Recent and proposed changes to Australia’s tax framework will materially affect the economics of infrastructure investment. This article summarises the key developments:
- Foreign investors face a significant expansion of the capital gains tax (CGT) rules which would capture a broad range of infrastructure assets, with potential retrospective application to disposals dating back to 2006. Historical disposals may be revisited where no Australian tax return was lodged and, as a result, the four-year limitation period has not commenced.
- There have been no corresponding changes to the managed investment trust (MIT) rules to expand concessions for foreign infrastructure investors. This creates a growing mismatch between the assets brought within Australia’s CGT net and the vehicles through which foreign capital typically invests.
- Domestic investors (except for Australian superannuation funds) will lose the 50% CGT discount from 1 July 2027, replaced by cost-base indexation and a new 30% minimum tax on capital gains, with material implications for the after-tax economics of infrastructure asset disposals.
- Infrastructure investors using discretionary trust structures will be subject to a separate 30% minimum tax on trust distributions from 1 July 2028. Where corporate beneficiaries are involved, this could result in an effective tax rate of up to 51%.
- The reformed thin capitalisation regime – introduced in 2024 and now the subject of a Board of Taxation statutory review – continues to present material compliance challenges for infrastructure and renewables participants. Inbound and cross-border infrastructure structures are more likely to encounter debt deduction denial, third party debt test access constraints and volatility in tax EBITDA outcomes.
The combined effect of these measures is more than the sum of their parts. Foreign investors face a broader (and partly retrospective) CGT base, potential exposure to a 30% ordinary-rate tax cost, no corresponding expansion of MIT concessions, and increased financing friction under the thin capitalisation rules.
Australian superannuation funds sit on the other side of that ledger. They retain the one-third CGT discount, are not directly affected by the discretionary trust minimum tax, and can often participate in infrastructure investments without the same inbound financing constraints. In a sector where valuations are highly sensitive to tax leakage, debt deductibility and exit assumptions, this represents a material competitive advantage. As a result, Australian superannuation funds are likely to occupy a stronger relative position in infrastructure bids, co-investments and secondary market exits.
Below, we outline each of these developments and identify the key steps infrastructure investors should be considering now.
Foreign resident CGT reforms – proposed expansion of the tax base for infrastructure assets
The exposure draft legislation amending Australia’s foreign resident CGT regime was issued by Treasury on 10 April 2026 (Exposure Draft). Treasury’s consultation for the Exposure Draft amendments closed on 24 April 2026. The Treasurer reiterated the Government's commitment to these measures in the 2026/2027 Australian Federal Budget on 12 May 2026.
Overview of the proposed changes
Capital gains and losses made by foreign residents holding assets on capital account are disregarded unless the CGT event happens in relation to assets that are taxable Australian property (TAP). TAP includes taxable Australian real property (TARP) and an indirect Australian real property interest (IARPI) (i.e. a membership interest in an entity, the underlying value of which is principally derived from TARP).
The Exposure Draft proposes a significant expansion of the CGT rules applicable to foreign investors. A detailed analysis of the Exposure Draft is available here, however key features are as follows:
- The Exposure Draft introduces a statutory definition of “real property” which significantly broadens the scope of TARP. Relevantly, “real property” will capture anything that is fixed or installed on Australian land for the majority of its useful life. This means that infrastructure assets such as wind turbines, solar panels, batteries, transmission towers, rail networks, ports, airports, and mining equipment, regardless of whether they are legally classified as "fixtures", will be classified as TARP. The definition also extends to any lease, licence or contractual right exercisable over such assets.
However, this expansion is not accompanied by corresponding changes to the definition of “eligible investment business” under the MIT regime. This creates a material asymmetry in a framework designed to facilitate foreign investment in critical industries.
The MIT rules were introduced to encourage foreign investment in Australian assets by providing certainty and concessional tax outcomes for qualifying trusts and their investors. These concessions include deemed capital account treatment for certain “covered assets” and concessional withholding tax rates for MITs that undertake substantial investment management activities in Australia. A key requirement for MIT status is that a trust must not carry on or control a trading business outside of “eligible investment business.” Relevantly, investing in land primarily for the purpose of deriving rent is a core category of “eligible investment business”, underpinning MIT eligibility for many renewable energy, property and infrastructure investments.
The Exposure Draft’s broadened definition of real property, without corresponding amendments to “eligible investment business”, may therefore produce unintended outcomes. For example, a MIT holding wind farms, solar installations or battery assets could be required to withhold tax on gains that are no longer disregarded under Division 855 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997), while simultaneously being unable to access MIT concessions because its activities fall outside the current definition of “eligible investment business”.
Given the significant level of renewable energy investment structured through trusts that would otherwise qualify as MITs, this misalignment risks undermining Treasury’s policy objective of encouraging foreign investment in the renewables sector.
- The test for whether a foreign investor's indirect interest in an entity (shares or units of 10% or more) is taxable is also changing. The principal asset test will move from a point-in-time assessment to a 365-day rolling test. If Australian real property held by the entity exceeds 50% of total assets at any point during the year before sale, the disposal gives rise to an assessable capital gain. Given the significantly broadened definition of real property, many infrastructure vehicles that were not previously considered "land-rich" will now exceed this threshold.
- Some aspects of the expanded definition are proposed to apply retrospectively to CGT events on or after 12 December 2006. This retrospectivity is proposed to apply to the following categories of real property:
- any interest in or right over Australian land, regardless of how those interests or rights are characterised under State or Territory law;
- a thing (or combination of things) fixed (not merely installed) on Australian land that is, or is reasonably expected to be, situated on the land for the majority of its useful life, regardless of whether it is a fixture or treated in some other way under State or Territory law or at general law; or
- a lease of a thing described in the second bullet above.
Foreign investors who disposed of Australian infrastructure assets during this period without paying CGT, on the basis that the assets were not "real property", may now be subject to assessment. This is because they would not have lodged a return and are therefore not protected by the four-year limitation period.[1]
- For disposals of membership interests valued at A$50 million or more, a foreign vendor must notify the Australian Taxation Office (ATO) in an approved form where the vendor intends to make a declaration that the membership interests are not IARPI. Purchasers must withhold at 15% if they know, or could reasonably be expected to know, that the declaration was false at any time prior to acquiring the asset – an objective standard replacing the current subjective "actual knowledge" test. These requirements will add materially to the due diligence and compliance burden in infrastructure M&A transactions.
Renewable energy concession
A limited transitional 50% CGT discount is proposed for qualifying disposals of Australian renewable energy assets until 30 June 2030. The asset must have the “primary purpose” of generating electricity from an “eligible renewable source”, being energy derived from natural sources including but not limited to hydro, wind and solar, and excluding fossil fuels and materials or waste products derived from fossil fuels. The “primary purpose” requirement is a significant gateway condition. Pre-development and development-stage assets where surrounding circumstances do not sufficiently and objectively demonstrate their intended use to be limited to renewable electricity generation, as well as mixed-use renewable platforms, may not pass this threshold.
For indirect disposals, at least 90% of the entity's TARP value must be attributable to Australian renewable energy assets. General electricity transmission infrastructure (e.g. poles and wires) may impact the 90% market value threshold in an unfavourable way.
Therefore, while this concession may be attractive for foreign corporate investors and foreign trust structures disposing of qualifying Australian renewable energy assets before 30 June 2030, there are practical constraints that mean eligibility will need to be tested carefully rather than assumed.
Removal of the 50% CGT discount – impact on exit economics
This change was announced in the 2026/2027 Australian Federal Budget on 12 May 2026 and forms part of the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 (the Bill) which was introduced into the House of Representatives on 28 May 2026 as framework legislation. Our update regarding the Bill is available here.
The Bill has been referred to the Senate Economics Legislation Committee, which is due to report on 22 June 2026. The Government is expected to seek passage through the Senate during the sitting fortnight of 22 June to 2 July 2026.
Overview of the proposed changes
From 1 July 2027, the 50% CGT discount for individuals, trusts, and partnerships will be replaced by cost-base indexation. Under this method, the cost base of an asset is adjusted upwards by reference to the Consumer Price Index (CPI) over the holding period, so that tax is payable only on the real (inflation-adjusted) gain. A 30% minimum tax will also apply to net capital gains from 1 July 2027, ensuring that gains cannot be taxed below that rate regardless of the investor's marginal rate.
The changes will apply to all CGT assets held by individuals, trusts, and partnerships, including pre-1985 CGT assets which will be brought into the CGT regime for the first time in respect of gains accruing from 1 July 2027.
Superannuation funds will retain the existing one-third CGT discount and are not directly affected by the removal of the 50% discount for individuals, trusts and partnerships. Companies are also unaffected, as they were never eligible for the 50% discount.
There remains significant uncertainty with the Bill not addressing, for example, how the proposed changes to the CGT regime will affect MITs and Attribution Managed Investment Trusts (AMITs). Further detail is likely to come in a later tranche of legislation.
What this means for infrastructure investors
The practical effect on infrastructure exit economics depends on the rate of return on the asset, the rate of inflation over the holding period, and the investor's marginal tax rate. The Government's modelling indicates that investors earning returns marginally above, at or below the rate of inflation will pay less tax under indexation than under the current discount. However, investors earning above-inflation returns, as is typical for performing infrastructure assets, will in most cases pay more tax.
To illustrate: under the current 50% discount, the effective top rate on a long-term capital gain for an individual or trust is approximately 23.5% (being 50% of the 47% top marginal rate). Under the new regime, the 30% minimum tax means the effective rate cannot fall below 30%, and may approach the taxpayer’s marginal rate. A complying superannuation fund, by contrast, generally remains taxable at 10% on discounted long-term capital gains. That differential is material in competitive bidding, valuation and exit planning for long-duration infrastructure assets.
Expected investor behaviour in FY2027-FY2028
For infrastructure trusts making distributions to unitholders, capital gains components will become materially less attractive to affected individual investors from 1 July 2027. Investors can be expected to show a stronger preference for ordinary income (franked where relevant) or tax-deferred distribution components. Where infrastructure vehicles can influence realisation timing, there is a window to accelerate asset disposals or internal restructures before 1 July 2027 to capture the benefit of the existing discount.
In the period before 1 July 2027, investors can be expected to front-load disposals to utilise the 50% discount, including through realisation of embedded gains in unit portfolios and repositioning to utilise capital losses.
After 1 July 2027, the 12-month holding period will be less significant as a timing driver. Instead, investors' timing decisions will pivot to inflation dynamics, indexation benefits, and earnings visibility.
Transitional arrangements
The transitional rules are designed to limit the impact on gains that have already accrued. For assets held before 1 July 2027 and sold after that date, the gain will be split into two components: the gain accruing up to 1 July 2027, to which the existing 50% discount will continue to apply; and the gain accruing from 1 July 2027 to which indexation and the 30% minimum tax will apply. The asset's value as at 1 July 2027 must be determined by the taxpayer - either through a valuation or by using an ATO-approved apportionment formula.
This creates a practical imperative. Infrastructure investors should obtain valuations of their assets as at 1 July 2027 to establish the boundary between the two regimes. Infrastructure asset valuations typically lack readily observable market comparables and may require discounted cash flow modelling over long asset lives, sector and regulatory risk assumptions and consideration of contracted revenues and terminal values. There is significant scope for disagreement with the ATO on a 1 July 2027 valuation. Given the scale and complexity of infrastructure asset valuations, this process should be commenced well in advance.
30% minimum tax on discretionary trusts
This measure was announced in the 2026/2027 Australian Federal Budget on 12 May 2026.
Proposed legislation for this measure has not yet been released. The Government has indicated that key aspects will be finalised following consultation with stakeholders.
Overview of the proposed changes
From 1 July 2028, the Government will impose a 30% minimum tax on the taxable income of discretionary trusts, payable at the trustee level. This marks a fundamental departure from flow-through trust taxation principles and will require careful consideration by trustees and beneficiaries.
Non-corporate beneficiaries will receive a non-refundable credit for the tax paid by the trustee, meaning that beneficiaries on marginal rates below 30% will bear a higher effective tax burden than under the current flow-through regime. Corporate beneficiaries will receive no credit, effectively resulting in double taxation of trust income distributed to companies.
The measure will not apply to fixed trusts, widely held trusts, complying superannuation funds, special disability trusts, deceased estates, or charitable trusts.
Why this matters for infrastructure investment
At first glance, most institutional infrastructure investment is conducted through vehicles such as MITs, AMITs, and corporate structures that should fall outside the scope of this measure. However, infrastructure holding structures are frequently more complex than a single widely held trust, and it is likely that certain trusts within those structures will be caught.
The critical question is whether a particular trust qualifies as "fixed" or "widely held". The term "discretionary trust" has no settled statutory definition in the income tax legislation, and the boundary of the new regime will depend on the distinction between fixed and non-fixed trusts. This is a distinction that has been a matter of longstanding interpretive complexity in Australian tax law. Many trust deeds drafted with the intention of creating fixed entitlements contain variation powers, amendment clauses, or default provisions that may prevent interests from satisfying the existing statutory test. The ATO's current view is that very few trusts are genuinely "fixed".
Infrastructure groups that use subsidiary trusts, sub-trusts, or special-purpose vehicles within their investment structures should conduct a review. Trusts that have not elected into the AMIT regime, and therefore do not benefit from the deemed fixed trust status that an AMIT election confers, are particularly at risk. This may push affected trusts to elect into the AMIT regime where eligible.
Where the 30% minimum tax does apply, the consequences are significant. Tax-exempt, corporate, and superannuation fund beneficiaries will bear a real cost because the trustee-level tax is non-refundable (or, in the case of companies, the credit is denied entirely). For trusts distributing to other trusts in a loss position, the 30% minimum will still apply at the distributing trust level.
Restructuring window
The Government is providing expanded rollover relief for three years from 1 July 2027 to facilitate restructuring out of discretionary trusts into companies or fixed trusts. However, this relief does not address stamp duty, which remains a State-based impost and could be triggered by any transfer of interests in land-rich entities. For infrastructure groups with significant property holdings, the stamp duty cost of restructuring may be prohibitive.
Thin Capitalisation – financing friction compounds the foreign investor disadvantage
In addition to the above tax-base measures, the ongoing operation of the thin capitalisation regime presents separate but overlapping challenges for the infrastructure sector. They compound the tax-rate and CGT-base changes by increasing the risk that foreign and cross-border infrastructure vehicles will lose debt deductions or incur significant structuring costs to preserve them.
Australia’s thin capitalisation rules in Division 820 of the ITAA 1997 were fundamentally overhauled by amending legislation enacted in 2024. The practical operation of the new regime has given rise to significant compliance challenges, particularly for capital-intensive sectors including infrastructure, renewables, and real estate.
The Board of Taxation commenced its statutory review of the thin capitalisation amendments on 1 February 2026, with submissions having closed on 18 May 2026 and a final report expected by January 2027.
Issues and risks for the infrastructure sector
Infrastructure and renewable energy projects are characterised by high capital intensity, extended construction phases with limited operating revenue, and financing structures built around special purpose vehicles. Those features make debt deductibility central to after-tax returns. They also mean that foreign investors using offshore parent support, cross-border security, conduit finance or minority joint venture structures are likely to experience the reforms acutely. The core difficulties are summarised below.
The ATO has indicated that, as a general practice, it will not undertake reviews of disposals more than four years old. However, the ATO has also noted that where an older matter comes to its attention for other reasons, it may examine any retrospective implications. Accordingly, the suggestion that the ATO will typically limit its review period to four years may offer limited comfort to foreign investors.
|
Compliance challenge
|
Explanation
|
|
Third party debt test (TPDT) - access constraints for infrastructure structures |
The TPDT was intended as the primary test for genuine third-party project finance. However, its conditions - particularly the requirements that lenders have recourse only to “Australian assets” and that credit support not be provided by foreign associates - are incompatible with standard infrastructure financing practices, where parent guarantees and cross-border security packages are commonplace. Where the TPDT conditions are not satisfied for the entirety of an income year (including where there is a temporary or partial failure), the test denies all debt deductions for the relevant debt interest. There is no apportionment mechanism. The practical consequence is that infrastructure entities financed entirely by genuine arm’s length third-party debt may be denied the benefit of the test designed for their circumstances. Such entities must instead rely on the fixed ratio test (FRT), which may produce a materially lower deduction entitlement. |
|
Fixed ratio test (FRT) - adverse outcomes during construction phases |
Greenfield infrastructure and renewables developments will typically be in a tax loss position during construction, with zero or negative tax EBITDA. Under the FRT, interest deductions can be denied in these years even though the borrowing is commercially necessary. While the ability to carry forward for up to 15 years any net debt deductions that are denied or disallowed provides some theoretical relief, the time value of denied deductions during peak-debt years materially reduces after-tax returns and directly affects project feasibility assessments. |
|
Excess tax EBITDA cannot be shared in common joint venture structures |
Australian infrastructure and renewables investments commonly involve multiple investors holding between 10% and 50% interests in an underlying special purpose vehicle. Under the current rules, excess tax EBITDA in the investee can only be shared with an investor holding a thin capitalisation direct control interest of 50% or more. An investor with a 40% interest therefore cannot benefit from the investee’s unused debt capacity, and may be denied deductions in respect of its borrowings to fund the investment - even where the investee itself has significant unused capacity under the FRT. |
|
Tax EBITDA calculation - interpretive uncertainty |
The FRT is calculated by reference to “tax EBITDA,” defined by reference to taxable income adjusted for specified items. However, the statutory definition does not address features common to infrastructure entities, including the treatment of government grants and subsidies received during construction, the interaction with the research and development tax incentive, and the treatment of unrealised gains and losses on hedging instruments. These uncertainties create material compliance risk, as allowable debt deductions are directly determined by the tax EBITDA figure. |
|
Debt deduction creation rules (DDCR) - restriction of legitimate commercial transactions |
The DDCR apply to wholly domestic transactions where there is no base erosion risk - for example, where two Australian-resident infrastructure funds consolidate assets and the purchaser repays the price over time, with interest assessable to the seller. The denial of interest deductions in these circumstances can render otherwise viable restructurings commercially non-viable. |
|
Hedging and conduit financing - not adequately accommodated |
The TPDT requires a debt deduction to be “directly associated with” hedging or managing interest rate risk in respect of the debt interest. In large infrastructure projects, where interest rate risk is commonly managed through centralised hedges covering multiple debt interests, this nexus requirement is difficult to satisfy. Similarly, the conduit financing rules do not accommodate back-to-back interest rate hedging arrangements between a group finance entity and the project entities to which it on-lends, despite back-to-back swaps being standard practice in infrastructure project finance. |
|
De minimis threshold - too low for infrastructure entities |
The thin capitalisation rules include a de minimis threshold of A$2 million of gross debt deductions, below which the rules do not apply. For infrastructure entities, even modest debt facilities will typically generate deductions well in excess of this threshold, meaning the exclusion provides little practical relief. |
Recommended actions for infrastructure investors
Reassess exit models across all holdings. Every infrastructure investment model that assumes the 50% CGT discount on exit should be updated to reflect cost-base indexation and the 30% minimum tax from 1 July 2027. For foreign investors, models should assume full CGT liability on disposal of assets now captured by the expanded definition of TARP.
Obtain valuations of assets as at 1 July 2027. For assets sold after 1 July 2027, gains accruing up to 1 July 2027 will be subject to the existing 50% discount, while gains accruing from 1 July 2027 will be subject to indexation and the 30% minimum tax. Infrastructure investors should obtain valuations of their assets as at 1 July 2027 to establish the boundary between the two regimes.
Consider accelerating pre-1 July 2027 disposals. Where embedded gains exist in infrastructure portfolios, there is a window to realise those gains under the current 50% CGT discount before 1 July 2027. This applies to direct asset sales and to disposals of units in infrastructure trusts.
Quantify retrospective exposure for foreign investors. If a fund or entity disposed of Australian infrastructure assets at any point since 12 December 2006 without paying Australian CGT, that position may now be subject to challenge. Past disposals should be identified and advice sought on whether voluntary disclosure is appropriate.
Review all trust structures. Each trust within an infrastructure holding structure should be assessed to determine whether it will be classified as "discretionary" and therefore subject to the 30% minimum tax from 1 July 2028. Trusts that are not AMITs, not "fixed," and not "widely held" are at risk. The three-year rollover window from 1 July 2027 provides a pathway to restructure, but stamp duty and commercial constraints may limit its utility.
Review pending or planned transactions. For transactions above A$50 million involving foreign vendors, new ATO notification obligations will apply. Purchasers face enhanced due diligence obligations under the new objective knowledge standard. Additional time and compliance costs should be factored into deal timelines.
