Foreign investors in the firing line: Treasury’s expanded CGT regime
21/04/2026
Treasury is proposing a significant expansion of Australia’s foreign resident capital gains tax (CGT) regime, materially increasing the tax exposure and exit risk for foreign investors with Australian land‑connected assets.
Treasury has released draft legislation that would materially widen the scope of assets subject to Australian capital gains tax by broadening the definition of taxable Australian real property. This would extend beyond land and buildings to a wider range of land‑connected assets, including infrastructure, energy projects, and certain water rights and entitlements.
The proposals include ‘clarifying’ amendments with retrospective effect and would significantly reshape exit economics for foreign investors – particularly in sectors where value is derived from Australian land or natural resources. While a temporary concession is offered for renewable energy investments, the overall policy direction is toward tougher enforcement, a broader CGT base, and reduced structural certainty for inbound capital.
What is being proposed
A broader CGT net focused on energy and infrastructure assets
The reforms retrospectively (from 2006) expand the definition of Taxable Australian Real Property (TARP) beyond traditional land and buildings to capture assets with a close economic connection to Australian land or natural resources. In practical terms, this significantly widens the CGT net over energy and infrastructure assets, including solar farms, wind projects, battery energy storage systems, and associated transmission assets, many of which have historically been treated as outside the foreign resident CGT regime.
The expanded definition also extends, on a prospective basis, to other land‑connected resource interests such as water rights and water access entitlements, particularly where these are integral to the productive use or value of land.
Federal tax law to override state property concepts (retrospective)
The draft legislation confirms that state and territory property law concepts – such as severance rules or statutory characterisations of fixtures, chattels, or resource rights – do not determine whether an asset is real property for federal CGT purposes.
Tightened rules for indirect interests
The principal asset test for indirect interests in companies and trusts is refined, moving from a point in time (CGT event date) to a 365-day test, reducing the ability to manage CGT exposure through timing or balance‑sheet structuring.
Time-limited concession for renewable energy assets
A targeted concession provides a 50% CGT discount for qualifying disposals of renewable energy assets (and certain indirect interests) by foreign residents, available only until 30 June 2030. While it offers transitional relief for solar, wind, and battery projects, the concession is expressly temporary and does not alter the longer‑term expansion of the CGT base.
The concession does not extend to other natural‑resource interests, such as water rights, and does not mitigate any historical exposure arising from the retrospective asset‑definition changes.
Treaty impact
Treasury proposes to amend the International Tax Agreement Act to ensure that the definition of real property and immovable property in Australia’s double tax agreements (DTAs) will be in line with the proposed domestic definition.
Most of Australia’s treaties already permit Australia to tax capital gains derived from real property situated in Australia, including gains from indirect interests in land‑rich entities. The reforms operate by materially expanding the domestic definition of ‘real property’, meaning that a broader range of assets is more likely to fall within those existing treaty taxing rights. As a result, while treaty protection remains available in principle, fewer assets will qualify for it.
Importantly, the retrospective nature of the domestic law changes will impact investors in various jurisdiction differently, depending on the allocation of taxing rights to income not expressly mentioned in DTAs.
Who is most affected
Investments in Australian land‑connected assets may now be subject to Australian CGT, and may, in some cases, have already been subject to CGT even where they were previously treated as outside the regime.
Taxpayers most affected by these proposals include:
- foreign investors in energy and infrastructure assets, including solar, wind, battery energy storage projects, transmission assets, and other land‑connected infrastructure
- investors holding interests in land‑rich companies, trusts, or stapled structures, particularly where value is driven by fixed assets installed on Australian land
- foreign investors relying on state‑law characterisation or treaty assumptions to support CGT outcomes for land‑connected assets
- funds with near‑term exit, refinancing, or portfolio rebalancing events, where CGT now affects pricing and internal rates of return
- investors in agricultural or farmland assets where water rights or water access entitlements are a significant component of asset value, particularly where those rights are economically integrated with land use or productivity.
Timing and transitional snapshot
The proposed statutory definition of ‘real property’ (including assets with a close economic connection to Australian land) is intended to apply retrospectively to CGT events occurring on or after 12 December 2006, except for water rights, which will apply prospectively.
By contrast, the broader net‑widening reforms to the foreign resident CGT regime generally apply prospectively to CGT events occurring from the quarter following when the Bill receives Royal Assent.
The 50% CGT discount for renewable energy assets applies only from commencement until 30 June 2030 of the legislation and does not provide relief for any historical or retrospective exposure.
How SW can help
We can assist you in understanding the proposed reforms and their potential impact on existing and future investments. In particular, we can help you to:
- map assets and investment structures against the expanded definition of taxable Australian real property
- re‑model exit scenarios on the basis of full Australian CGT exposure
- reassess reliance on treaty protections and state‑law concepts in light of the proposed changes
- identify eligibility and timing constraints associated with the renewable energy CGT concession
- engage early in transaction planning and, where appropriate, prepare submissions as part of the consultation process
- incorporate CGT risk more explicitly into acquisition, holding, financing, and exit decisions.
