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.

Contributor

Ned Galloway

The post Foreign investors in the firing line: Treasury’s expanded CGT regime appeared first on SW Accountants & Advisors.

What the draft determination covers

Draft taxation determination (TD 2026/D1) outlines the Australian Tax Office’s (ATO’s) view on the meaning of right to occupy the dwelling under the deceased’s will, as set out in item 2(b) of Column 3 of Subsection 118-195(1) of the ITAA 1997.

The determination considers the right to occupy a dwelling which can have an impact on whether the capital gain or loss can be disregarded under the ‘main residence’ rules.

The right to occupy must be granted under the terms of the deceased will to an individual named in the Will or as a result of a court order.

When the main residence exemption may not apply

The CGT impact of the sale of the dwelling may not be disregarded if the right to occupy occurs through one of the following ways. Careful consideration needs to be given to the rules and examples outlined in the TD.

This includes situations where:

• right to occupy under a separate agreement
• right to occupy using broad trustee discretion
• right to occupy and testamentary trusts. The determination has raised issues that need to be carefully considered for testamentary trusts that affect life and remainder interests.

How SW can help

These rules can be complex, particularly where a right to occupy is intended but the conditions are not met. In those situations, there is a real risk of capital gains tax consequences on the sale of the deceased person’s main residence because the main residence exemption may not apply.

We regularly assist lawyers, administrators and executors of deceased estates to ensure that the estates tax obligations are met. Our Deceased Estate Consulting specialists, Heather Dyke and Taylah Cooke, also review the Estates income tax obligations under subsection 118-195 of ITAA 1997.

Contributors

Heather Dyke – Deceased Estate Consulting

Taylah Cooke – Deceased Estate Consulting

The post Loss of main residence exemption in deceased estates & right to occupy appeared first on SW Accountants & Advisors.

AusNet Services Limited faced a distinct challenge in trying to extricate themselves from a previously chosen rollover relief election, when hindsight showed that a different approach could lead to greater tax benefits. Though AusNet Services Limited lost the case, the decision may well assist taxpayers seeking to rely on CGT rollover relief more generally.

Background

The Ausnet Group consisted of the following entities which were stapled:

• AusNet Services (Transmission) Limited (Transmission).
• AusNet Services Finance Trust (Finance).
• AusNet Services (Distribution) Limited (Distribution).

After a separate dispute with the Australian Taxation Office, it was decided to interpose a new entity above the AusNet Group and form a new tax consolidated group (TCG).

As shown in the above ‘post restructure’ diagram, after the 3 companies were unstapled, AusNet Services Limited (AusNet Services) acquired each of the 3 companies under a scrip-for-scrip exchange in the following order:

1. Transmission,
2. Finance, then
3. Distribution.

The original intention was that CGT rollover would be sought for the interposition of the new head company under Division 615 of the Income Tax Assessment Act 1997.  On the same day as the interposition, AusNet Services elected to apply Division 615 (noting this is a separate election that automatically applies for the shareholders where the new interposed entity is the head company of a TCG). This election was supported by the Class Ruling CR 2015/45 (link) that AusNet Services sought from the Commissioner.

The issue with a Division 615 rollover is that the cost base of the shares that Ausnet Services (the interposed entity) holds in Distribution is equal to the cost base of the Distribution’s assets net of liabilities. Where there is significant value in the goodwill of Distribution, the ACA will be skewed to the goodwill, rather than other assets which have tax benefits.

Because of the rules that apply under Division 615 to determine the cost base of shares acquired in the 3 companies, AusNet Services came in time to experience what might be described as ‘rollover regret’.  With the benefit of hindsight, AusNet Services came to realise that the effects of the Division 615 were disadvantageous for the group in relation to the acquisition of Distribution.  Unfortunately, the relevant legislation explicitly states that once the decision to apply Division 615 is made, it cannot be revoked. The only recourse for amendment was therefore to contend that Division 615 should not have been applicable to Distribution in the first place.

Rollover relief and ‘nothing else’

Whilst there were several arguments raised by AusNet Services as to why rollover relief under Division 615 should not apply, for the purposes of this alert we will be focusing only on the argument that is pertinent to a number of tax rollover relief provisions, which will have broad implications. 

The argument boils down to the following question:

• Was there a scheme for reorganising the affairs of Distribution under which the original shareholders received shares in Ausnet Services for disposing of their shares in Distribution (and ‘nothing else’)?

Notably the ‘and nothing else’ requirement is an important precondition for rollover relief in several other rollover provisions beyond Division 615, including:

• Subdivision 124-E – exchange of shares in the same company or units in the same trust;
• Subdivision 124F – exchange of rights or options in a company or unit trust;
• [IK1] Subdivision 124Q – exchange of stapled ownership interests for ownership interests in a unit trust;
• Division 125 – demerger relief.

Arguments of the case

AusNet lost in this case however the narrow construction of the and ‘nothing else’ condition is a win for taxpayers.

Key takeaways

• The key outcome is essentially that certain rollovers may have broader application than what was previously thought to be the case (at least by the Commissioner). The Court’s concluded is that the and ‘nothing else’ requirement may not be as challenging as the Commissioner has to date indicated.

How SW can help

If you are considering a group restructure and/or have any queries on the contents of this article, please contact our expert team here at SW.

Contributors

Ned Galloway

Kate Wittman

The post AusNet decision | CGT Rollover relief & ‘nothing else’ appeared first on SW Accountants & Advisors.

Application of the law

The FITO limit is determined by section 770-70 of the ITAA 1997, requiring a comparison between Australian tax payable and Australian tax that would be payable if certain income and deductions related to that income were disregarded. Disregarded income is stated in subsection 770-75(4)(a) to include:

I. so much of any amount included in your assessable income as represents an amount in respect of which you paid *foreign income tax that counts towards the *tax offset for the year; and

II. any other amounts of *ordinary income or *statutory income from a source other than an *Australian source…

TD 2020/7 sets out that the Commissioner’s view that a taxpayer’s net capital gain is considered to be relevant statutory income without a source. The view is that the provision does not allow for the disaggregation of a net capital gain to identify specific foreign sourced capital gains.

What is required?

Review FITO limit positions and ensure compliance going forward.

Who does it impact?

All taxpayers that have foreign capital gains.

Important dates

TD 2020/7 applies both before and after the date of issue, being the 26 August 2020.

How can we assist?

SW can assist in preparing Australian tax returns and/or analysing foreign taxes paid and calculating the FITO limit.

The post Taxation Determination 2020/07 appeared first on SW Accountants & Advisors.