Significant Capital Gains Tax amendments are coming

Overview 

In the Federal Budget handed down on 12 May 2026, the Government re-announced its proposed measures to strengthen the foreign resident CGT regime, as outlined in the widely debated exposure draft legislation which was released by the Australian Commonwealth Treasury on 10 April 2026.

If the proposed changes are legislated as currently drafted, we consider the key tax implications for foreign investors to be:

• Expanded tax base: Assets subject to Capital Gains Tax (CGT) for foreign investors will be expanded beyond real property to also include assets "fixed or installed" on land - such as wind turbines, solar panels, data centres, and mining equipment. Licences, interests and rights over these assets are also included. Proposed amendments explicitly disregard State "severance" laws that treat such items as personal property.
  
• No grandfathering: There is no grandfathering carve-out for disposal of Australian assets acquired before the proposed amendments, which are to apply from the quarter after Royal Assent to the legislation. 
  
• Retrospective from 12 December 2006: Proposed amendments are intended to apply from 12 December 2006 for part of the expanded tax base: interests or rights over land, things fixed to land (not merely installed), to be situated on the land for the majority of its useful life, and leases of those things. 
  
• 365-day testing for real property principal asset test (PAT): Testing foreign investor non-portfolio membership interests has been expanded from point-in-time testing to the 365-day period preceding the CGT event. Mining information is also included for the IARPI test – indirect Australian real property interests. 
  
• Notifications to the Tax Office: Foreign sellers will be required to notify the Tax Office where the share sale value is $50 million or more, and the seller intends to declare the membership interests are not IARP. 
  
• Limited transitional relief: Transitional relief is a 50% CGT discount but is only available for eligible renewable energy assets for qualifying investors until 30 June 2030.

The proposed amendments are likely to affect foreign tax residents with current or historic investments connected to Australian real property assets, particularly land-based assets, and those contemplating future acquisitions, restructures and disposals. The draft legislation arguably creates uncertainty regarding historic and current transactions, valuations and due diligence processes.

This article highlights key elements of the draft legislation, draws attention to the potential consequences foreign investors may face, and outlines the next steps for affected foreign tax residents.

Proposed amendments

Expanding and clarifying - the definition of Taxable Australian Real Property (TARP) 

The draft legislation defines real property to further encompass:

• rights and interests over land; 
  
• personal rights to call for or be granted an interest in land;  
  
• contractual rights and licences over land;  
  
• things fixed or installed on land; and 
  
• leases, contractual rights and licences over such fixed or installed things on land assets.

In line with the new proposed definition of real property, the definition of TARP will be expanded and will explicitly encompass:  

• assets with a close economic connection to Australian land and/or natural resources;  
  
• water entitlements relating to water resources located in Australia; and 
  
• options or rights to acquire CGT assets over TARP assets.

The definition of TARP will still encompass mining, quarrying and prospecting rights.

The proposed new definition will apply retrospectively to CGT events occurring on or after 12 December 2006, in relation to some aspects of the expanded definition. The retrospectivity claims to be in response to attempts by the Tax Office to extend TARP being rejected by the Full Federal Court in YTL Power Investments Limited v FCT [2025] FCA 1317 and Newmont Canada FN Holdings ULC v FCT [2025] FCA 1356.

The retrospective application of the intended definition raises significant concerns regarding the tax treatment of historic transactions. Although characterised as a clarification by the Australian Treasury, the proposed amendments create a risk that historical transactions that were completed in good faith may be retrospectively re-examined pursuant to a materially different tax interpretation.

Re-examining transactions dating back to 2006 elevates the risk of disputes, substantially increases compliance costs and diminishes confidence in the stability and predictability of the Australian market.

Aligning the principal asset test with OECD standards (365-day test) 

At present, the Principal Asset Test (PAT) is applied at a single point in time just prior to the CGT event. The draft legislation aims to replace this with a 365-day look-back period, highlighting that a foreign resident’s non-portfolio membership interest can be Indirect Australian Real Property Interest (IARPI) if more than 50% of the market value of the entity’s assets are attributable to TARP at any point in time in the 365 days preceding the CGT event. This is intended to deter entities from altering asset values or asset compositions prior to the sale in pursuit of avoiding satisfying the PAT.  

Furthermore, the draft legislation intends to include mining, quarrying and prospecting information (MQPI) in the PAT calculation. Although MQPI is not TARP, the Treasury acknowledges that it is vital to the market value of mining, quarrying and prospecting rights, which are TARP and henceforth should be valued together, in line with the market valuation approach employed in Commissioner of Taxation v Resource Capital Fund III LP [2014] FCAFC 37. Importantly, the draft legislation does not aim to characterise MQPI as TARP, however it mandates the value of MQPI to be considered for the purposes of PAT.

It is important to note that the current foreign CGT framework already contains an integrity provision, constructed to address the issue of asset manipulation, highlighting that this specific proposed amendment may heighten tax dispute risks and valuation uncertainties.

New notification rules for large transactions 

The draft legislation establishes a new notification framework for foreign residents disposing of membership interests, where:

• the aggregated transaction value is AU$50 million or more, a foreign resident vendor disposing of membership interests, who further declares that the interests are non-IARPI, must also notify the Commissioner of Taxation in the approved form, within the required timeframe, of the transaction. Without this notification, the vendor declaration will be held invalid, and the purchaser will be required to apply foreign resident CGT withholding.  

The amendments also change how false or misleading declarations are assessed. Rather than assessing whether the purchaser knew the declaration was false (a subjective test), the new rules apply an objective test: whether a reasonable purchaser could conclude that the declaration is false. 

The proposed amendments also intend to increase the expectations of the purchaser’s due diligence procedures and processes in large transactions and extend false or misleading declaration penalties.  

CGT Discount for Renewable Energy Assets  

The Australian Treasury has also released separate draft legislation providing for a 50% CGT discount for certain foreign residents disposing of eligible Australian renewable energy assets or qualifying indirect interests in these types of assets. This time-limited discount applies to CGT events from commencement until 30 June 2030.  

The discount will apply to capital gains arising from CGT events encompassing:

• direct disposals of Australian renewable energy assets; or 
  
• indirect disposals of membership interests in an entity where at least 90% of the entity’s TARP consists of renewable energy assets.

In terms of definitions, an Australian renewable energy asset is defined as a CGT asset where:

• it is a TARP asset; and 
  
• has the primary purpose of generating or directly facilitating the generation of electricity in Australia using an eligible renewable energy source, pursuant to the Renewable Energy (Electricity) Act 2000, whether the generation occurs currently or is yet to occur in the future. 

Most importantly, this discount is available only to foreign residents other than individuals, encompassing corporate entities and trustees of foreign trusts.  

Next steps 

The draft legislation amendments were subject to consultation, with submissions closing on 24 April 2026. Upon finalising the amendments, the Government will introduce the Bill to Parliament and aim to effectuate the amendments on the first 1 January, 1 April, 1 July or 1 October after Royal Assent, with certain amendments applying to CGT events from commencement, while certain amendments regarding real property will apply retrospectively from 12 December 2006.

Current measures to be taken 

Foreign investors should:

• Review existing and proposed transactions to assess whether certain assets may be within the scope of the foreign resident CGT framework now, which may previously have been outside the scope of the definition. 
  
• Complete due diligence for high value disposal related transactions.
• Consider eligibility for the renewable energy asset CGT discount. 

Contact us 

If you would like advice regarding the proposed foreign resident CGT amendments and renewable energy asset CGT discount, and the potential effect on your investments or upcoming transactions, please reach out to Crowe Australasia’s Tax Advisory team for further support and advice.  

Our Tax Advisory practice advises foreign investors on Australia’s CGT, withholding tax and cross-border transaction rules.