Following the passage of the domestic capital gains tax reforms announced in this year’s Federal Budget, the Treasury Laws Amendment (Strengthening Accountability for Tax Adviser Misconduct and Other Measures) Bill 2026 (the Bill) was introduced into Parliament on 2 July 2026. It is a substantial omnibus bill spanning multiple policy areas, but its centrepiece is a revised draft of Treasury’s comprehensive reform to the foreign resident capital gains tax (CGT) regime.

The CGT measures follow an exposure draft released on 10 April 2026 (Exposure Draft) that attracted significant industry criticism and submissions (see our prior alert here), particularly in relation to retrospectivity and the breadth of the proposed definition of “real property”. The Bill responds to a number of those concerns - most notably by largely abandoning retrospective application - but retains, and in some respects broadens, the expanded tax base.

The Bill also implements important reforms to tax practitioner regulation, makes housekeeping amendments to DGR listings and ancillary fund nomenclature, and includes significant competition law reforms (which our competition team discuss in a separate alert here).

We will continue to monitor the Bill’s progress through Parliament and will provide further updates as the position develops.

Key takeaways for foreign investors in Australian assets

The curtailment of retrospectivity is a welcome concession and is positive for Australia’s reputation as an investment destination. The amendments will apply only to CGT events happening on or after the “commencement date”, being the first 1 January, 1 April, 1 July, or 1 October after the Bill passes into law. Given the Bill was introduced on 2 July 2026, these new rules could be operative from 1 October 2026 if passage through both Houses occurs during the August sittings (subject to any potential referral to the Senate Economics Committee, which could occur given the economic significance of the changes).
The Bill restricts the Commissioner’s power to amend prior assessments for pre-commencement CGT events involving taxable Australian real property (TARP) or indirect Australian real property interests (IARPI). Specifically, the Commissioner will be prevented from amending an assessment where the taxpayer’s limited amendment period (generally four years) has already expired, subject to certain exceptions. We understand that this is intended to prevent new refund claims following the taxpayer wins in YTL and Newmont, which found that certain infrastructure and mining assets were not TARP under the pre-amendment law.
However, the real property tax base will be amongst the broadest of any jurisdiction - including amongst Australia’s treaty partners - and will apply one of the highest corporate tax rates in the OECD. There are no transitional rules to protect foreign investors who acquired assets before the commencement date. Existing, unsold investments will be caught by the expanded concepts on a prospective basis.
The vendor notification regime is largely unchanged from the Exposure Draft, other than the addition of a Ministerial power to exclude certain transactions by legislative instrument. Under the regime, vendors making declarations that membership interests are not IARPI where the transaction value is $50 million or more must notify the Commissioner.
The purchaser knowledge threshold will, consistent with the Exposure Draft, change to an objective test. This, and the vendor notification regime, will impose additional due diligence obligations on purchasers in Australian M&A transactions. Importantly, a purchaser who breaches the increased foreign resident CGT withholding requirement faces penalties of 15% of the transaction value (e.g., $15 million for a $100 million transaction).
Entities with foreign ownership of membership interests will need to establish ongoing monitoring processes for the 365-day look-back test for principal asset test (PAT) purposes, particularly where asset values fluctuate around the 50% TARP threshold. An added Ministerial power to prescribe alternative testing times may provide some relief (e.g., to minority investors) but will depend on the use of that discretionary power.
The controversial treaty override remains - foreign investors who have made investments in reliance on double tax agreement protections should reassess those investments. Relevant concepts within Australia’s double tax agreements will take their meaning from the amended domestic law.
While some refinements have been made to the renewable energy discount concession (discussed below), its utility remains constrained by the potentially narrow eligibility definitions and, most significantly, the limited concession period (applying only to disposals occurring before 1 July 2030). There is a material risk that the transitional discount may incentivise existing investors to dispose of assets before the sunset date to obtain the concessional rate, without attracting new investment - an outcome that would appear to be counterproductive to the Government’s broader energy transition and net zero objectives and commitments.

Foreign resident CGT regime

Brief recap of the Exposure Draft measures

Our detailed analysis of the Exposure Draft is available here. The key features of the reforms as set out in the Exposure Draft included:

An expanded definition of “real property” that significantly broadens the scope of TARP to include interests and rights over land (regardless of State or Territory law), things fixed or installed on land (such as energy and telecommunications infrastructure, transport infrastructure, and heavy mining machinery), water entitlements, licences or contractual rights exercisable over land, and the value of mining, quarrying or prospecting information for PAT purposes.
A new 365-day continuous testing requirement for the PAT (replacing the current point in-time test), requiring foreign investors to monitor valuations daily where holdings are close to the 50% TARP threshold and a transaction is imminent.
New ATO notification obligations for transactions with a value of $50 million or more where a non-IARPI declaration is made. 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 becoming the owner of an asset. This objective standard will replace the current subjective "actual knowledge" test.
A treaty override amending section 3(5) of the International Tax Agreements Act 1953 (Cth) to align treaty meanings of “real property”, “immovable property”, and “land” with the domestic TARP definition.

The Exposure Draft attracted significant criticism from industry and professional bodies. The principal concerns were:

Retrospective application. The Exposure Draft proposed amendments reaching back to 12 December 2006 - a 20-year retrospective application. This was widely criticised as inconsistent with fairness, certainty, and the rule of law.
Breadth of the real property definition. The broad new definition risks double-counting. For example, both a lessor and lessee, or owner and licensee, could hold separate “real property” interests in the same underlying land.
PAT compliance burden. The 365-day look-back would in theory require daily valuations, which is impractical for many investors, particularly minority investors relying on periodic (often quarterly) reporting who do not control underlying assets.
Vendor notification and purchaser knowledge. The notification regime and objective purchaser knowledge threshold raise concerns about transaction delays and onerous due diligence obligations on purchasers.
Treaty override. The proposed amendment to section 3(5) of the International Tax Agreements Act 1953 (Cth) represents a unilateral rewriting of treaty obligations, raising concerns about Australia’s reputation as a reliable treaty partner.

What has changed?

The most significant changes from the Exposure Draft are summarised in the table below.

Renewable energy asset CGT discount for foreign residents

In our earlier alert, we also examined the proposed transitional 50% CGT discount for eligible foreign residents disposing of Australian renewable energy assets that was announced in connection with the broadening of the foreign resident CGT regime.

Brief recap of the Exposure Draft measures

The principal features of the proposed concession as set out in the Exposure Draft are:

the 50% discount would only be available to foreign residents that are not individuals, or trustees of a foreign trust for CGT purposes;

the CGT event must happen on or after commencement and before 1 July 2030; and

at the time of the CGT event, the asset is taxable Australian property that is either an “Australian renewable energy asset” (limited to assets the primary purpose of which is to generate or facilitate directly the generation of electricity in Australia using an eligible renewable energy source) or an IARPI that passes the “renewable energy asset test”.

Despite criticism from the renewable energy sector, the concession in the Bill remains transitional and time-limited, expiring on 30 June 2030.

We analyse what has changed in the Bill and set out the implications for foreign investors in the renewable energy sector below.

What has changed?

The most significant changes from the Exposure Draft are summarised in the table below.

Position in the exposure draft	Changes in the bill
Thing fixed or installed on land A thing fixed or installed on land was required to be, or reasonably expected to be, situated on the land for the majority of its useful life to qualify as real property.	Majority of useful life requirement removed The “majority of its useful life” qualification has been deleted. The Bill simply requires that a thing be “fixed or installed on land”, regardless of its fixture status at law, statutory severance legislation or expected duration on the land. This removes a source of ambiguity but, notably, also broadens the definition by removing a limiting factor. The Explanatory Memorandum (EM) clarifies that “installed” is broader than “fixed”: equipment positioned on land for ongoing operational use will be treated as installed even if it rests on its own weight rather than being physically affixed. Conversely, readily movable items intended to be relocated without affecting the land or structure will fall outside the definition.
Proposed retrospectivity Some aspects of the expanded definition of “real property” were proposed to apply retrospectively to CGT events that happened on or after 12 December 2006.	Retrospectivity largely abandoned The retrospective application of the reforms has been removed. The amendments will apply only to CGT events happening on or after the commencement date, being the first 1 January, 1 April, 1 July or 1 October after the Bill passes into law. In addition, the Bill limits the Commissioner’s ability to amend past assessments. Specifically, the Commissioner cannot amend an assessment relating to a foreign resident’s capital gain on TARP or an IARPI where the limited amendment period has already expired, unless there was fraud or evasion, or the amendment gives effect to a decision on an objection or pending a review or appeal insofar as it relates to an objection made before 10 April 2026. This limit is likely to operate in the Commissioner’s favour in respect of taxpayers seeking refunds based on recent court decisions.
365-day real property PAT The scope of the PAT for the purposes of determining whether a membership interest is an IARPI was proposed to be expanded such that non-portfolio membership interests held by foreign investors must be tested throughout the 365-day period preceding the CGT event.	Ministerial flexibility The Bill introduces a new power for the Minister to determine, by legislative instrument, circumstances in which an alternative testing time applies for the 365-day PAT look-back. The practical utility of this power will depend on the breadth of the circumstances prescribed by the Minister (if any), noting that it is expected that many taxpayers will have material issues complying with the revised default test. Further, as discussed below, the 365-day testing, combined with the knowledge requirement of a purchaser in respect of a non-IARPI declaration and the vendor notice requirements, is likely to make compliance with this obligation onerous and costly.
New notification regime Foreign vendors disposing of shares in a transaction with a value of $50 million or more have an obligation to notify the ATO in an approved form where the vendor intends to make a declaration that the membership interests are not IARPI. A purchaser that knows, or could reasonably be expected to know, that the declaration was false at any time prior to becoming the owner of the asset, is not able to rely on the declaration.	Ministerial flexibility The Bill introduces a power for the Minister to specify, by legislative instrument, transaction types that are exempt from the notification requirements (e.g., schemes of arrangement, regulated acquisitions).
Not applicable.	Foreign resident capital gains withholding The Bill makes a related but distinct amendment to the foreign resident capital gains withholding regime by enshrining in the Taxation Administration Act 1953 (Cth) the effect of the Taxation Administration (Remedial Power—Foreign Resident Capital Gains Withholding) Determination 2017, which was due to sunset on 1 October 2027. The amendments ensure that a taxpayer is entitled to claim the tax credit for amounts withheld under Subdivision 14-D in the same income year that the underlying transaction is recognised for income tax purposes, removing the need to lodge separate returns across two income years where a contract is entered into in one year but settles in the next.
Treaty override The Exposure Draft included an override of Australia’s double tax agreements to treat references to “real property” or “immovable property” in those agreements as references to “taxable Australian real property”.	Treaty override expanded to include “land” The Bill adds “land” to the list of overridden terms. Please refer to our prior alert for our concerns regarding how these amendments will apply to Australia’s treaty network.

Position in the exposure draft	Changes in the bill
Direct disposals of Australian renewable energy assets - narrow definition of “Australian renewable energy asset” The Exposure Draft previously defined an Australian renewable energy asset as a TARP asset with the primary purpose of generating, or directly facilitating the generation of, electricity from an eligible renewable energy source within the meaning of the Renewable Energy (Electricity) Act 2000 (Cth).	Direct disposals of Australian renewable energy assets - expansion of the definition of “Australian renewable energy asset” The Bill appears to have both narrowed and expanded this definition by: replacing the concept of “directly facilitating the generation of” electricity with “producing electricity”; and explicitly including a TARP asset that has the primary purpose of operating as an energy storage system. The latter change is a welcome and commercially significant change. Under the prior formulation, the eligibility of battery energy storage systems (BESS) (such as grid-forming BESS) may not have been included because it was not clear whether they could be said to “directly facilitate” generation. The EM clarifies that the energy storage limb applies to “assets that take renewable electricity as an input and then dispatch it as electricity at a later time”, with a BESS installed on land cited as a common example. Further, grid-scale energy storage systems that store both renewable and non-renewable electricity will also qualify as Australian renewable energy assets, provided the primary purpose remains the storage of renewable energy from an eligible source. Further, it is unclear whether the change from “directly facilitating the generation of”, to “producing”, electricity narrows the range of assets that qualify for the concession.
Indirect disposals of Australian renewable energy assets - a threshold of 90% Under the Exposure Draft, a membership interest passed the renewable energy asset test only if at least 90% of the test entity’s TARP value was attributable to Australian renewable energy assets.	Indirect disposals of Australian renewable energy assets - reduction of the threshold to 75% The Bill has reduced this threshold to 75%. Although welcome, the threshold reduction still requires the underlying TARP profile to be overwhelmingly renewable. The difficulty is compounded by the exclusion of general electricity transmission infrastructure from the definition of Australian renewable energy asset (e.g. poles and wires), as well as the uncertainties flagged above regarding how mixed or combined grid assets will be characterised.
Narrow treatment of pre-development and development-stage assets The Explanatory Materials for the Exposure Draft stated that a TARP asset that was only partly constructed, or where construction had not commenced (such as land with only an approval for development), would “on its face not satisfy” the primary purpose requirement unless the surrounding circumstances sufficiently and objectively demonstrated the intended use.	More positive treatment of pre-development and development-stage assets The EM adopts a more positive framing, stating that a TARP asset will satisfy the primary purpose requirement “if the surrounding circumstances sufficiently and objectively demonstrate that its use is intended to be primarily for renewable electricity generation or production, or storage”. Environmental impact studies have now been added to the list of objective evidence that may support eligibility for pre-development and development-stage TARP assets, alongside land identified for the project, grid connection agreements, development approvals and rights to future income under an offtake agreement. Treasury has also included two worked examples: For a solar farm, to support the asset’s primary purpose of generating or producing electricity from an eligible renewable source, an entity must acquire land, obtain development approval for the solar farm, incur expenditure on environmental studies and engineering design, enter into grid connection negotiations and hold the land solely as part of the approved solar project. On the other hand, merely undertaking preliminary high-level investigation of renewable options without obtaining any material project approvals or demonstrating committed development steps would fail the primary purpose test. It is unclear how helpful these clarifications will be given the overarching issues with the concession, particularly its time limited nature.

Washers added but leaks remain - foreign resident and renewable energy capital gains tax Bill introduced into Federal Parliament

Key takeaways for foreign investors in Australian assets

Foreign resident CGT regime

Brief recap of the Exposure Draft measures

What has changed?

Observations

Renewable energy asset CGT discount for foreign residents

Brief recap of the Exposure Draft measures

What has changed?

Observations

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