Tax net potentially broadened for foreign investors

Posted on by Admin

23 April 2026

Draft legislation released on non-resident CGT changes

Treasury has released exposure draft legislation proposing significant changes to Australia’s foreign resident capital gains tax (CGT) regime. If enacted, the reforms would materially broaden the circumstances in which foreign investors are taxed on disposals connected to Australian assets.

The proposals would expand the definition of taxable Australian real property (TARP), tighten the principal asset test (PAT), strengthen withholding and notification rules and, most controversially, apply some changes retrospectively to CGT events occurring on or after 12 December 2006.

For foreign investors, fund managers, mining and resources groups, infrastructure owners and corporate investors involved in inbound investment, divestments or M&A, the implications extend well beyond direct land ownership. The clear policy message is that assets with a close economic connection to Australian land and natural resources are increasingly likely to fall within the Australian tax net.

Alongside these measures, Treasury has also released a separate exposure draft proposing a targeted 50% CGT discount for certain foreign investments in Australian renewable energy projects until 30 June 2030. While potentially valuable for eligible investors, that concession sits within a broader integrity‑driven package that expands the effective reach of the foreign resident CGT rules.

Why this matters

These proposals are significant because they may affect both future transactions and long‑settled historical positions.

Foreign investors selling shares, units or other indirect interests may be subject to Australian CGT more frequently, while Australian counterparties may face increased diligence, declaration and withholding risk when acquiring interests from foreign sellers.

Importantly, the impact is not limited to traditional property or resources businesses. Any group with substantial Australian land‑connected assets such as installed infrastructure, processing facilities, renewable projects, ports, pipelines or land‑heavy operating businesses, may need to reconsider whether an exit could now give rise to an indirect Australian real property interest. This is equally relevant for foreign managed funds, custodial arrangements and other investment structures holding Australian assets on behalf of offshore investors.

The retrospective element is particularly contentious. If enacted in its current form, aspects of the expanded TARP definition would apply back to December 2006, potentially reopening historic transactions and tax positions that were previously regarded as settled.

A broader concept of taxable Australian real property

At the centre of the reforms is a new statutory definition of “real property” . The intention is to move beyond narrow legal concepts of land and capture assets that have a strong economic connection to Australian land or natural resources.

Under the draft, TARP would explicitly include:

  • rights and interests in land, regardless of how they are characterised under State or Territory law
  • assets fixed to or installed on land, even where general law might otherwise treat them differently
  • leases, licences and similar rights relating to land‑connected assets

For mining and resources groups in particular, this is a meaningful shift. Project value often sits across a combination of land tenure, fixed plant, installed infrastructure, processing facilities, export interfaces and information assets, rather than bare land alone. The draft legislation is intended to reduce the scope for arguments that economically land‑linked assets fall outside TARP due to legal characterisation or historical assumptions.

Tightening the principal asset test

The principal asset test is also proposed to be broadened.

Rather than testing land richness at a single point in time, the draft would apply the test at the time of disposal or at any time during the preceding 365 days. An entity could therefore be treated as land‑rich even if its asset mix has changed by completion, provided more than 50% of its value was attributable to TARP at some point in the prior year.

This change increases the relevance of historic valuations, internal restructures and pre‑sale asset movements when assessing tax exposure.

The draft would also include mining, quarrying and prospecting information on the TARP side of the PAT calculation, increasing the likelihood that shares or units in mining and resource groups satisfy the test where value is heavily driven by resource‑related information and land‑connected exploitation rights.

Sector impacts for mining, infrastructure and corporates

The mining sector is likely to be among the most affected, reflecting the integrated nature of project structures that combine tenements, infrastructure, processing assets, logistics arrangements and valuable geological or mining information.

Key practical implications include:

  • a higher likelihood that share sales will fall within the indirect Australian real property rules
  • the need to revisit historical assumptions about installed assets or information assets not being TARP
  • more complex PAT modelling across a rolling 12‑month period
  • increased purchaser focus on tax diligence, declarations and withholding protections

For broader corporate groups, the reforms affect transaction structuring, deal execution and post‑completion risk allocation. Groups considering inbound investment, divestments, IPOs, restructures or private sale processes will need to test TARP and PAT positions earlier and with greater evidentiary rigour than under current practice.

Strengthened withholding and notification rules

The draft legislation also tightens the foreign resident CGT withholding regime. Purchasers would face more limited circumstances in which they can rely on vendor declarations, while vendors may be subject to additional notification obligations for certain high‑value disposals.

In practice, this is likely to push more tax analysis into the transaction phase. Buyers may adopt more conservative withholding positions unless a seller can clearly substantiate their residency status and TARP position, increasing the importance of upfront analysis, documentation and deal protection.

Retrospective operation and consultation

The retrospective operation of parts of the package has drawn strong criticism from professional bodies and advisers, who have raised concerns about uncertainty, investor confidence and the need to revisit closed transactions.

While the ATO has indicated the proposals broadly reflect its longstanding administrative view, the draft goes beyond clarification and may materially change outcomes for taxpayers who relied on narrower interpretations of TARP.

Consultation on the exposure draft closes on 24 April 2026.

The Bottom Line

Although the measures remain in draft form, the pathway is clear. Given the proposed retrospective reach and the expanded 12‑month PAT window, affected groups should consider assessing exposure

Taxpayers  with exposure to Australian mining, energy, infrastructure or other land‑connected businesses should consider obtaining advice now on both prospective transactions and historical structures to identify and manage potential tax risks early.

If enacted substantially in its current form, the reforms would represent a significant widening of Australia’s foreign resident CGT regime. The key pressure points are the broader TARP definition, the extended PAT testing window, the treatment of mining information and the retrospective reach to 2006 all of which have the potential to affect transaction pricing and compliance expectations.

Next Steps

Practical next steps include:

  • reviewing asset profiles to identify land‑connected assets, fixed installations, resource rights and information that may fall within an expanded TARP definition,
  • re‑running land‑rich and valuation analyses on a preceding 365 day basis,
  • revisiting historical transactions or restructures where outcomes depended on a narrower determination of real property,
  • updating sale processes and diligence scopes of work and transaction documents to reflect increased withholding and declaration risk.

In the meantime, please visit our website for more information and contact our team for tailored advice on how this proposal might affect your business.

Authors

Michelle Saunders, Managing Director April Sacco, Associate Director

This newsletter is current as of 23 April 2026, however, please note that announcements and changes are being made by the Government and the ATO regularly, and we expect that the tax and business-related responses will continue to evolve.  Before acting upon the content of this newsletter, please contact us to discuss how the above applies to your specific circumstances.

This information is general advice only and neither purports, nor is intended to be advice on any particular matter.
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