Entity Setup
Foreign Resident CGT Rules Sharpened: Key Alerts for Investors
Foreign residents disposing of high-value shares must now heed changes in CGT rules under Division 855, including new notification obligations and expanded asset definitions.
By NomadicTax Research Team • 6-7 min read • August 21, 2026
## Understanding the Division 855 Reforms for Foreign Resident CGT
The proposed changes to **Division 855** of the Income Tax Assessment Act 1997 bring in stricter capital gains tax (CGT) obligations for foreign residents disposing of certain assets. Key features:
- **Expanded asset types**: More assets—beyond just “taxable Australian real property”—will be caught if there’s a close economic connection to Australian land. ([ato.gov.au](https://www.ato.gov.au/api/public/content/0-b12d922f-3ffe-47a6-a868-289919bcf50a?utm_source=openai))
- A revised **point-in-time principal asset test** lengthens the required holding period to **365 days**. ([ato.gov.au](https://www.ato.gov.au/api/public/content/0-b12d922f-3ffe-47a6-a868-289919bcf50a?utm_source=openai))
- **Notification requirement**: Foreign residents disposing of shares or membership interests **exceeding $20 million in value** must now notify the ATO *before* executing the transaction. ([ato.gov.au](https://www.ato.gov.au/api/public/content/0-b12d922f-3ffe-47a6-a868-289919bcf50a?utm_source=openai))
- These rules apply to CGT events starting **on or after 1 July 2025**, but as some phases are still in proposed (“not yet law”) status, details are being finalized. ([ato.gov.au](https://www.ato.gov.au/api/public/content/0-b12d922f-3ffe-47a6-a868-289919bcf50a?utm_source=openai))
## Who Should Care
- Foreign individuals and entities holding significant investments in Australian entities or real property.
- Funds or trusts acting on behalf of foreign residents or with foreign investors.
- Australian businesses receiving offers from foreign investors for shares or stakes over $20 million—advisory/transaction structuring must account for notification obligations and CGT exposure.
## Practical Recommendations
- **Due diligence**: Prior to disposing assets or membership interests, confirm whether new asset types or thresholds apply to your situation.
- **Valuation**: If you’re near the $20 million threshold, get independent valuation advice and documentation ready well before transaction execution.
- **Timing**: The effective date is 1 July 2025—if you entered agreements before then, assess if grandfathering may apply—but check legislation once passed.
- **Seek tax advice**: Complex indirect ownership or foreign-residency scenarios may have overlapping obligations (CGT withholding, reporting, etc.). Professional advice is essential.
## Example Scenario
Suppose a Singaporean investor, Lin, owns 60% of an entity that holds Australian farmland valued at AUD $25 million. She decides to sell her shares—these would trigger Division 855 obligations because:
- the value exceeds $20 million in membership interest;
- asset is closely connected to Australian land;
- she must notify the ATO *before* finalizing the sale.
Lin should obtain valuation documentation, prepare notification to the ATO in advance, and check whether CGT applies under proposed rules—in some cases limited by treaties or other exemptions.
## Current Status & Key Considerations
These reforms were **announced in the Budget**, and although many appear in draft or “proposed” form, some are **not yet law**. Legislative amendments and exposure drafts are expected to clarify timing and application. ([ato.gov.au](https://www.ato.gov.au/api/public/content/0-b12d922f-3ffe-47a6-a868-289919bcf50a?utm_source=openai))
Foreign investor exposure to CGT for non-residents is going to be higher; the risks of non-compliance (back taxes, penalties) emphasize the need for early awareness.
This fits well in the Case Studies/Entity Setup category, given cross-border and structural implications, with **High** impact for large foreign investors.