BDO submission on proposed reforms to the foreign resident CGT regime
BDO submission on proposed reforms to the foreign resident CGT regime
BDO has made a detailed submission to Treasury in response to the exposure draft legislation proposing reforms to Australia’s foreign resident capital gains tax (CGT) regime, including changes to the scope of taxable Australian real property, the principal asset test and foreign resident CGT withholding rules.
While we acknowledge Treasury’s stated objective of providing greater clarity and integrity in the operation of the foreign resident CGT rules, our submission identifies a number of significant policy, practical and compliance concerns that warrant further consideration before the legislation is finalised.
Key themes in BDO’s submission
Retrospective application of the proposed changes
A central concern is the proposed retrospective application of aspects of the legislation back to 12 December 2006, when Division 855 was first introduced. We consider that retrospective tax legislation of this scale creates significant uncertainty and sovereign risk for foreign investors who have structured investments based on the law and publicly available guidance at the time.
We recommend that, as a matter of sound tax policy, the proposed changes apply prospectively, or at a minimum only from the date of announcement. If retrospectivity is retained, statutory limits should be imposed on the Commissioner of Taxation’s period of review to provide certainty to taxpayers.
Administrative complexity and increased compliance burden
The proposed amendments introduce substantial additional compliance obligations for both vendors and purchasers, particularly in relation to:
- Notification requirements for transactions (including related transactions) with an aggregated value of $50 million or more
- Tighter timeframes and procedural requirements associated with non‑IARPI vendor declarations
- A heightened, objective knowledge test for purchasers relying on vendor declarations.
We are concerned that these measures go beyond what is necessary to address integrity risks and may delay or discourage ordinary commercial transactions.
Expanded definition of real property
The exposure draft proposes to broaden the definition of ‘real property’ to include any interest in, or right over, Australian land, as well as assets installed on land. In our view, the breadth of this definition creates additional uncertainty and risks capturing assets not intended to fall within the policy scope of foreign resident CGT.
The retrospective application of this expanded definition further exacerbates these risks, particularly for foreign investors with historical or long‑term investments.
Changes to the principal asset test
The proposed shift from a point‑in‑time test to a 365‑day testing period under the principal asset test raises serious practical concerns. Vendors would be required to monitor and substantiate market values of assets over a continuous period, potentially requiring multiple historical valuations.
We question the need for this additional integrity measure, given existing anti‑avoidance rules already address asset manipulation concerns. We consider the proposed approach to be costly, complex and disproportionate to the integrity risk it seeks to address.
Renewable energy CGT discount
We welcome the proposed transitional 50 per cent CGT discount for certain disposals of Australian renewable energy assets by eligible foreign residents. However, we consider the eligibility criteria to be overly restrictive, particularly the requirement that at least 90 per cent of an entity’s taxable Australian real property value be attributable to renewable energy assets.
We also note that a sunset date of 30 June 2030 may be inconsistent with the long investment horizons typical of renewable energy projects and Australia’s longer‑term emissions reduction targets.
Need for further guidance and consultation
Given the breadth and significance of the proposed changes, we strongly advocate for further consultation with stakeholders and clearer legislative guidance, including practical examples, before the reforms are enacted. Additional consultation would help ensure the rules operate as intended, without discouraging foreign investment or imposing unnecessary compliance costs.
Download the submission
A full copy of BDO’s submission on the exposure draft legislation is available for download below.
How BDO can help
Contact your local BDO adviser from our tax services team if you would like further information on our submission or to discuss the proposed foreign resident CGT reforms or their potential impact on your business or investments.