Tax Planning

Foreign Resident CGT Rules under Division 855: What Non-Residents and Investors Need to Know

Australia is broadening its CGT net for foreign residents under Division 855 — this article breaks down the proposed changes and what foreign investors should prepare for.

By NomadicTax Research Team • 5-8 min read • September 6, 2026

## What’s Changing in Division 855 for Foreign Residents The proposed amendments (not yet law) to **Division 855** of the Income Tax Assessment Act 1997 aim to increase CGT obligations for foreign residents from **1 July 2025 onwards**. ([ato.gov.au](https://www.ato.gov.au/api/public/content/0-b12d922f-3ffe-47a6-a868-289919bcf50a?utm_source=openai)) Changes include: - **Clarifying and broadening types of assets** subject to CGT, particularly for foreign residents disposing of shares and membership interests with close connections to Australian land. ([ato.gov.au](https://www.ato.gov.au/api/public/content/0-b12d922f-3ffe-47a6-a868-289919bcf50a?utm_source=openai)) - Amending the Principal Asset Test so it uses a **365-day testing period** (rather than a “point-in-time”) to determine if assets pass the test. ([ato.gov.au](https://www.ato.gov.au/api/public/content/0-b12d922f-3ffe-47a6-a868-289919bcf50a?utm_source=openai)) - Introducing a requirement for foreign residents disposing of shares or membership interests worth more than **AUD $20 million** to **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)) ## Who’s Affected? - Foreign residents disposing of **shares** or **membership interests** in entities whose assets include Australian real property or indirect Australian real property interests. - Investors or corporations holding significant assets (>$20 million) who may previously have avoided CGT via loopholes or thresholds. ## Key Risks and Planning Tips 1. **Notification Obligation**: If disposing of a membership interest or shares worth over $20 million, plan ahead. Ensure transactions are structured and timed so notification windows are met and CGT liabilities estimated. 2. **Principal Asset Test Duration**: Holding periods matter. Assets must now satisfy the PAT condition over **365 days**, which may require maintaining long-term holdings rather than relying on point-in-time snapshots. 3. **Indirect Property Interests**: Shares in resident companies might be classified as “indirect real property interest” if both the non-portfolio and principal asset tests are fulfilled. Be aware. ## Practical Example Sarah, an investor living overseas, sells 100 % of her shares in a company. The company's assets include real property in Sydney. The shares are market value $25 million. Under the proposed rules: - Sarah must determine if the company passes the principal asset test over the prior 365 days—do Australian real property assets dominate? - Because her disposal is above $20 million, she also needs to provide a **pre-transaction notification** to the ATO. - If she fails to notify, penalties may apply or additional withholding obligations for the buyer may kick in. ## Next Steps for Foreign Investors and Advisors - **Review your asset portfolio**: identify any shareholdings, trusts or membership interests that may now be within the broader CGT reach. - **Consider holding periods**: ensure these assets satisfy the 365-day test to reduce risk of unintended CGT exposure. - **Document valuations and asset mix** over the relevant period so you can establish whether the principal asset test is met. - **Engage early**: If planning a large disposition, seek advice and possibly pre-notify the ATO. ## Status and Timing These proposed amendments are **not yet law**. They are intended to apply to **CGT events starting on or after 1 July 2025**. ([ato.gov.au](https://www.ato.gov.au/api/public/content/0-b12d922f-3ffe-47a6-a868-289919bcf50a?utm_source=openai)) Be alert for the passage of legislation, new guidance from the ATO or Treasury, and administrative practice updates. ## Bottom Line Foreign resident CGT rules are being tightened. If you invest into assets in Australia—or hold membership interests connected to Australian property—you now face greater disclosure, longer holding tests, and an enhanced risk of CGT exposure. Plan accordingly.