On 2 July 2026, the Treasury Laws Amendment (Strengthening Accountability for Tax Adviser Misconduct and Other Measures) Bill 2026 (the Bill), together with its accompanying Explanatory Memorandum (EM), was introduced into the House of Representatives.

The Bill is an omnibus vehicle comprising eight Schedules that contain a number of unrelated measures, including changes to the Tax Agent Services Act 2009. This Alert focuses only on the foreign-resident capital gains tax (CGT) measures, which are contained in Schedules 2, 3 and 8.

The proposed measures seek to clarify and broaden Australia's CGT rules for foreign investors. The measures cover significant changes to the foreign-resident CGT regime in Division 855 of the Income Tax Assessment Act 1997 (ITAA 97), including a broadened definition of real property and taxable Australian real property (TARP), tighter rules for indirect Australian real property interests (IARPI) and changes to the principal asset test (PAT). The Bill also includes a new transitional 50% CGT discount for certain foreign investments in Australian renewable energy assets until 30 June 2030, and changes to the foreign-resident capital gains withholding tax rules with enhanced notification requirements.

The most significant change in the Bill, compared to the exposure draft (ED) legislation released by Treasury on 10 April 2026, is the removal of the broad retrospective application back to 12 December 2006, which was proposed in the ED.

Notably, existing investments are not grandfathered and are therefore now subject to the new tax regime.

These CGT measures represent the culmination of the consultation process undertaken with respect to the ED to implement measures announced in the 2024-25 Federal Budget. For details, see EY Global Tax Alert, Australia proposes draft legislation to broaden foreign-resident capital gains tax regime, with transitional concession for renewables, dated 20 April 2026.

The Bill has been presented and read a first time; it has not yet been passed, and the measures discussed below remain subject to the parliamentary process.

Strengthening the foreign-resident CGT regime

Foreign residents are taxed on capital gains arising from CGT events relating to taxable Australian property. Capital gains and losses from CGT events that happen in relation to a CGT asset that is not taxable Australian property are disregarded for tax purposes. Taxable Australian property includes CGT assets that are TARP. The amendments would clarify and broaden these two related categories of taxable Australian property.

If passed, these proposals could affect tax outcomes for a broad range of investments — especially in infrastructure, resources and renewable energy — but may also inadvertently include other sectors in which items are clearly removable from land (and may constitute chattels for stamp duty purposes) but are nonetheless installed on land.

If enacted, the Bill would make the following key changes to the foreign-resident CGT regime:

• Expanded scope of TARP for CGT: The Bill would broaden the statutory definition of "real property" to cover assets closely connected to Australian land or natural resources.
• Tighter rules on indirect interests: The Bill would broaden the tax rules for IARPIs, applying the PAT if an entity was land-rich at any time in the previous 365 days. Mining, quarrying and prospecting information (MQPI) would have to be included when assessing land asset value for these rules.
• Enhanced compliance measures: Foreign vendors selling large land-rich interests (≥ AU$50m) would need to notify the Australian Taxation Office (ATO) before declaring an interest as non-IARPI to avoid foreign-resident capital gains withholding tax at 15%. Purchasers could only rely on such declarations if notification occurred within set timeframes. A new objective standard would require purchasers to withhold if it is reasonable to conclude that a vendor's declaration was false.

Commencement date

The Division 855 reforms would commence on the first 1 January, 1 April, 1 July or 1 October after Royal Assent. The core changes would apply to CGT events occurring on or after the commencement day.

The Bill does not include any transitional rules or grandfathering for existing investments other than for renewable energy assets, covered further below. Therefore, preexisting assets may face different Australian tax outcomes upon sale than expected when first acquired.

Transitional renewable energy concession

The Bill introduces a 50% CGT discount for foreign-resident investors on gains from eligible Australian renewable energy assets until 30 June 2030, intended to help investors adjust to the new rules.

Assets must be TARP and have the primary purpose of either generating or producing electricity in Australia from an eligible renewable energy source or operating as an energy storage system for such electricity.

Shares or units could also qualify if the interest passes the renewable energy asset test — broadly, if the market value of the entity's Australian renewable energy assets is at least three times the market value of its other taxable Australian real property. The discount is available only to foreign residents that are not individuals, and to trustees of foreign trusts for CGT purposes.

Changes to tax credits under the foreign-resident capital gains withholding regime (Schedule 8)

The Bill would amend the Taxation Administration Act 1953 in relation to tax credits arising under the foreign-resident capital gains withholding tax regime to ensure that the vendor could claim tax credits withheld by the purchaser in the same income year in which the vendor's tax liability arose.

Changes from the ED to the Bill

There are a number of changes from the ED legislation to the Bill, including:

• Removing the retrospective application to 12 December 2006 of the statutory definition of "real property"
• Broadening the meaning of "fixed or installed on land"
• Adding three new Ministerial-power Legislative Instruments
• Broadening the application of the tax treaty override

Limited retrospectivity

An important refinement from the ED is the Bill's approach to retrospectivity. The original ED proposed applying the new "real property" definitions retrospectively to CGT events as of the date Division 855 commenced, on 12 December 2006. This was driven by a concern that taxpayers who had lodged returns based on a conservative ATO view that did not fully align with subsequent court decisions.

The final Bill addresses this issue by making the substantive changes prospective only and including a specific protection that generally prevents pre-commencement assessments from being reopened by the Commissioner at the request of taxpayers seeking to amend their prior-year assessments and recover tax paid.

The Commissioner could, however, amend prior-year assessments if they are within the standard four-year statutory look-back period. The Commissioner could also amend in cases of fraud or evasion, or for taxpayer objections lodged before 10 April 2026 (the date of the ED's public release). By dealing with the matter through this limitation on amendment powers, the Bill removes the need for broad retrospective operation back to 2006. This is a welcome development that provides greater certainty for completed transactions.

Broadening the rule of "assets fixed or installed on land"

The Bill would broaden the rule regarding assets fixed or installed on land by removing a previous restricting qualifying condition in the ED requiring that the asset be fixed or installed on land for a "majority of its useful life." The new rule includes "a thing (or combination of things) fixed or installed on land," potentially broadening the coverage of assets and equipment installed on land.

Three new Ministerial-power Legislative Instruments

The Bill includes new Ministerial powers to determine circumstances in which an alternative specified time period applies for PAT purposes.

The Minister would also, by Legislative Instrument, be allowed to specify that purchasers can rely on the vendor's non-IARPI declaration if the transaction is of a type, or involves circumstances, determined by the Minister. These types of transactions or circumstances exempt the foreign-resident vendor from notifying the ATO of the sale.

The Bill would give the Minister power to determine relevant foreign connections by Legislative Instrument, for the purposes of determining whether an entity is a foreign resident.

Broadening the application of the tax treaty override

The Bill would expand the treaty override provision to include "land," ensuring that tax treaties that refer to land are covered by the amendments, aligning to a great extent the meaning of real property, immovable property and land in all of Australia's tax treaties.

Clarifying and broadening the scope of TARP

The Bill would broaden the scope of assets treated as TARP by introducing a statutory definition of "real property" in the income tax law (see below) and by specifying categories of assets to be treated as TARP.

TARP would continue to include mining, quarrying and prospecting rights and would also include:

• Real property that is situated, or relates to land situated, in Australia or relates to a thing (or combination of things) fixed or installed on land situated in Australia
• Water entitlements in relation to a water resource situated in Australia
• An option or right to acquire another CGT asset that is TARP

Real property definition

The Bill would insert into the ITAA 1997 a comprehensive definition of "real property," which is currently undefined and takes its ordinary meaning.

The defined term would still carry its ordinary meaning plus specific inclusions to ensure broad coverage.

Key features of the definition would be the following:

• Interests and rights in Australian land (definition of real property subsection 995-1(1) paragraph (a)): Any interest in or right over Australian land would be real property for CGT purposes, regardless of how that interest or right is treated for the purposes of any state or territory law.
• This would cover not only freehold and leasehold estates but also all forms of legal or equitable interests (e.g., easements, covenants, profits-à-prendre, constructive trusts).
• The disregarding of state or territory laws responds to issues highlighted by recent court decisions in which state and territory law concepts (including statutory severance) may produce outcomes that narrow the operation of the foreign-resident CGT rules.
• The definition would also expressly include personal contractual rights to acquire land — such as call options or contractual purchase agreements as real property (paragraph (b)).
• Licenses and rights over or concerning land (paragraph (c)): The definition would extend real property to any license or contractual right "exercisable over or in relation to land." This goes beyond the GST concept of a "license to occupy" and includes rights to exploit or use land/resources — for example, forestry, agricultural and water licenses are explicitly cited as being within the scope of real property for tax purposes. The EM specifically notes assets such as toll roads, bridges, car parks, ports, data centers and energy infrastructure such as pipelines as coming within this provision. The policy aims to capture arrangements that grant economic benefits from land without conferring ownership.
• The EM notes that incidental rights, such as a service contractor's access to perform onsite services, do not constitute real property, seemingly prioritizing substance over form and focusing on substantial land-related rights. Example 2.1 provides an instance of such incidental rights. However, there is nothing in legislation that provides an exemption for incidental rights of this nature.
• Assets ("a thing or a combination of things") fixed or installed on Australian land: The assets would be treated as real property (whether or not they are a fixture, or treated in any other way, for the purposes of any state or territory law or at general law), making large infrastructure or equipment taxable as TARP when sold (paragraph (d)). "Installed" would mean placed for use, including assets that are not permanently attached but are intended to remain long-term. Temporary placement would not qualify. If any part of an integrated system is fixed or installed, the whole installation would be considered land-related property. Leasing rights over such assets would be taxed the same as ownership (paragraph (e)).
• Licenses and contractual rights: The definition would also include "a license or contractual right exercisable over a thing mentioned in paragraph (d)" (concerning assets fixed or installed on Australian land) (paragraph (f)). This inclusion, together with earlier mentioned paragraph (c), creates significant uncertainty, for example as to whether rights such as power purchase agreements, offtake agreements, licenses and project delivery agreements could be treated as TARP, with potentially far-reaching valuation consequences for both direct asset sales and the application of the PAT to upstream interests.

IARPI tests tightened

A foreign resident's capital gain on disposing of shares or units in an entity that owns Australian property can be taxable in Australia as IARPI if the entity is "land-rich" and the investor holds a non-portfolio interest (generally 10% or more). The Bill would strengthen two key aspects of this rule:

1. PAT extended to 12 months: The PAT would consider asset composition at any point in the 365 days before sale, not just at the time of sale. If Australian land or resources exceed 50% of assets during that period, foreign sellers with stakes of 10% or more would be taxable. This is intended to prevent temporary asset changes being made to avoid CGT and, as mentioned earlier, the Minister could specify circumstances by Ministerial decree for alternative PAT times to apply.
2. Mining information included in valuations: The proposals introduce a new rule that when applying the PAT, an entity's TARP assets valuation would have to factor in any MQPI linked to mining rights. Although MQPI is not classified as a TARP asset, its value is counted toward the TARP portion for the 50% land-rich test, ensuring mining businesses cannot avoid CGT liability by attributing value to intangible data rather than mining rights.

Strengthened withholding tax regime and ATO notification requirements

Australia's foreign-resident capital gains withholding tax system requires purchasers to withhold tax (currently 15%) on CGT asset sales by foreign residents, unless appropriate clearance or declarations are provided to the purchaser. The Bill would bolster this regime for large indirect asset sales by requiring the following.

For any transaction (or related transactions) in which a foreign investor makes a vendor declaration to a purchaser that their membership interest is non-IARPI, and the aggregated transaction value is AU$50m or more, the vendor would be required to notify the ATO using the approved form within the review period (from contract to completion).

If the time from signing to completion exceeds 31 days, the vendor would have to notify the ATO at least 28 days before completion; if the time elapsed between signing to completion is 31 days or less, the vendor would have to notify the ATO as soon as possible after signing and by settlement.

Failure to complete any of these steps would invalidate the non-IARPI declaration, requiring the purchaser to withhold.

The vendor may also inform the purchaser of the ATO notification and the date the notice was given.

The Bill would also lower the threshold at which purchasers must withhold tax despite receiving a vendor declaration. Buyers would be required to withhold if they know or could reasonably be expected to know that the declaration is false, replacing the current rule that requires actual knowledge that the declaration is false. This objective test will require buyers to perform and document reasonable inquiries, such as by checking corporate records and sale agreements. If evidence suggests a foreign seller's claim of nontaxable status is likely incorrect (e.g., the company is land-rich), the buyer should consider withholding to avoid liability.

The existing penalty provisions for false or misleading statements would be extended to cover the new ATO notification, thereby placing significant penalty risk on the vendor if the statement is incorrect or the ATO views the statement to be incorrect or misleading.

All current exemptions from withholding tax would remain in place; notably, sales of assets listed on an approved stock exchange would be exempt from this regime.

50% CGT discount for foreign investors in renewable energy assets

The Bill also introduces temporary relief for foreign investors in renewable energy projects in the form of a 50% CGT discount on qualifying gains.

The measure is intended to encourage continued foreign investment in Australian renewables during the transition to the stricter CGT regime, which would reduce the impact of the expanded tax base on clean energy projects. The discount would be strictly time-bound, applicable to disposals from the commencement of the new law until 30 June 2030 (after which it sunsets).

The discount would be available only to foreign residents that are not individuals (e.g., foreign companies, trusts).

The discount would apply to direct and indirect investments.

Direct investments: The discount would apply to gains from disposing of an "Australian renewable energy asset," defined as a CGT asset that is TARP and has the primary purpose of generating or producing electricity in Australia from renewable sources, or operating as an energy storage system for such electricity.

This would cover assets such as wind and solar farms and battery storage facilities, including associated land or equipment, provided they are predominantly used for eligible renewable energy production. General transmission or distribution networks that serve broad energy markets would be excluded, as they are not directly part of renewable generation. An asset under development could qualify if there is clear evidence of its intended renewable energy use (such as development approvals or grid connection agreements).

Indirect investments: The discount would apply to gains from selling shares or units if the sold interest meets a strict "renewable energy asset test," requiring at least 75% of the entity's TARP assets to be Australian renewable energy assets at the time of the CGT event. The rule considers multi-tier structures by tracing through entities and includes safeguards against manipulation or last-minute asset changes to meet the threshold.

Implications

Stakeholders — including foreign investors, infrastructure and energy sector participants, custodians, managed funds and other investment intermediaries — should review the Bill and EM carefully. The measures have the potential to affect a wide range of investments and will require updates to compliance processes, valuations and transaction documentation. The changes could increase compliance costs, particularly for businesses with fluctuating asset values that may need to obtain more frequent valuations.

Extension of the PAT to 12 months will require foreign investors and their advisors to conduct more robust due diligence on target companies' asset histories. Determining whether an entity was land-rich at any time in the year prior to sale may require obtaining historical financial statements or valuations. The inclusion of MQPI value means that specialist valuation input will be important for deals involving resource companies, to allocate combined asset and data values.

In addition, the proposed objective-purchaser test could lead to stricter due diligence and conservative withholding practices.