies, pension funds, and other entities that back big renewable projects. The goal is to attract and reward investment in Australia’s transition to renewable energy, without permanently giving up tax revenue – hence the 2030 end date. After 2030, gains on these assets would be taxed in full again (as they are now).
5. Why These Changes?
The government announced these moves as part of its 2024–25 Budget, framing them as a balance between investment attraction and tax fairness. Australia wants to remain a top destination for foreign capital – especially in renewable energy, which requires massive investment to meet the country’s climate goals. The 50% CGT discount for renewable assets is a carrot to entice foreign investors to back wind, solar, and battery projects in the next few years, improving their after-tax returns. On the other hand, the government is also closing gaps in the tax system to ensure that when foreign investors profit from Australian property and resources, they pay tax just as local
investors would.
This is in line with global tax norms and Articles 6 and 13 of the OECD Model: most countries tax foreigners on real estate gains within their borders. By clarifying what assets are taxable and tightening the rules, the reforms seek to provide certainty and prevent sophisticated tax-avoidance strategies.
6. Practical Implications:
If you’re a foreign investor in Australian assets, these changes could affect your strategy and returns. For real estate and infrastructure investors, it will become harder to avoid Australian CGT on property-linked investments – virtually all gains from land, buildings, leases, and even associated assets like infrastructure will be taxable where the PAT is satisfied. You’ll need to plan for potential tax costs when exiting any Australian property or resource investment. Complex maneuvers to sidestep the PAT are unlikely to work under the new 12-month rule. For renewable energy investors, the next few years present an opportunity: eligible projects sold by 2030 come with a tax concession that can significantly boost net profits. It is a use-it-or-lose-it window – investments that extend beyond 2030 will eventually be taxed fully on exit, so some investors might aim to sell or recapitalise before the discount ends.
7. Big Picture:
These proposals are still making their way through the legislative process (they were released in draft form for consultation). If enacted, they would likely take effect from 2025 onward. The big takeaway is that Australia is strengthening its tax grip on foreign investors to ensure the country gets its fair share of tax from any gains made on Australian property and resource assets. At the same time, by carving out a temporary CGT discount for renewable energy, the government is signaling its appreciation of sustainable projects. Foreign investors, especially those in real estate, mining, and infrastructure, should stay abreast of these changes, as they may need to rethink deal structures, exit timelines, and tax planning for their Australian investments. The combination of a new tax break and stricter rules underscores Australia’s broader strategy: support green investment today, while safeguarding the tax base for tomorrow.
