Entity Setup
Foreign Resident CGT Overhaul: Opportunities and Risks
New proposed CGT rules for foreign residents broaden asset types subject to tax, extend principal asset test periods, and introduce notification obligations for high-value share disposals.
By NomadicTax Research Team • 5-8 min read • August 24, 2026
## Proposed CGT Reforms for Foreign Residents
The ATO is implementing reforms to non-resident capital gains tax (CGT) under **Division 855** of the Income Tax Assessment Act 1997. These changes, not yet law but legislated to commence for **CGT events from 1 July 2025**, will:
- Clarify and broaden the types of **assets** that foreign residents are taxed on when disposing assets with close economic connection to Australian real property.
- Amend the **principal asset test** to require a **365-day testing period**, rather than earlier rules, to determine if assets are principal assets.
- Introduce a requirement that foreign residents disposing of **shares or membership interests valued over AUD 20 million** must **notify the ATO before executing** the disposal. ([ato.gov.au](https://www.ato.gov.au/api/public/content/0-b12d922f-3ffe-47a6-a868-289919bcf50a?utm_source=openai))
## What Counts as a Principal Asset and Close Economic Connection
“Principal asset test” determines whether a non-resident disposal of shares is treated as disposing directly or indirectly of real property. The change to a 365-day test increases the look-back period, affecting when disposals are subject to CGT. ([ato.gov.au](https://www.ato.gov.au/api/public/content/0-b12d922f-3ffe-47a6-a868-289919bcf50a?utm_source=openai))
“Close economic connection” relates to assets with significant connection to Australian land (e.g. trusts or shareholdings over a threshold in companies owning property) so that disposals may be subject to Australian CGT. The broadened definitions increase exposure for some foreign investors. ([ato.gov.au](https://www.ato.gov.au/api/public/content/0-b12d922f-3ffe-47a6-a868-289919bcf50a?utm_source=openai))
## Notification Obligations for High-Value Disposals
Foreign persons disposing of shares or membership interests exceeding AUD 20 million in value (with close economic connection to Australian land) must **notify the ATO before the transaction is executed**. This aligns with withholding rules and enhances transparency. ([ato.gov.au](https://www.ato.gov.au/api/public/content/0-b12d922f-3ffe-47a6-a868-289919bcf50a?utm_source=openai))
## Implications
- **Foreign investors** need to review their asset portfolios to determine whether new definitions of assets or thresholds mean exposure to CGT where previously there was none.
- **Investment structures** such as trusts and foreign entities may need restructuring or earlier consultation to avoid surprises or penalties.
- **Deal diligence** is more important: acquisitions or disposals should include tax impact assessments under the new rules.
## Actionable Recommendations
1. Conduct a review of **existing and planned investments**, particularly shareholdings, trusts, or any assets with link to real property in Australia.
2. Engage legal/tax advisory support to determine whether your assets meet “close economic connection” thresholds under the new rules.
3. If disposing shares above AUD 20 million, make sure to **notify the ATO in advance**, and factor time and costs for this step into deal timetables.
4. Assess whether structures (trusts, offshore entities) can be altered to limit exposure, recognising that once a transaction is executed, retrospective adjustment may be hard or impossible.
5. Keep records to support testing periods (holding periods for principal asset test) carefully documented.
**Risks vs Opportunities:** While increased compliance burden is likely, the reforms offer an opportunity for advanced planning—optimising structures, timing disposals, and potentially achieving tax savings through proactive structuring. Stay ahead to ensure you're not caught off guard when these laws are fully operational.