Compliance
Compliance Red Flags: Navigating ATO Scrutiny & Reporting Updates for Foreign Residents and Large Disposals
Foreign residency and the disposal of high-value assets are under the spotlight—stay compliant by understanding new CGT rules, reporting obligations, and timing changes.
By NomadicTax Research Team • 6 min read • November 19, 2025
## What Is Changing for Foreign Residents and High-Value Asset Disposals
The Australian Federal Budget 2025–26 deferred certain changes originally scheduled for 1 July 2025, moving them to a later date when the Act receives Royal Assent. Key among these are:
- **Strengthening the foreign resident Capital Gains Tax (CGT) regime:** expanding the types of assets subject to CGT, switching from a point-in-time to a **365-day principal asset test**, and requiring **ATO notification** before foreign residents sell shares or membership interests valued over **AUD 20 million**. ([dlapiper.com](https://www.dlapiper.com/en-AU/insights/publications/2025/03/australian-federal-budget-2025?utm_source=openai))
- **Managed Investment Trust (MIT) concession rules clarified**, with protections for genuine foreign based widely-held investors (such as pension funds) to still access concessional withholding tax rates. These changes apply to fund payments from **13 March 2025**. ([dlapiper.com](https://www.dlapiper.com/en-AU/insights/publications/2025/03/australian-federal-budget-2025?utm_source=openai))
## Who Needs to Pay Attention
- Foreign residents disposing property, equity, or interest in companies with large value
- Trustees or investors in MITs who are foreign-based
- Non-resident beneficiaries and companies exposed by digital platforms
## Compliance Checklist
| Requirement | Who It Applies To | Action Needed |
|---|---|---|
| Principal Asset Test (365 days) | Foreign resident investors of land-rich entities or those disposing CGT assets | Beware timing: assets held less than a year prior won't qualify under old point-in-time rule—holding period may push you into new tax events. |
| Notification for AUD 20 million+ disposals | Foreign residents disposing of shares/membership stakes | Submit pre-disposal notifications to ATO—planning to arrange deal structure accordingly. |
| MIT Concession access | Foreign pension funds, MITs with foreign investors | Confirm whether your structure qualifies as “widely-held” to avoid losing withholding benefits. |
## Examples to Illustrate Risk and Strategy
- **Example 1**: A foreign pension fund holds a MIT with aggregate value over AUD 5 million. Without a “widely-held” structure or multiple foreign investors, the fund risks losing concessional withholding rates unless the structure is reworked.
- **Example 2**: Cindy, a foreign resident, plans to sell shares in a company that qualify as “close economic connection” to land and valued at AUD 25 million. She must inform the ATO and consider tax under the new CGT rules with the 365-day test—selling earlier may subject her to more onerous rates.
## Penalties and Risks for Non-Compliance
- ATO is enhancing its capacity for data-matching and monitoring, especially large or suspicious transactions.
- Failure to notify asset dispositions or properly apply CGT could lead to back-taxes, penalties, and interest.
## Action Plan
1. **Audit your portfolio** to identify exposures: What assets could fall under CGT changes if you’re a foreign resident?
2. **Restructure holdings** where needed: Possibly partner or split ownership to be “widely-held” or modify MIT structures.
3. **Document holding periods** and transfers carefully to satisfy the 365-day test.
4. **Engage tax counsel or advisors** for large transactions—especially cross-border deals.
## Bottom Line
With the postponed CGT reforms around the corner and far more stringent tests and notification rules, foreign residents (or those who may become foreign resident) must prepare now. Staying compliant is not just about avoiding penalties—it’s about preserving intended tax concessions.