Strengthening the foreign resident capital gains tax regime – draft legislation
The Institute of Public Accountants and Tax Institute (together, the Joint Bodies) welcome the opportunity to make a submission to the Treasury in respect of its consultation on the:
- exposure draft Treasury Laws Amendment Bill 2026: Strengthening the foreign resident capital gains tax (CGT) regime (draft Bill) and accompanying explanatory memorandum (draft EM);
- exposure draft Treasury Laws Amendment Bill 2026: Renewable energy asset discount capital gains for foreign residents and accompanying explanatory memorandum.
In developing this submission, we have closely consulted with members of the Joint Bodies who have specific knowledge, experience and expertise in corporate and international taxation to prepare a considered response that represents the views of the Joint Bodies’ broader memberships.
Preliminary comment on consultation timeframe
We note that in The Tax Institute’s 2024 submission to the strengthening the foreign resident capital gains tax regime Consultation Paper, we raised a preliminary concern that both that consultation and the Tax Practitioners Board (TPB) registration review were released concurrently. Given that both processes involved critical and systemic changes to the tax framework, this overlap was problematic.
A similar approach has been repeated in the present case but with even tighter consultation periods. This consultation was released on Friday, 10 April 2026, followed closely by the release of the draft legislation for the TPB sanctions reforms on Monday, 13 April 2026. The consultation on the Instant tax deduction – exposure draft was released on Monday, 20 April 2026 and overlaps with these consultations. Each of these measures is open for consultation for only two weeks, despite involving proposals for significant systemic changes.
The time period also overlaps with the period of the Board of Taxation’s Statutory review of Australia’s thin capitalisation reforms.
A two-week consultation window does not provide sufficient time for stakeholders to properly analyse the proposals, assess their practical impacts, or engage meaningfully with the reform process – particularly in the present case, where the proposed CGT changes substantially depart from concepts raised in earlier consultation and are proposed to apply retrospectively.
Our concerns in the present case are exacerbated by the fact that the original proposed changes were announced almost two years ago, in the 2024-25 Federal Budget delivered on 14 May 2024, and neither that announcement, nor the 2025-26 Federal Budget announcement on 25 March 2025 suggested any element of retrospectivity in the proposal.
Stakeholders within the tax profession require adequate time to understand the practical and operational implications of multiple reform proposals, which may involve obtaining feedback from members, before finalising positions and making informed recommendations. Rushed consultation processes reduce their effectiveness, increase the risk of poor policy outcomes and unintended consequences, and undermine public confidence in the tax system.
The Office of Impact Analysis states in its March 2023 Australian Government Guide to Policy Impact Analysis report (OIA Report) that when detailed information is provided as part of a consultation, stakeholders require sufficient time to understand, consider and respond, and that consultation periods ‘should not be less than 30 days’, and may be as much as 60 days depending on complexity. The OIA Report further notes that, where proposals are large or sensitive, additional time may be required to allow responses to progress through boards or other governance frameworks.
We encourage Treasury to consider the OIA Report in planning for future consultations to ensure stakeholders can effectively contribute and support the Government in the design and implementation of changes to the tax system for the benefit of all Australians and our economy.
Interaction between the proposed legislation and the ATO’s administrative statement
We note that the Australian Taxation Office (ATO) released an administrative statement on 16 April 2026 (later updated on 21 April 2026) on the proposed measure, outlining its practical approach to the retrospective application of the proposed changes. Given that the measure has not yet been enacted, the updated statement may contribute to perceptions that stakeholder consultation may not be meaningfully considered either in the finalisation of the legislation or the proposed date of application, particularly where the statement appears to assume passage of the measure in its current form. In any event, we trust that any retrospective application of the proposed measure are addressed conclusively as part of the consultation and legislative process, and not through reliance on an administrative statement.
Summary of key concerns
We support the objective of protecting the integrity of the Australian tax system. However, we consider that the proposed measure goes well beyond that objective and raises serious issues of policy design, legal certainty and investor confidence in Australian tax settings.
In particular, we have significant concerns regarding:
- the significant expansion of the scope of taxable Australian real property (TARP) beyond its established general law meaning, capturing a wide range of interests, rights and assets connected with land that have historically not been subject to Australian CGT for non-residents;
- the fact that judicial authority, legislative history and prior ATO guidance support the position that ‘real property’ in Division 855 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) currently takes its general law meaning, such that the proposed amendments constitute a substantive expansion rather than a clarification of existing law;
- the proposed retrospective application of the expanded definition to 12 December 2006, which represents a material departure from previous budget announcements and long-standing stakeholder expectations, with no transitional or grandfathering relief provided;
- the exposure of non-resident investors to tax liabilities for historical transactions that were not taxable under the law as it was reasonably understood at the time, undermining confidence in the stability and predictability of Australia’s tax system;
- the practical implications of retrospectivity, where affected non-residents typically do not lodge Australian tax returns, meaning standard assessment time limits may not apply and taxpayers could be assessed many years or even decades after a transaction occurred;
- the significant uncertainty created by the potential for retrospective assessments, including financial reporting and disclosure implications, and reputational risk;
- the proposed treaty override, which expands Australia’s taxing rights by redefining references to real or immovable property in certain tax treaties, increasing treaty uncertainty and the risk of treaty disputes, notwithstanding that the override is not retrospective (albeit, as discussed below, the retrospectivity of the general changes may affect residents in a number of key treaty jurisdictions, including the United States and Canada);
- the disproportionate impact of the retrospective changes on investors from non-treaty (and potentially pre-2006 treaty) jurisdictions as a result of the differing treatment of investors in treaty and non-treaty cases;
- the expansion of the indirect Australian real property interest rules, including the broader asset base and the 365-day testing period, which is expected to significantly increase compliance costs, valuation complexity and dispute risk;
- the inclusion of renewable energy assets within the expanded definition of taxable Australian real property, despite such assets often not being real property at general law (and not merely because of the operation of statutory severance rules), creating tension with broader policy objectives to attract renewable energy investment;
- the limited effectiveness of the proposed time-limited CGT discount for certain renewable energy assets, given its narrow application period, restrictive eligibility criteria, and inapplicability to retrospectively taxed gains;
- the substantial changes to the non-resident CGT withholding regime, which shift risk and compliance obligations onto purchasers, increase transaction complexity and introduce uncertainty due to the lack of a clear dispute resolution pathway; and
- the cumulative effect of these measures in increasing uncertainty, retrospective risk and compliance burdens, with potential adverse consequences for foreign investment confidence, treaty partner relationships, and the integrity of Australia’s tax system.
While the need to support the integrity of Australia’s CGT base is acknowledged, this objective needs to be balanced against the draft Bill’s policy and practical impacts. The draft Bill expands ‘taxable Australian real property’ beyond its established general law meaning, applies retrospectively from 12 December 2006, and gives rise to significant valuation, treaty interpretation, and compliance risks.
Our detailed observations and recommendations to improve the policy design of this measure are contained in Appendix A.