Strengthening the foreign resident CGT: Exposure draft legislation released

On 10 April 2026, Treasury released exposure draft legislation that builds upon the 2024–2025 Federal Budget announcements aimed at strengthening the foreign resident CGT regime in Division 855 of the Income Tax Assessment Act 1997 (Cth). The draft legislation seeks to clarify the capital gains tax (CGT) base for foreign residents, with certain changes applying retrospectively from 2006. At the same time, it introduces a specific, temporary concession for investments in renewable energy, which is available until 30 June 2030.

These proposed amendments are, in part, a response to longstanding uncertainty regarding the scope of “real property” for income tax purposes. This was most recently highlighted in Federal Court decisions such as YTL Power Investments Limited v Commissioner of Taxation [2025] FCA 1317 (YTL) and Newmont Canada FN Holdings ULC v Commissioner of Taxation (No 2) [2025] FCA 1356 (Newmont).

Foreign resident CGT reforms explained

A broader definition of taxable Australian real property

The proposed amendments clarify, and seemingly expand, the scope of assets subject to non-resident CGT by amending the definition of taxable Australian real property (TARP) through the:

• Introduction of a statutory definition of ‘real property’, and;
• Specific inclusion of water entitlement rights and an option or right to acquire a CGT asset that is TARP.

The current provisions in Division 855 do not define ‘real property’ for income tax law purposes, so the tax law has relied on its ordinary meaning. In the case of YTL, the state statutory severance provisions led the Federal Court to decide that electricity transmission assets did not constitute ‘real property’ under the ordinary meaning of the term.

The proposed definition of ‘real property’ for CGT purposes specifically includes: 

• Any interests in or rights over land (including leases, licences and contractual rights), and;
• Things (or a combination of things) fixed or installed on land for the majority of their useful life. 

Importantly, the proposed amendments clarify that the definition of ‘real property’ operates independently of state and territory property law. As such, any statutory severance rules that may treat certain fixtures or infrastructure as personal property, are not determinative for CGT purposes. 

The proposed amendments are likely to expand the classes of assets subject to CGT to include (non-exhaustively):

• Utilities
• Large-scale Infrastructure
• Transmission lines
• Substations
• Wind turbines
• Solar panels
• Large-scale battery energy storage systems
• Heavy machinery installed on land.

The policy intention is to cover equipment that is useful when fixed or installed on land in Australia as such equipment derives its value or utility from being situated on the land.

To balance these changes, and support investment into the Australian renewables sector as part of the energy transition, transitional 50 per cent CGT discount relief has also been announced.

The proposed amendments will also impact Australia’s double tax treaties as it is proposed that any reference to ‘real property’ will have regard to the domestic meaning referenced by these changes.

Retrospective clarification back to 2006

The proposed amendments which clarify that ‘real property’ is to operate independently from general, state and territory law applies retrospectively to CGT events from 12 December 2006 to the following asset classes:

• Any interest in or right over land situated in Australia
• A thing (or combination of things) that is fixed on land situated in Australia and is, or is reasonably expected to be, situated on the land for the majority of its useful
• A lease of a fixed thing described in the point above.

The retrospective application clarifies that the policy intention was that these assets were always meant to be within scope of CGT, regardless of how they were characterised under state or territory law (such as large-scale infrastructure facilities and network assets). 

An asset that is captured by the expanded definition of ‘real property’ on the basis that it is ‘installed on’ land does not have retrospective application.

Principal asset test aligned to Organisation for Economic Co-operation and Development (OECD) standards

In the draft legislation, the principal asset test (PAT), which determines whether an indirect interest is an indirect real property interest (IARPI), is expanded from a point‑in‑time test to one applied at any time during the 365 days preceding a CGT event. This proposed change is intended to address the integrity risk in situations where foreign residents could seek to avoid Australian CGT by altering the composition of an entity’s assets immediately before the CGT event, so that the PAT is not satisfied at the time of the CGT event.

The proposed amendments also clarify that the value of mining, quarrying and prospecting information is to be taken into account when valuing mining, quarrying and prospecting rights for the purposes of the PAT (but does not make the mining, quarrying and prospecting information TARP), stating that in practice, a valuer typically values both assets together.

New ATO notification and due diligence obligations for large transactions

For disposals of non‑IARPI membership interests with an aggregated value of A$50 million or more, foreign resident vendors must notify the ATO within a prescribed period when making a non‑IARPI vendor declaration to a purchaser. A non‑IARPI vendor declaration is ineffective if the notification is not to the ATO within the required timeframes. 

Purchasers also face a tougher due diligence process as the proposed amendments also lower the knowledge threshold for purchasers. Purchasers must consider whether they could reasonably be expected to know that a declaration is false, rather than relying solely on the vendor’s statement. This proposed amendment places a higher onus on purchasers to more actively consider ordinary due diligence results and readily available information rather than relying exclusively on vendor declarations which may be inaccurate.

Renewable energy asset CGT discount 

A transitional 50 per cent CGT discount is also proposed to be introduced for eligible foreign residents (excluding individuals) disposing of Australian renewable energy assets or qualifying indirect interests before 30 June 2030.

Assets must have the primary purpose of generating, or directly facilitating the generation of, electricity in Australia from eligible renewable energy sources.

Indirect interests must satisfy a stringent renewable energy asset test, requiring at least 90 per cent of underlying TARP value to relate to renewable energy assets. 

The discount operates independently of the general CGT discount rules and sits alongside the strengthened Division 855 framework. 

Navigating new CGT opportunities and challenges

The prospective elements of the amendments would apply to CGT events after the Bill receives Royal Asset. Once the Bill receives Royal Assent, the retrospective elements of the proposed amendments are to apply from 12 December 2006.

These proposed changes have the potential to significantly impact certain foreign investors in relation to historical sale transactions, as well as challenge the strategy and exit expectations on existing and proposed investments in Australia.

There is a short period of consultation on the proposed changes, and it remains to be seen to what extent the Government will consider updating the draft changes for feedback from industry and advisers.

With the current information available, we recommend foreign investors plan for the proposed amendments by undertaking the following practical steps:

• Consider how your Australian asset holdings would be classified against the new TARP definition 
• Revisit historic and upcoming transactions for potential exposure under the retrospective application of the proposed changes to the definition of ‘real property’
• Consider building 365‑day PAT monitoring or modelling into transaction readiness and exit planning – this is likely to be challenging in practice
• Update M&A playbooks to reflect new ATO notification and purchaser due diligence requirements
• Model renewable energy exits before and after 30 June 2030 to understand the value and limits of the CGT discount.

How BDO can help

If you have questions about how these proposed CGT amendments could affect your investments or require tailored guidance on navigating the changes, please reach out to your BDO tax adviser. Our corporate & international tax team is ready to support you through the consultation process and help you implement practical strategies for compliance and optimisation.