Overview of Division 855 CGT Reforms for Foreign Residents
Proposed amendments to Division 855 of the Income Tax Assessment Act 1997 will change how foreign residents are taxed on capital gains. Key changes include:
- a broader range of assets placed under CGT—beyond just land or real property;
- a shift to a 365-day holding period for the principal asset test;
- a requirement to notify the ATO in advance if disposing shares or membership interests valued over AU$20 million.(ato.gov.au)
These changes are not yet law, but will apply to CGT events occurring on or after 1 July 2025.(ato.gov.au)
Affected Assets and Tests
- Assets connected to Australia, including certain indirect interests (e.g., shares in foreign entities with underlying Australian property value), may be caught.
- The point-in-time principal asset test now uses a 365-day look-back instead of longer historical periods, making timing and asset holdings more significant.
Notification Obligations
Individuals disposing of shares or membership interests over AU$20 million must submit notification to the ATO before the transaction settles. This is to enhance oversight and compliance, especially with withholding rules when vendors self-assess.(ato.gov.au)
Practical Implications for Investors and Advisers
- Portfolio structuring may need review: previously non-land assets may attract Australian CGT exposure.
- Watch out for notification thresholds: large deals require pre-transaction reporting.
Examples
| Scenario | Outcome Under Proposed Reforms |
|---|---|
| A foreign resident sells shares in a company with significant Australian property value | CGT applies even if shares weren’t directly in real estate; must notify the ATO if over $20 million worth |
| A trust holding Australian land indirectly | Newly included under broader asset catch if passes tests |
How to Prepare Now
- Conduct asset mapping: identify what you own, where and underlying value.
- Monitor upcoming consultative drafts and ensure compliance with notification rules.
- Keep records of ownership periods, valuations, and when you acquired or disposed of assets.
Takeaway: These reforms tighten the net around foreign resident capital gains. Whether you’re investing personally or through trusts, assess exposure now to avoid surprises when the rules apply.