Expanding the CGT regime for foreign residents
| Date | CGT events commencing on or after 1 July 2025 |
The foreign resident capital gains tax (CGT) regime will be expanded by:
- Clarifying and broadening the types of assets on which foreign residents are subject to CGT
- Amending the point-in-time principal asset test to a 365-day testing period
- Requiring foreign residents disposing of shares and other membership interests exceeding $20 million in value to notify the ATO, prior to the transaction being executed.
Under current law, foreign residents are subject to CGT when they sell an asset classified as ‘taxable Australian property’ (TAP). The rules seek to ensure that non-residents are subject to Australian CGT on the disposal of assets with sufficient Australian land and assets that have been used in business activities in Australia.
Shares in a company and units in a trust can be classified as TAP if the taxpayer and certain related parties hold at least a 10% interest in the entity and where more than 50% of the gross market value of the assets held by the entity is attributable to real property located in Australia and similar assets.
The measure is intended to ensure that Australia can tax foreign residents on direct and indirect sales of assets with a close economic connection to Australian land, bringing the treatment more in line with the tax treatment that already applies to Australian residents.
The new ATO notification process will improve oversight and compliance with the foreign resident CGT withholding rules, where a vendor self-assesses the sale without involving TAP.
The proposed reforms will align Australia’s tax law for foreign resident capital gains more closely with OECD standards and international best practice.
The Government will consult on the implementation details of the measure, which is estimated to increase receipts by $600 million and payments by $8 million over the five years from 2023–24.