Significant and retrospective changes to Australia’s taxable Australian property laws: draft legislation released

On 10 April 2026, the Australian Government released draft legislation and explanatory material for its proposed changes to the foreign resident capital gains tax (CGT) regime (which was first announced as part of 2024-25 Australian Budget). Whilst the Government is describing the changes as merely giving effect to the “well understood intention” of the rules as originally introduced, we consider the changes significantly expand the circumstances in which foreign investors will be subject to CGT in Australia and increase Australia’s sovereign risk as a destination for foreign capital. These changes will apply to past, existing and future transactions, including matters currently before the courts. Transitional relief will only be offered for a limited class of renewable energy assets, and only until 2030. Below we walk through the breadth of the proposed changes and their retrospectivity. 

In short

It does not take long to realise that the expanded concept of Australian “real property” is potentially far-reaching. 

It is this breadth, the retrospective application of the proposed changes and their comparison to what was previously agreed, and apparently misunderstood, international taxing rights, that brings into sharp focus not only the validity of the changes but the potential to disrupt future capital inflows from foreign investors which support the development of critical Australian infrastructure and real property. 

In our view, the proposed changes are so widely drafted that significant uncertainty remains as to the outer boundaries of the foreign resident CGT base. The Australian Government is presenting the changes as consistent with the OECD model and the original policy intent. However, foreign investors are likely to dispute whether the breadth of the proposed domestic concept of “real property”, the retrospective application and the treaty changes go materially beyond previously understood domestic and treaty limits in respect of the alienation of real property. The retrospectivity will not only trigger significant court challenges; but raises the question as to how far back the ATO will review and open up historic exit transactions where sale proceeds have long been distributed to investors.

At their core, the proposed changes mean:

Historical exits:

• An intention to re-capture certain exit transactions previously considered not subject to Australian tax.
   
• Look back re-capture as far as from 12 December 2006.
   
• Transactions re-captured may include:
   
  • Infrastructure assets fixed on land that were not previously “real property” at general law; and
     
  • Interests or rights over Australian land, and leases of fixed assets, where those assets or rights were not previously treated as “real property”.
     
• Treaty-protected assets may remain outside scope where the relevant treaty is otherwise inconsistent with the expanded Taxable Australian Real Property (TARP) provisions.
   
• Not eligible for limited 50% discount transitional rule for renewable energy generation asset exits.
   
• Accordingly, a minimum 30% tax rate, plus the application of penalties and interest, could be applied instead of the previous 0% rate.

Future exits – assets acquired before commencement of the new rules:

• No grandfathering of existing rules for exits of assets that were acquired before the commencement of the new rules.
   
• Potentially expanding the domestic meaning used for treaty purposes in seeking to align treaty references to “real property” or immovable property with the expanded domestic TARP concept.
   
• Transactions now potentially captured include:
   
  • Contractual rights linked to land or fixed/installed infrastructure, including rights exercisable over or in relation to Australian land, or over things fixed or installed on Australian land, that would not previously have been understood as “real property” or immovable property for treaty purposes;
     
  • This could include, for example, options to acquire Australian land assets and contractual bundles that confer substantive rights to occupy, use, control or exploit Australian land or fixed/installed infrastructure. A more difficult question arises where value is attributable not to those underlying rights themselves, but to output or broader enterprise value generated from them, such as goodwill; and
     
  • A critical boundary issue will be distinguishing between rights that are themselves “real property” under the expanded definition, and value merely attributable to the future income-producing capacity or broader business operations associated with those rights.
     
• Limited 50% discount transitional rule applies for renewable energy generation asset exits by certain foreign investors until 30 June 2030. 
   
• Accordingly, a minimum 30%, or limited 15%, tax rate could be applied instead of previously forecasted 0% rate.

Future exits – assets owned: 

• The same as above, excluding any considerations regarding grandfathering which are not relevant to assets not yet acquired

Transaction processes – new execution risk:

• Indirect sale testing will become onerous and harder, with a 365-day principal asset test (PAT) and the inclusion of mining, quarrying or prospecting information in TARP value for PAT purposes. It is difficult to see how a foreign investor may discharge its onus of proof that more than 50% of underlying property was not TARP at any point in time over a 365-day period.
   
• For $50 million+ non-IARPI (Indirect Australian Real Property Interests) deals, vendors will need to notify the ATO and purchasers will need to test vendor declarations against an objective knowledge standard, with real withholding risk if the process is not followed.

The expansive definition of “real property” and TARP has not been adopted for the managed investment trust (MIT) rules, despite other areas of the tax law to be updated to reflect the broader concepts. 

The Australian Government first sought high level comments on broad principles associated with these proposed changes in July 2024, without providing further guidance since then. The Government is now only seeking comments on the draft law and guidance for two weeks – until 24 April 2026. It is imperative that all stakeholders contribute their views and concerns by this deadline. 

In detail

Background 

Broadly, Australia’s tax laws currently provide the CGT rules will not capture foreign investors who invest in Australia unless the relevant property sold is directly or indirectly taxable Australian real property (TARP). This includes “real property situated in Australia”, but the concept of “real property” has never been defined in Australia’s income tax legislation. 

The Australian Government considers developing law and practice on the meaning of ‘real property’, which is affected by whether an item is a fixture under the general law and state and territory-based legislation, is inconsistent with the original policy (which was apparently always misunderstood) and may lead to inconsistent outcomes across Australian states and territories. This has arisen after two losses on the meaning of ‘real property’ in the Federal Court for the ATO in YTL Power Investments Limited v Commissioner of Taxation [2025] FCA 1317 (YTL) and in Newmont Canada FN Holdings ULC v Commissioner of Taxation (No 2) [2025] FCA 1356 (Newmont). One of which is actively being appealed (with an appeal in Newmont also possible) – further information is available in the Corrs Insights here: YTL and Newmont. 

To respond to this, the Australian Government proposes to introduce a new definition of “real property”. 

New concepts of real property and TARP

The exposure draft legislation defines the concept of “real property” and TARP to include (but not be limited to):

• any interest in or right over land;
   
• a personal right to call for or be granted any interest in or right over land;
   
• a licence or contractual right exercisable over or in relation to land; 
   
• a thing (or combination of things) that is fixed or installed on land and is, or is reasonably expected to be, situated on the land for the majority of its useful life (whether or not it is a fixture at general law);
   
• a lease, licence or contractual right exercisable over a thing as above;
   
• a water entitlement in relation to a water resource situated in Australia;
   
• an option or right to acquire the above; and
   
• for indirect disposals only, mining, quarrying or prospecting information will be deemed to be TARP for the purposes of the PAT.

The definition of “real property” is inclusive. The Government intends the items listed above to be specifically caught, as well as further things which may be caught by the ordinary meaning of the concept.

In determining whether an interest, right or thing on or over land is “real property”, the treatment of any state and territory law will be disregarded. States and territories have introduced various pieces of legislation which are designed to negate the general law principle that items affixed to land are owned by the owner of the land itself. These “statutory severance” laws serve important, non-tax purposes, such as to provide economic and legal certainty to asset owners which lease (but do not own) underlying land and to facilitate financing arrangements. This is particularly important in respect of critical infrastructure that is of State importance.

Through the proposed changes, the Government is seeking to be able to tax pieces of equipment that are “useful when fixed or installed on land in Australia” because they are “valuable because of their connection to and reliance on the land, regardless of which specific parcel of land they are fixed to or installed on from time to time”. The draft explanatory memorandum describes some classes of assets that are intended to be caught by the changes. These include rights in relation to data centres (such as licence access arrangements), various types of renewable energy assets, infrastructure assets, transmission lines, substations, statutory rights in relation to gas pipelines, underground pipes, heavy machinery, mining plant and equipment, and forestry, agricultural and water licences. An asset need not be operational yet for it to be within the intended scope of the changes. 

The concept of a “combination of things” is intended to include large-scale infrastructure projects such that all separate, interdependent component assets are captured by the change, despite only some of the assets being directly fixed or installed on land. 

Unfortunately, minimal guidance is provided on what may constitute a thing which is “fixed” or “installed” on land but which is not a “fixture”, other than to clarify that: 

• something “installed” on land may include a thing that is not fixed to land but that is placed in position for use on land; and
   
• something which is “merely placed” on land is not intended to be captured, provided that thing is not “placed in position for use on land”.

The inclusion of mining, quarrying and prospecting information in the meaning of TARP for PAT purposes only is intended to prevent foreign investors from arguing that underlying market value relates to that information (which would not otherwise be real property) rather than the underlying mining interests and land itself. 

Nonetheless, the difficult interpretive questions are less likely to arise in relation to obvious land interests, leases and fixed/installed assets, and more likely to arise where value is said to reside in contractual rights associated with the use of those assets.

Extensive (and intentional) retrospectivity 

Historical sales caught

Important aspects of these proposed changes are retrospective and apply to CGT events which, through the technical application of Australia’s period of review rules, may have happened as far back as 12 December 2006. This retrospectivity applies to real property which is: 

• any interest in or right over land situated in Australia (regardless of how that interest or right is treated for the purposes of any state or territory law);
   
• a thing (or combination of things) that is fixed on land situated in Australia and is, or is reasonably expected to be, situated on the land for the majority of its useful life (whether or not it is a fixture, or treated in any other way, for the purposes of any state or territory law or at general law); and
   
• a lease of a thing mentioned immediately above.

The draft explanatory memorandum explicitly acknowledges this retrospectivity but considers only assets that were statutorily severed by State or Territory laws will be “substantively” affected. The retrospective limb is narrower than the prospective rule because it is confined to interests or rights over land, things fixed on land and leases of those fixed assets. Even so, this seems to be inconsistent with the evident scope of the words above, which enables the changes to also apply to assets “fixed” to land which were not “fixtures”. The Government has also explicitly acknowledged that the changes are intended to “broaden” the Australian tax base.

This retrospectivity is significantly broader than acknowledged by the Government and is concerning. For example, many foreign investors would not have lodged Australian tax returns on transactions dating back to 2006 on the advice that their transaction was not one made in respect of real property, such as because they rightly considered the asset was not a “fixture” (whether or not it was statutorily severed by State or Territory legislation). If that asset was, however, “fixed” to land for the majority of its useful life, then it would appear to be within scope of the retrospective changes. 

By virtue of not lodging an Australian tax return, that foreign investor would not have any “period of review” limitation which prevents the ATO from taxing the investor on transactions which occurred more than four years ago. The proposed changes would then enable the ATO to assess the foreign investor on transactions going as far back as 12 December 2006 (although it’s especially unclear how the ATO may jurisdictionally or practically do this in the case of foreign investors who have already wound up their past operations in Australia). This is surely unintended and creates significant sovereign risk for Australia as an attractive destination for foreign investors. We would like to consider the ATO would not seek to disturb historical sales – however, the ATO has been undertaking compliance action on historical arrangements dating back to 1999 (in relation to family trusts, which you would expect to gain more political sympathy than sales by foreign investors). 

Current investments caught

Existing investments held by foreign investors will also be caught by the proposed changes. The broader changes (i.e. those not discussed immediately above) will apply in relation to CGT events (such as signing a contract of sale) that happen on or after the first day of the quarter following the passage of the changes into law. 

This means that existing investments held by foreign investors, even if acquired before the announcement of the laws, will be subject to the changes if a contract to sell the investment is signed after the changes become law.

The proposed changes are significant and foreign investors allocate capital to Australia based on the forecasted returns, including known tax rates, on entering into the investment. It’s disappointing that the Government has not offered broader transitional relief for current investments. For example, in relation to the cross-staple MIT changes, the Government provided seven and 15 year transitional periods for existing investments. Arguably, those changes (which increase tax rates from 15% to 30%) are smaller than the current proposed changes (which can increase tax rates from nil to 30% or more). 

Very limited transitional relief for renewable energy assets only

Limited transitional relief is only offered in respect of renewable energy assets (whether held directly or indirectly) and only for CGT events (e.g. signing sale contracts) happening before 1 July 2030. To qualify for the relief, the following conditions would need to be satisfied:

• the CGT event (e.g. sale contract) occurs after the changes become law and before 1 July 2030;
   
• the sale relates to TARP held by a foreign resident (other than an individual);
   
• for the direct sale of an asset, the primary purpose of the asset sold is to generate, or directly facilitate the generation of, electricity in Australia using an eligible renewable energy source (within the meaning of the Renewable Energy (Electricity) Act 2000 (Cth));
   
• for an indirect sale (e.g. selling shares in a company which directly or indirectly holds renewable energy assets), the renewable energy assets must constitute at least 90% of the market value of underlying TARP assets. 

A renewable energy asset does not need to be operational to qualify for the relief. 

Where a foreign investor qualifies for the relief, they will be entitled to reduce their capital gain by 50%. 

It appears that this transitional relief will apply to renewable energy asset sales that would have been taxable under the existing law. This is one of the few benefits provided to foreign investors by the changes. 

The primary purpose requirement is intended to target the transitional relief. The Government considers an asset will have a primary purpose of generating renewable electricity if it is predominantly used for such a purpose (and for more than any other purpose). However, general electricity transmission infrastructure (e.g. poles and wires) is not intended to meet the primary purpose requirement. If general transmission assets are included in a group, they may skew the strict 90% market value threshold and disentitle a foreign investor from obtaining transitional relief. 

Litigation in Newmont and YTL – retrospectively denied?

The circumstances that are the subject of the Federal Court decisions (and any appeals) in Newmont and YTL appear to be affected by the retrospective changes to the CGT regime. In each case, the crucial issue for the Federal Court to determine was whether underlying assets sold by foreign investors constituted TARP.

In Newmont, the assets were mining‑related assets (including plant and equipment, mining information and mining tenements). In YTL, the assets were electricity transmission infrastructure.

In both cases, the Federal Court held the relevant assets were not TARP, which enabled the foreign vendors to disregard capital gains on their sales. 

The draft explanatory materials make it clear that the amendments seek to address “recent judicial decisions” which have identified a gap between the “intended and actual operation” of the foreign resident CGT exemption.  

Some contractual bundles and synthetic arrangements may be caught

Almost no guidance is provided on what additional indirect arrangements are intended to be caught by the proposed changes to broader rights related to real property, such as through the broad concept of a “contractual right exercisable over a thing” which is fixed or installed on land. 

We consider this change may capture, not only some synthetic arrangements, but also some contractual bundles under which an entity holds substantive rights to occupy, use, control or exploit Australian land or fixed/installed infrastructure. The critical issue will be characterising the relevant asset: a right linked to land and fixed/installed infrastructure may itself be real property under the expanded definition, whereas a bare right to output or broader enterprise value associated with that right is less clearly brought within the legislation. For example, wider enterprise value like goodwill or other value that does not arise out of a lease, licence or contractual right relating to assets fixed / installed on land. This distinction is not squarely resolved by the draft materials, which emphasise substance over form but also indicate that rights merely ancillary to the performance of services on-site are not intended to be caught.

Treaty override

The proposed changes also include a treaty rule, whereby the expressions “real property” and “immovable property” as used in Australia’s double tax agreements will, to the extent the relevant treaty text picks up Australian law, be aligned with the expanded domestic TARP concept (to the extent allowed under the treaty). 

Australia has a complex network of tax treaties which were negotiated with each relevant country, some of which have stood for decades. These treaties contain articles on the disposal of property (an alienation of real property article). In some instances, where the treaty provides more favourable outcomes than Australia’s domestic tax law, the treaty operates as a “shield” and the investor is entitled to the lower tax under the treaty. 

The Government’s proposed changes seek to shut down future arguments that investors are entitled to more favourable outcomes under a relevant treaty. The Australian Government’s interpretation of treaties has been controversial in the past. 

The Government appears to consider this approach is appropriate because the broader changes to the definition of “real property” are intended to be based on the OECD model, on which Australia’s tax treaties are also based. Of course, if both were completely true, there would be no need for the treaty rule.

The draft explanatory memorandum states that the treaty amendment is intended to apply to CGT events happening on or after commencement. The commencement provision is less clear in the exposure draft and will need to be clarified as part of the consultation period. 

Proposed changes to the principal asset test

Under the current law, for indirect sales of taxable Australian property, the principal asset test operates at a single point-in-time, just before the relevant CGT event happens. It provides, where more than 50% of the market value of an interest is made up of TARP assets, then a foreign investor’s sale of the interests may be taxable. 

The Government proposes to alter this test so it applies for the 365 days leading up to the CGT event. This is intended to align with the OECD standard and minimise integrity risks where foreign investors alter the composition of their assets prior to a sale. This change will create a compliance burden on foreign investors and a further avenue for the ATO to challenge sales.

As a further, targeted change, the value of mining, quarrying or prospecting information, which is technically not TARP but which is inherently connected to TARP, will be included in market value of TARP when assessing if the principal asset test is satisfied. 

Changes to M&A processes and timelines

Foreign resident vendors can currently declare to purchasers in writing that relevant sales are not IARPI (and therefore not taxable for the vendor). This means the purchaser does not need to remit a portion of the purchase price to the ATO.

Included within the changes is a proposed requirement for foreign vendors to notify the ATO of a proposed sale worth $50 million or more which the vendor considers is not IARPI (with aggregation rules if there is more than one transaction). A declaration made by the vendor to the purchaser that a sale does not include IARPI will not be valid unless the vendor has notified the ATO. Practically, this will mean purchasers must seek evidence of the vendor’s notification to the ATO as part of their due diligence processes. 

In addition, there is an important change for vendors that moves the knowledge threshold. Currently, a purchaser cannot rely on a declaration if they “know the declaration to be false” (i.e. a subjective test) – the threshold will now be “do you know, or could you reasonably be expected to know, the declaration to be false” (i.e. an objective test). 

The draft explanatory memorandum states that this moves the knowledge requirement from a subjective to an objective threshold; and that:

 “This new test places a higher onus on purchasers to more actively consider ordinary due diligence results and readily available information rather than rely exclusively on vendor declarations which may be inaccurate …” and

“In practice, it is expected that purchasers would undertake and document proportionate, customary checks (such as reviewing ASIC/ABR extracts, transaction documents, and any residency disclosures), address obvious inconsistencies through routine queries, and retain records …”

Particularly for public M&A transactions involving schemes of arrangement and takeovers, this will add to the due diligence requirements for purchasers (for example, seeking to diligence the 10% associate inclusive threshold for what constitutes a non-portfolio interest). 

There are strict timelines included in the changes. Where there are more than 31 days between the date a transaction is entered into and the time at which the purchaser becomes the owner of the interest, then the vendor must provide the ATO with at least 28 days’ notice. In other cases, the vendor must provide the ATO with notice “as soon as reasonably practicable” after the transaction is entered into, but before the purchaser becomes the owner. Practically, if a vendor cannot meet these requirements, then a purchaser will need to withhold and remit 15% of the purchase price to the ATO. 

Purchasers must take these obligations seriously. For example, there is no exception for related party transactions (e.g. internal reorganisations, where there is no underlying change in economic ownership). A purchaser that fails to comply with the withholding requirement can be liable to a penalty equal to the amount that should have been withheld. That means penalties for non-compliance start at $7.5 million (based on a $50 million transaction, being the lowest threshold). 

Broader amendments – but not for MITs

The proposed changes include largely housekeeping amendments to other areas of the tax laws to apply the new definition of “real property” under a so-called “one-term one meaning” principle to other tax regimes, such as for depreciation purposes. 

However, absent from these changes is any expansion to the concept of an “eligible investment business” for MITs and public trading trusts. Broadly, a MIT will not be taxed like a company where it invests in “land” for the purpose of deriving rent. The proposed changes do not impact the concept of land more broadly (nor what constitutes rent) and there is therefore no expansion to the classes of asset in which MITs may invest before losing their status as a MIT. This results in an asymmetrical outcome for foreign investors which invest in Australian real estate for MIT purposes (with an effective 15% tax rate) versus those that are not eligible for MIT status, but which invest in real property for CGT purposes (with a minimum 30% tax rate).

Short consultation period

The Government is consulting on the draft legislation and explanatory material for only two weeks. Submissions close on 24 April 2026.