Sweeping tax changes for foreign residents – what all businesses and investors with tangible assets in Australia must know

New draft legislation would materially widen the Australian tax base for offshore companies disposing of interests in Australian assets and companies. The changes are more sweeping than anticipated, are partially retrospective (from December 2006 onwards), and create significant uncertainty for foreign investors. Offshore businesses and investors should review their Australian tax affairs immediately.

The CGT changes in a nutshell

The proposed amendments represent a significant shift in Australia’s foreign resident CGT regime, with key implications for offshore entities including:

• A significantly lower threshold for Australian tax for foreign investors in Australian assets.

• Additional diligence obligations including on the buyer.

• Additional tax compliance costs of dealing with more complicated tests and 365-day testing periods for valuations.

• Transactions going back to December 2006 could be audited generating large tax bills, penalties and protracted litigation.

The bottom line for foreign investors

Foreign investors disposing of interests in Australian tangible assets should critically assess their tax positions. With aspects of the new legislation proposed to apply retrospectively, historical transactions previously not subject to income tax in Australia may also be caught.

Clayton Utz tax lawyers have deep experience in non-resident Australian tax issues and can assist you in navigating these proposed changes.

The CGT consultation

On 10 April 2025 the Federal Government released draft legislation to update the foreign resident CGT regime. The devil, as always, is in the detail.

The draft legislation is further to measures announced in the 2024-25 Budget and feedback from public consultation in July to August 2024. It was flagged the updated legislation would:

1. clarify and broaden the types of assets that foreign residents are subject to Australian CGT on;

2. amend the point in time principal asset test (PAT) to a 365- day test period; and

3. require foreign residents disposing of certain shares and other membership interests to notify the ATO prior to the transaction being executed.

It is the how that is problematic for foreign investors.

There is some – albeit little – relief for foreign investors who contribute to the growth of Australia's renewable energy sector. A 50% CGT discount is proposed to be introduced for foreign residents selling Australian renewable energy assets. This is a transitional time limited concession (applying to CGT events happening from commencement to 30 June 2030). Renewable energy investments have historically not always been considered to be taxable Australian real property (TARP).

Consultation on the proposed legislation closes on 24 April 2026, indicating the Federal Government intends to move quickly.

"Real property" is now legislatively defined

Forming part of the definition of TARP, and applying across Australia's income tax law, this is a monumental change for the following reasons:

• Previously, real property was not specifically defined for most purposes of the tax law (other than for GST) and the tax law relied on its ordinary meaning. Recent court decisions including Newmont [2025] FCA 1356 (in which Clayton Utz acted for Newmont), RCF IV ([2019] FCAFC 51 (in which Clayton Utz acted for RCF), La Mancha [2020] FCA 1799 (in which Clayton Utz acted for La Mancha, and YTL ([2025] FCA 1317) illustrate the complexity involved in applying general law principles to fixtures, mining tenements and plant and equipment.

• A significant diversion from case law, the proposed definition of real property includes "a thing (or combination of things) that is fixed or installed on the land that is, or is expected to be, fixed or situated on land for the majority of its useful life". This includes things like utilities infrastructure, transmission lines, substations, wind turbines, solar panels, large-scale battery energy storage systems and heavy machinery installed on land whether or not they are fixtures at general law.

• It is made express that the State and Territory severance provisions are to be disregarded in determining whether something is or is not real property. Previously, if under State legislation mining plant and equipment was to be removed at the expiry of a lease, the equipment would be considered a chattel. This is no longer the case.

The new "real property" definition applies retrospectively

Part of the new definition applies to CGT events occurring on or after 12 December 2006. This change is material and unanticipated.

Treasury says that the new definition of "real property" merely enshrines what was "intended" as distinct from the "actual operation of the foreign resident CGT base". However, there is extensive case law on the definition of "real property" that has not changed markedly since 2006 so this proposed change is an unexpected broadening of the Australian tax base that might well surprise and worry foreign investors. The retrospective application of the definition will be heavily contested by practitioners in the consultation on the basis of procedural fairness to taxpayers.

Mining information is not TARP (but it is)

A back door has been used to extend the definition of real property to include the intangible asset that is mining, quarrying or prospecting information (MQPI).

Treasury's position is that MQPI is integral to the market value of mining, quarrying and prospecting rights (which are TARP), and the values are inextricably linked and co-dependent. On this basis, value attributable to MQPI is now proposed to be taken into account when calculating the value of TARP assets for the purposes of applying the Principal Asset Test.

Accordingly, Australia will not seek to tax MQPI directly, but MQPI can inflate TARP interests over the relevant 50% threshold under the PAT, and Australia can tax capital gains made on the shares or units (as applicable). Whether this approach is permissible under Australia's Tax Treaties will need to be closely scrutinised.

Purchasers face a higher due diligence threshold for CGT declarations

Under the current law, purchasers can rely on non-IARPI declarations provided they do not know the declaration to be false. It is a subjective test.

The new test proposed places a higher onus on purchasers. To rely on the non-IARPI declaration, at no time between being provided the declaration and becoming the owner of the CGT asset can the purchaser know, or reasonably be expected to know, the declaration to be false. This requires purchasers to more actively consider ordinary due diligence results and readily available information rather than rely exclusively on vendor declarations which may be inaccurate.

This could be problematic in cases involving non-IARPI declarations where valuations of TARP are difficult or uncertain. Some interrogation of the Seller's position will now be required.

Transitional relief for foreign investors selling Australian renewable energy assets

To qualify for the CGT discount, the foreign investor must be disposing of an asset that:

• is an Australian renewable energy asset; or

• is a membership interest that passes the renewable energy asset test. This requires 90% or more of entity's TARP assets to be related to Australian renewable energy assets.

An Australian renewable energy asset is defined as a CGT asset that is taxable Australian real property; and has the primary purpose of generating, or directly facilitating the generation of electricity in Australia using an eligible renewable energy source, whether the generation occurs presently or is to occur in the future.

This picks up assets not yet under construction or only partly constructed that are genuinely intended to be used to produce electricity from an eligible renewable energy source. It also picks up batteries that are essential for the generation of renewable electricity.

Implications beyond capital gains tax

Though styled as changes to Australia's capital gains tax rules, the changes expand (and arguably override) the definition of "real property" for the purposes of Australia's Tax Treaties which apply to both income and capital gains. The practical effect is that Tax Treaty relief may now be denied in a broad range of circumstances.

Practitioners will also be interrogating whether this is permissible under Australia's Tax Treaties and also whether Australia’s Tax Treaty partners would accept this unilateral expansion of Australia's tax base.