The Treasury Laws Amendment (Strengthening Accountability for Tax Adviser Misconduct and Other Measures) Act 2026 (Act) received Royal Assent on 15 September 2026 and commenced on 1 October 2026. The new law ensures that Capital Gains Tax (CGT) applies when foreign residents dispose of assets with a close economic connection to Australian land and natural resources. For foreign investors in Australian real property, whether held directly or through property-owning entities, the changes are material and apply on a prospective basis from commencement, with the Act also safeguarding revenue already collected under past assessments.
Foreign investors should pay close attention if holding Australian real property, substantial assets situated on Australian real property or contractual rights to Australian real property (whether directly or through corporate or trust structures).
Need to know:
- Australia has overhauled its foreign resident CGT regime.
- The new statutory definition of ‘real property’ expressly captures infrastructure, turbines, solar panels, water entitlements and heavy machinery as taxable Australian real property.
- The new definition of ‘real property’ applies prospectively to CGT events happening on or after commencement (1 October 2026); real property retains its ordinary meaning for earlier CGT events, and the Act separately limits the Commissioner’s ability to amend assessments made before commencement where the foreign resident’s amendment period has already ended.
- The principal asset test shifts from a point-in-time assessment to a 365-day lookback, broadening the circumstances in which an interest will constitute an indirect Australian real property interest (IARPI).
- For transactions of $50 million or more, failure to notify the ATO before completion invalidates the vendor’s non-IARPI declaration, triggering mandatory 15% withholding and penalties starting at $7.5 million.
- The amending legislation received Royal Assent on 15 September 2026 and commenced on 1 October 2026; foreign investors should review historical positions and live deals as a matter of priority.
Background: How the previous rules worked
Under Australia’s previous foreign resident CGT regime, a foreign investor can generally disregard a capital gain or loss on the sale of an asset unless that asset is “taxable Australian property”. The two most relevant categories for real property investors are:
• Taxable Australian real property (TARP): broadly, real property situated in Australia, including leases of land; and
• Indirect Australian real property interests (IARPIs): a non-portfolio interest (10% or more) in an entity where more than 50% of its assets by market value consist of TARP (assessed by the principal asset test).
‘Real property’ had never been defined in Australia’s income tax legislation. Courts applied its general law meaning, which has, in recent years, produced outcomes adverse to the ATO. In two 2025 Federal Court decisions (YTL Power Investments Ltd v Commissioner of Taxation and Newmont Canada FN Holdings ULC v Commissioner of Taxation), the Court found that electricity transmission infrastructure and mining-related plant and equipment were not TARP. The new Act is a direct legislative response to those decisions.
The new definition of ‘real property’
The Act introduces a new statutory, inclusive definition of ‘real property’. Under the new law, real property includes (but is not limited to):
- any interest in or right over land, regardless of how it is treated under state or territory law
- a personal right to call for or be granted an interest in land
- a licence or contractual right exercisable over or in relation to land (including forestry, agricultural and water licences)
- things fixed or installed on land that are, or are expected to be, situated on the land for the majority of their useful life, whether or not they constitute a fixture at general law
- a lease, licence or contractual right over any such thing.
The effect is that items such as transmission lines, substations, wind turbines, solar panels, large-scale batteries and heavy machinery are now within TARP. The new definition also overrides state and territory ‘statutory severance’ laws, that is, legislation that treated assets affixed to land as personal property severed from the land. Many foreign investors have traditionally structured their investments in Australian assets (e.g. wind turbines and solar panels) on the basis that such laws placed those assets outside the CGT net.
Water entitlements and options or rights to acquire TARP assets are also expressly captured.
No retrospective application: a prospective regime with a revenue safeguard
The exposure draft released for consultation on 10 April 2026 had proposed applying elements of the new ‘real property’ definition retrospectively, back to 12 December 2006 (the date the foreign resident CGT regime originally commenced). Following industry and practitioner pushback, that retrospective application was abandoned. As enacted, the new definition of real property applies prospectively only, to CGT events happening on or after commencement of the amendments.
For CGT events happening before commencement, ‘real property’ retains its ordinary meaning as previously understood at general law, including the effect of any applicable state or territory severance laws. Foreign investors who disposed of assets before commencement on the basis that those assets did not constitute real property are not exposed to a retrospective reassessment under the new statutory definition.
The Act goes further than simply leaving historical positions undisturbed: it also limits the Commissioner’s ability to amend an assessment made before commencement where that assessment concerned a capital gain relating to an asset that was treated as TARP, IARPI or TAP, once the foreign resident’s ordinary amendment period (typically four years under section 170 of the ITAA 1936) has ended. This safeguards foreign residents whose amendment period has lapsed from having a settled position reopened on the basis that, under the old law, their asset may not have been real property.
The limitation does not apply, and the Commissioner retains the ability to amend an assessment, in three circumstances: where the foreign resident’s amendment period has not yet ended; where the Commissioner is of the opinion there has been fraud or evasion; or where the Commissioner is giving effect to the outcome of an objection, review or appeal, to the extent that the objection was made before 10 April 2026 (the date the exposure draft was released for consultation). Outside these circumstances, assessments finalised before commencement are not able to be reopened by reference to the new statutory definition of real property.
Foreign investors who have disposed of infrastructure, fixed plant and equipment, or other assets that were considered non-TARP at the time should nonetheless confirm whether their amendment period for any relevant assessment remains open, or whether they lodged an objection before 10 April 2026, as these are the limited circumstances in which a past position could still be revisited.
The principal asset test: from point-in-time to 365-day lookback
For investors holding Australian real property indirectly through shares or units in a company or trust, the principal asset test (PAT) determines whether the interest constitutes an indirect Australian real property interest (IARPI). A share or unit will satisfy the PAT where the company’s or trust’s market value is principally attributable to Australian real property assets. Under the previous rules, the PAT was applied at a single point in time, immediately before the sale.
Under the new Act, the PAT is now a 365-day lookback test. A non-portfolio interest will be an IARPI if the entity’s assets derive more than 50% of their market value from TARP at any time during the 365 days preceding the sale.
The 365-day lookback increases compliance and valuation burdens for foreign investors in indirect structures. Investors will need to track the composition and market value of an entity’s underlying assets across the year before disposal, not just at the date of sale. It also limits the scope to restructure assets prior to a transaction to bring an entity below the PAT threshold.
New withholding and notification obligations
The Act strengthens the withholding framework for transactions valued at $50 million or more where the vendor provides a non-IARPI declaration (that is, a declaration that the interest being sold is not an indirect Australian real property interest):
- Vendor notification: the vendor must notify the ATO of the proposed sale before the transaction completes. Where there are more than 31 days between signing and completion, notice must be given at least 28 days before completion. For shorter periods, notice must be given as soon as reasonably practicable.
- Purchaser due diligence: the knowledge standard for purchasers relying on vendor declarations shifts from subjective (the purchaser ‘knows’ the declaration is false) to objective (whether it ‘could reasonably be concluded’ the declaration is false). This imposes a more active due diligence obligation on purchasers, including reviewing ASIC and ABR extracts, transaction documents and residency disclosures.
- Consequences of non-compliance: if the vendor fails to notify the ATO within the required period, the vendor’s non-IARPI declaration is invalid, and the purchaser must withhold and remit 15% of the purchase price to the ATO. Penalties for failing to withhold start at $7.5 million (based on the $50 million minimum threshold) and there are no carve-outs for related-party transactions.
These obligations will need to be built into deal timetables and transaction documentation from the outset of any relevant transaction.
Looking ahead
Foreign investors with current or historical exposure to Australian real property should act promptly to assess the impact of the new rules. The 365-day lookback PAT applies to CGT events from 1 October 2026, and the new withholding and notification obligations apply to transactions settling on or after that date.
Foreign investors with current or historical exposure to Australian real property should seek advice on how the new law affects their positions, both prospectively from commencement and in confirming whether any pre-commencement assessment remains open to amendment.
For more information, please contact Seema Sandhu or Mark Payne.
