Draft law: Proposals to broaden Australia’s foreign resident CGT regime, with transitional CGT concession for renewables

At a glance

• Draft legislation proposes significant changes to Australia’s foreign resident capital gains tax (CGT) regime to:
  • Clarify and broaden the definition of taxable Australian real property (TARP)
  • Modify the principal asset test for indirect interests
  • Introduce enhanced notification and withholding integrity measures.
• Some proposals will apply retrospectively from 2006.
• Further draft legislation would introduce a targeted, time‑limited 50% CGT concession for gains on eligible foreign investments in Australian renewable energy projects.

On 10 April 2026, the Australian Treasury released two exposure draft (ED) Bills and explanatory memorandums (EMs) for public consultation, to implement measures announced in the 2024–25 Federal Budget which clarify and broaden Australia’s capital gains tax (CGT) rules for foreign investors. The proposed measures have both prospective and retrospective effect.

The ED for the 2024-25 Budget measure, Treasury Laws Amendment Bill 2026: Strengthening the foreign resident CGT Regime, would amend the foreign resident CGT framework in Division 855 of the Income Tax Assessment Act 1997 (ITAA 1997), to clarify and broaden the types of CGT assets falling within “taxable Australian real property” (TARP) and to amend the point in time principal asset test (PAT) for taxing indirect Australia real property interests (IARPI). It will also limit purchaser’s ability to rely on vendor declarations and impose new vendor notification requirements for certain large CGT asset disposals. The ED follows a Treasury discussion paper issued in July 2024.

The proposed measures are a material change to the foreign resident CGT regime. They would commence on the first of 1 January, 1 April, 1 July or 1 October after Royal Assent, with a modified expansion of TARP proposed to apply to CGT events occurring on or after 12 December 2006.

The proposed retrospective amendments, clarifying TARP’s scope since Division 855 began in 2006, may significantly affect foreign investors. These reforms could require extensive reviews of previous positions, administrative decisions and compliance. Although meant to resolve ambiguities, the retrospective approach raises concerns about reassessment of completed transactions, investor certainty and unintended tax consequences.

The second ED, Treasury Laws Amendment Bill 2026: Renewable energy asset discount capital gains for foreign residents, is a new measure which would introduce a time-limited targeted 50% CGT discount for gains from eligible foreign investments in Australian renewable energy projects. This is a transitional measure available from commencement of the new law, from the first of 1 January, 1 April, 1 July or 1 October after Royal Assent, until 30 June 2030.

The consultation period for both ED Bills closes on 24 April 2026.

Stakeholders, including foreign investors, infrastructure and energy sector participants, and custodians, managed funds and other investment intermediaries, should thoroughly review the EDs. They should assess how the new rules may impact both future and historical transactions and consider making submissions to Treasury to raise questions, seek clarification, or address any concerns about unintended consequences or compliance requirements.