Entity Setup
Foreign Residents and CGT: Understanding Notification Thresholds and the 365-Day Principal Asset Test
Big reforms are coming for non-resident capital gains tax (CGT): broader asset coverage, a 365-day principal asset test, and a **mandatory notification for large disposals.**
By NomadicTax Research Team • 5-8 min read • September 9, 2026
## What’s Changing Under Division 855 (Non-Resident CGT)
The government has proposed updates to the non-resident CGT regime under **Division 855** of the Income Tax Assessment Act 1997. These changes are intended to:
- Clarify and broaden the types of assets on which **foreign residents** are subject to CGT.
- Shift from a point-in-time principal asset test to a **365-day testing period** for determining if the asset qualifies.
- **Require notification** to the ATO for disposals of shares or membership interests above **AUD $20 million** by foreign residents **prior to transaction execution**. ([ato.gov.au](https://www.ato.gov.au/api/public/content/0-b12d922f-3ffe-47a6-a868-289919bcf50a?utm_source=openai))
These changes are due to apply for **CGT events occurring on or after 1 July 2025**, though were only recently clarified. They are **not yet law** in some aspects. ([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 who hold **shares, interests or direct/indirect rights** to assets connected with Australian land.
- Non-resident vendors of assets in high-value deals (>$20M) who must now navigate notification processes.
- Australian businesses with non-resident investors or partners who transact significant share sales.
## Practical Scenarios
| Scenario | Treatment Under Old Rules | Under New Rules |
|----------|-----------------------------|------------------|
| Foreign resident selling direct or indirect shares in land | Only some assets covered; principal asset test point in time | More assets caught; 365-day test broadens coverage |
| Foreign resident selling shares above $20 million | No prior notification required | Must notify ATO *before* transaction execution |
## How to Prepare
- Review all assets to identify those connected with Australian land.
- If you are non-resident with large holdings or planning large disposals, engage advisers early to manage the pre-notification requirement.
- Maintain detailed ownership history, especially spanning over the 365-day period for principal asset testing.
## Implications and Risks
- **Penalty exposure**: Failing to notify or misapplying the test can lead to unexpected CGT liability.
- **Transaction delays**: Notification (especially for large disposals) could impose waiting periods; plan timing.
- **Valuation challenges**: Fair value assessments over a long period require reliable records.
## Key Takeaways
- From **1 July 2025**, new non-resident CGT changes are in effect for applicable CGT events.
- These reforms enhance transparency and aim to align Australia with international best practice.
- If you are a foreign resident dealing in high-value assets, you should consult legal and tax experts to ensure compliance under the updated Division 855.
Understanding these developments now gives you the leverage to minimise surprises and structure transactions more effectively.