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.

Australian Treasury released a consultation paper detailing proposed changes to the current foreign resident CGT regime which were raised in the last Federal Budget. Central to the proposed changes is:

• expanding the types of assets on which foreign residents are subject to CGT
• amending the principal asset test
• requiring foreign residents to notify the Australian Taxation Office (ATO) of certain disposals of shares and other membership interests

The changes will take effect from 1 July 2025. Owners of Australian renewable assets or land rich entities need to take immediate action to understand the impact of the changes to determine their exit cash flows.

The Current Regime

Currently, foreign residents can disregard capital gains or losses from a CGT asset unless the asset is “taxable Australian property” (TAP). Assets which are TAP include:

• taxable Australian real property (TARP)
• indirect Australian real property interests (IARPI) (e.g. shares or units in entities where the majority of the entity’s market value is from TARP)

A foreign resident will be taken to hold an IARPI where they hold a membership interest in an entity which passes both the:

• non-portfolio interest test (10% interest in the entity)
• principal asset test (PAT) where the market value of the entity’s property that is TARP exceeds the market value of its property that is not TARP

Purchasers of TAP from foreign resident vendors currently must withhold and remit 12.5% of the transaction proceeds to the ATO. Purchasers do not need to withhold this amount where the foreign resident has provided a declaration that the membership interests being disposed is not an IARPI.

The proposed changes in this alert are in addition to the Bill before Parliament to:

• increase the rate of foreign resident capital gains withholding from 12.5% to 15%
• remove the threshold of foreign resident capital gains withholding from 750,000 to nil

Proposed Changes

The consultation identifies 3 main proposed changes which would apply to CGT events occurring on or after 1 July 2025. The key changes are:

• clarification, and a broadening of the type of assets on which foreign residents are subject to CGT
• an amendment to the PAT to a 365-day testing period
• the additional requirement that foreign residents notify the ATO before disposing of shares and other membership interests exceeding $20 million

Broadening the types of assets

The change expands the CGT base for foreign residents to capture assets which have a “close economic connection to Australian land and/or natural resources”.

The proposed amendments would expand the following assets as TAP assets:

• leases or licences to use land in Australia
• water entitlements in relation to Australian land
• infrastructure or machinery installed on Australian land (e.g. solar panels, wind farms, batteries, rail networks or heavy machinery installed for use in mining operations etc.)

The proposed changes will significantly expand the CGT net for assets held by foreign residents and in particular tax non residents on renewable energy projects. Non residents are currently not subject to tax on these assets.

Amendment of the Principal Asset Test

The changes would extend the PAT to ensure that the market value of an entity’s property that is TARP does not exceed the market value of its property which is not TARP during the 365 days before the CGT event.

This amendment may prevent foreign residents from avoiding CGT by planning the sale of their membership interests once the underlying entity no longer meets the TAP. By extending the PAT to the preceding 365-days, the ability of taxpayers to manipulate the asset composition of the entity (e.g. through a corporate restructure immediately prior to the sale of membership interests) will diminish.

Some opportunities may arise from the expanded PAT such as non residents using capital losses previously foregone.

Foreign resident vendor ATO notification requirement

All foreign resident vendors must notify the ATO of a sale of shares exceeding $20m under the proposals – even where the shares are not an interest in Australian real property.

The ATO would need to be notified by the vendor prior to a set review period before the sooner of the relevant CGT event or settlement.

This change aims to prevent foreign residents from incorrectly declaring that their membership interest sale is not subject to CGT by giving the ATO visibility over such transactions. This is a compliance measure and would carry administrative penalties for false or misleading declarations.

Where the ATO disagrees with vendor’s declaration, the ATO can make a recommendation to the vendor and the purchaser to withdraw the declaration, such that withholding would apply to the transaction.

How SW can help

The proposals will take effect from 1 July 2025. Owners of Australian renewable assets need to take immediate action to understand the impact of the changes, determine the impact on their returns and reevaluate the timing of any exit strategy. 

SW will continue to monitor the developments. Reach out to your SW contact to discuss how the proposed changes may affect your investment of transaction.

Contributors

Ned Galloway

The post Foreign Resident CGT | New tax on renewable energy 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.

The CCIV regime provides a new type of corporate flow-through entity, which is an incorporated company but which, through a set of deeming principles, is effectively treated as a trust for all tax law purposes.

The purpose of the regime is to increase the competitiveness of Australia’s managed funds industry by creating a flow through corporatised entity which is more widely recognised internationally and draws on characteristics of similar regimes currently utilised in Singapore, UK, Hong Kong and elsewhere.  

A further objective of the CCIV tax framework is to align the tax treatment of CCIVs and their members with the existing tax treatment of general trusts and attribution managed investment trusts (AMITs). Where a CCIV sub-fund trust:

• meets the AMIT eligibility criteria, it will be taxed as an AMIT under the attribution flow-through tax regime
• fails to meet the AMIT eligibility criteria, the CCIV sub-fund trust will be taxed in accordance with general trust provisions, which is consistent with the current outcomes for AMITs 

Characteristics of a CCIV

A CCIV is a legal form company limited by shares, the income of which is distributed by way of legal form dividends. The company must be registered with ASIC under the new chapter 8B of the Corporations Act 2001.

The company has a sole corporate director which must be a public company that holds an Australian Financial Services License (AFSL). The company must have at least one sub-fund which has at least one member and it can either be a wholesale or retail sub-fund.  

The CCIV will effectively operate as an umbrella vehicle of separate sub funds, with each sub fund potentially providing a different investment offering, and each sub-fund potentially having different members. The sub-funds are not separate legal entities but operate as cells within the CCIV.

A CCIV is deemed to be the trustee of each sub-fund, each of which is a separate entity for income tax purposes. The sub-funds, subject to meeting relevant requirements, may be treated as AMITs.

The constitution of the CCIV will be its primary governing document and will contain different provisions depending on whether the CCIV is a retail or wholesale fund.

While a CCIV is not a MIS, there are separate requirements which build in similar protections for CCIV investors, similar to those available to MIS entities.

Advantages of a CCIV

International recognition

The CCIV regime draws on characteristics of similar regimes which operate in other jurisdictions. Given many international investors are not familiar with the unit trust structure widely adopted in Australia in relation to Funds, the CCIV increases international competitiveness in the funds management space by creating an entity which is more widely recognised internationally and may therefore be more attractive to international investors.

Segregation of assets and liabilities

Whilst each sub-fund is not a separate legal entity, the assets and liabilities are segregated from each other. The assets of each sub-fund can legally only be applied for purposes relating to that specific sub-fund.

Flow through taxation

The income earned by the CCIV sub-fund trusts will retain its character when received by investors, such that investors will effectively be taxed as if they hold assets of the trust directly (subject to the usual tests such as Division 6C). Whilst the CCIV pays legal form dividends, the income received by investors will not be taxed as dividends but rather taxed as distributions from a trust.

Fixed entitlement to income and capital

Investors will be deemed as having a vested and indefeasible interest in the income and capital of the sub fund-fund trusts. This is relevant for the utilisation of trust losses and application of franking credit provisions.

Concessional withholding rates

If a sub-fund qualifies as a MIT, distributions to investors who reside in countries that have an Exchange of Information Agreement with Australia may be subject to the lower concessional withholding rate of 15% on certain types of income (excluding interest, dividend and royalty income).

Capital account election

In addition to the above, if the sub-fund trust qualifies as a MIT it can make an election to treat certain assets as on capital account. This will mean that in most cases asset disposals will be treated as capital gains which may be a more favourable tax outcome for both resident and non-resident investors.

Disadvantages of a CCIV

Rollover relief

There are currently no specific rollovers or concessions which would allow existing fund structures to seamlessly convert to the CCIV regime without any income tax implications. Existing CGT roll-overs may apply in some cases and should be considered accordingly. This limitation may make it difficult to transfer existing “in the money” investments to the CCIV regime.

Tax losses

Currently, there are no specific provisions which allow the transfer of revenue or capital losses from an existing structure into a CCIV structure. This means an entity converting to a CCIV would currently not be able to retain any existing tax or capital losses.

Trust income

Under the CCIV regime, the definition of income in relation to the sub-fund trusts is broadly determined based on accounting profit of the trust. The limited flexibility in defining income could result in unintended and unfavourable income tax consequences with respect to income earned by the sub-fund trusts.

Duty & land tax

There is yet to be any guidance released by the various States in relation to the treatment of CCIV entities from a duty or land tax perspective.

How SW can assist

There will be cases where the CCIV regime will provide clear benefits to fund managers and to investors.  These will predominantly relate to where the fund is either attracting foreign investment, or where the fund is designed to invest in foreign assets (even if the investors are domestic). 

Given the challenges in converting from a traditional trust structure to a CCIV, the CCIV regime should be considered even if these international factors are not present at the inception of the fund but are recognised as possibilities in later years.

Reach out to our team to discuss whether the CCIV regime is appropriate for your fund.

Click here to find out more about how we work with fund managers and financial services business across the sector.

Contributors

Carmelin De Francesco, Senior Manager, Tax

The post Corporate Collective Investment Vehicle Regime (CCIV) appeared first on SW Accountants & Advisors.