07 July 2026
6 min read
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The Australian Government has taken a significant step towards reforming its foreign resident capital gains tax (CGT) regime, introducing the Treasury Laws Amendment (Strengthening Accountability for Tax Adviser Misconduct and Othe Measures) Bill 2026 (Bill) into Parliament following its exposure draft legislation in April 2026 (exposure draft). The reforms aim to strengthen the current framework and have important implications for foreign investment in Australian land, infrastructure and energy assets.
The most contentious feature of the exposure draft was the proposed retrospective application of an expanded definition of ‘real property’ to CGT events occurring on or after 12 December 2006, the date on which Division 855 of the Income Tax Assessment Act 1997 (Cth) (ITAA 97) commenced. The Bill now removes that element – a significant departure from the exposure draft.
This article explains what has changed, whether the change is welcome, how effective it is likely to be, and what it means for accountants and investors.
The central change introduced in the Bill is that the expanded ‘real property’ definition will apply prospectively only. Under the exposure draft, three limbs of that definition, being interests in or rights over land, things fixed to land for most of their useful life, and leases of such things, were to be backdated to 12 December 2006. That backdating has now been removed. The expanded definition will now apply only to CGT events occurring on or after commencement, being the first 1 January, 1 April, 1 July or 1 October after the Bill receives Royal Assent.
The Bill also includes a statutory safeguard. Rather than leaving the treatment of historical disposals to administrative discretion, as the Commissioner's April 2026 statement had done, the Bill legislates that the Australian Taxation Office (ATO) cannot reopen historical foreign resident CGT assessments outside the standard amendment periods. The only exceptions are where fraud or evasion is involved, or where a review, objection or appeal was already on foot before 10 April 2026, when the exposure draft was released. By putting this protection into legislation, the Bill gives taxpayers a level of certainty that an administrative position, which the ATO can change, does not.
The remainder of the package is largely unchanged and continues to broaden the CGT base prospectively.
The Bill retains a statutory definition of ‘real property’ based on Commonwealth law, displacing reliance on state and territory severance provisions and capturing interests in and rights over land, things fixed or installed on land for the majority of their useful life, certain licences and contractual rights, and leases of such things.
The draft legislation also brings water entitlements and options within taxable Australian real property (TARP). It replaces the point-in-time principal asset test (PAT) with a 365-day lookback, and continues to address the treatment of mining, quarrying or prospecting information in the PAT. The Bill also retains the notification regime and the objective purchaser knowledge standard for disposals of AU$50 million or more, and the treaty alignment of ‘real property’ and ‘immovable property’, which applies prospectively.
The time-limited 50% CGT discount also remains for eligible foreign residents, being companies and trustees of foreign trusts but not individuals, disposing of Australian renewable energy assets before 30 June 2030, subject to the 90% threshold for indirect disposals.
Yes. The removal of retrospectivity addresses the most criticised element of the reforms.
The prospect of assessments issued on disposals completed up to two decades ago, in many cases without the protection of the four-year amendment period because no Australian return had been lodged, was widely characterised as introducing sovereign risk and undermining confidence in Australia as a stable investment destination. Professional bodies and the international investment community pressed for prospective operation, which the government adopted. The statutory amendment period protection is a further improvement, because it replaces a discretionary compliance posture with a legislated limit.
However, the change only goes so far. The Bill still expands the forward-looking CGT base considerably, but removing retrospectivity does not resolve concerns about the breadth of the ‘real property’ definition, the compliance burden of the 365-day PAT, the narrow reach of the renewable energy concession, or the asymmetry between managed investment trust (MIT) structures and other holding structures. The change also does not address the criticism of the compressed two-week consultation on the exposure draft.
On its own terms, the change is effective. It removes the retrospective liability that caused the greatest concern and gives certainty to parties who completed disposals under the law as previously understood, including the position confirmed in YTL Power Investments Limited v Commissioner of Taxation [2025] FCA 1317 and Newmont Canada FN Holdings ULC v Commissioner of Taxation (No 2) [2025] FCA 1356. A legislated protection is more durable than the administrative statement it replaces.
However, its effectiveness is bounded. The safeguard preserves exposure for taxpayers whose matters were already under review, objection or appeal before 10 April 2026, and for cases involving fraud or evasion, so those with live disputes gain no relief. More fundamentally, the change does not narrow the prospective expansion. From commencement, economic exposure to Australian land, infrastructure, energy and resources will generally fall within the CGT net on exit, and the concerns about valuation, compliance cost and competitiveness for infrastructure capital remain.
Overall, the change restores fairness and certainty for the past but does not soften the substantive reform going forward.
For historical disposals, the immediate exposure is largely removed. Completed pre-commencement disposals are protected unless they fall within the fraud or evasion exception or were already in dispute before 10 April 2026. Reviews of historical positions remain prudent for clients in those categories, but the general population of past transactions can now be approached with far greater confidence.
For current and prospective investment, the analysis is unchanged. The expanded TARP definition, the 365-day PAT and the notification regime, apply from commencement. Structures, exit models and asset valuations should be built on the assumption that land-connected gains will be taxable on exit, and transaction documentation should accommodate the notification mechanics and the objective due diligence now required of purchasers on disposals of AU$50 million or more. Fund managers holding Australian assets in offshore structures will need continuous monitoring to satisfy the 365-day PAT rather than a single calculation at disposal.
For renewable energy investors, the 50% discount remains a use-it-or-lose-it opportunity until 30 June 2030. Eligibility, and particularly the 90% threshold for indirect disposals, should be assessed now, especially for integrated generation and storage projects where the storage component may take the entity below the threshold.
As commencement is tied to the first quarter after Royal Assent, the window to prepare is short. Foreign investors with Australian exposures, and their advisers, should confirm their position on both historical and prospective disposals without delay.
If you would like to discuss how the proposed reforms or Bill may affect your investments or transactions, please contact us here.
Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.
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