In addition to the several new tax measures announced in the Australian Federal Budget handed down on 12 May 2026, the Treasurer reiterated his commitment to the previously announced significant non-resident Capital Gains Tax (CGT) changes which retrospectively (from 2006) redefine the concept of real property. Unfortunately, there was no indication in the Australian Federal Budget that following the two-week consultation period on the Exposure Draft legislation which ended on 24 April 2026 that the Treasury would depart from the positions adopted in that Exposure Draft legislation.
On 10 April 2026, the Australian Government released exposure draft legislation (ED) which seeks to significantly expand the scope of the Australian capital gains tax (CGT) regime as it applies to non-residents (refer: https://consult.treasury.gov.au/c2026-755475). The changes were originally announced in the May 2024 Federal Budget, following which further details were set out in a Treasury Consultation document issued in July 2024.
The Government allowed a short two-week period to receive submissions on the ED by 24 April 2026 and White & Case has lodged a public submission addressing certain aspects.
In the recent Australian Federal Budget handed down on 12 May 2026, the Treasurer took the opportunity to reiterate the retrospective (from 2006) redefining of the concept of real property, and the limited transitional period for certain renewable energy assets, consistent with the ED.
Despite the focus on numerous significant other changes announced in the Australian Federal Budget, for example in relation to the taxation of discretionary trusts and changes to negative gearing and the changes to the availability of the 50% CGT discount, the proposed non-resident CGT changes are likely to have the most adverse impact for foreign investors.
The main changes to the CGT regime for non-residents significantly expand what was generally understood to be the meaning of real property in the existing law. In doing so, the proposed provisions significantly and retrospectively expand the assets that are subject to Australian CGT and seek to overturn two recent Federal Court decisions. The proposed amendments broaden the definition of taxable Australian real property (TARP) and introduce a statutory definition of "real property" into Australia's income tax law. The new definition includes, among other things, any interest in or right over land (regardless of State or Territory law treatment), personal rights to call for or be granted such interests, licenses or contractual rights exercisable over or in relation to land, and things fixed or installed on land for the majority of their useful life (regardless of whether they are fixtures at common law). This will bring within scope assets not considered fixtures of the taxpayer at common law — such as wind turbines, solar panels, batteries, mining equipment and electricity transmission networks — as well as assets statutorily severed from underlying real property.
Particularly alarming is the proposed retrospective changes which may impact not only existing investments but also disposals from 12 December 2006 up to the commencement of the main changes. Up until the release of the ED on 10 April 2026, there had been no mention of any of the changes being retrospective to CGT events prior to the start date of the main changes. However, between 12 December 2006 and the start date of the main changes, the term real property is proposed to include any interest in or right over land situated in Australia (regardless of how that interest or right is treated for the purposes of any State law or Territory law), a thing (or a combination of things, and a lease of a thing) that is fixed or installed on land for the majority of its useful life (regardless of whether they are fixtures at general law or treated in a different way under State based law). Tax treaty protection may be available in respect of these retrospective changes.
Whilst the existing four-year statutory amendment period may in theory offer protection for certain historical disposals, many affected foreign taxpayers will not have lodged an Australian income tax return or otherwise received tax assessments for these income years (on the basis of applying the existing law and concluding that no tax liability existed and hence no Australian income tax return was required to be lodged) and therefore will not have triggered the start of the four-year statutory amendment period. In response to the retrospective nature of the draft legislation, the ATO has published a statement on its website at QC102086 which was last updated (as at the date of this publication) on 12 May 2026 (ATO Statement), to which we include a link below (current at the time of publication of this article): https://www.ato.gov.au/about-ato/new-legislation/in-detail/businesses/strengthening-the-foreign-resident-cgt-regime
The ATO Statement includes the following paragraphs:
"Generally, we do not conduct reviews on disposals older than four years, even if the period of review is still theoretically open. However, if an older case came to our notice for other reasons, we may review it. For example, if a taxpayer applied for a ruling that involved the amended law, we would consider any retrospective effects.
Similarly, we won't seek to re-open settlements that the parties intended to be final, except in very rare exceptions".
In these paragraphs the ATO clearly acknowledge they can and will amend older cases that come to their attention for ‘other reasons' and can and will re-open settlements in ‘rare' circumstances. Exactly what is meant in this ATO Statement is extremely unclear.
In what is described in the explanatory memorandum accompanying the ED as being in support of the broader amendments, the ED also includes a 50% CGT discount for CGT events in respect of Australian renewable energy assets (as defined in the ED) and membership interests in entities that pass the renewable energy asset test (as set out in the ED), provided that the CGT event occurs after the commencement of the new provisions but before 1 July 2030.
The ED also proposes changes to the foreign resident CGT withholding rules for transactions with consideration of AUD50m or more (with aggregation with related transactions) where the vendor provides a declaration to the purchaser that a CGT asset is a membership interest which is not an indirect Australian real property interest. In these circumstances the ED includes an obligation on the part of the vendor to notify the ATO that they are providing a vendor declaration at least 28 days before completion (except that if the period between the transaction being entered into and completion is not more than 31 days, the notification to the ATO must be made as soon as reasonably practicable after the transaction has been entered into) and the purchaser can only rely on the declaration if at no time during the period starting when the purchaser is given the declaration and ending immediately before completion, the purchaser knows, or could reasonably be expected to know, the declaration to be false.
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This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
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