Tax Planning
Foreign Residents & Upcoming CGT Reforms: What Investors Must Know
Proposed changes to the Capital Gains Tax regime for foreign residents could see broader CGT coverage, new disclosure thresholds, and revised principal asset testing—learn what may be coming and how to prepare.
By NomadicTax Research Team • 7 min read • August 28, 2026
## Summary of Proposed CGT Changes
In recent ATO announcements, proposed amendments to **Division 855 of the Income Tax Assessment Act 1997 (ITAA 1997)** will affect non-resident (foreign resident) CGT provisions, aligning them with international norms and OECD standards. These reforms are proposed to apply 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))
Key proposed features include:
- Clarification and **broadening the types of assets** subject to CGT for foreign residents.
- Changing the **principal asset test** evaluation from a previous point-in-time method to a **365-day testing period**.
- A new requirement that foreign residents disposing of shares or membership interests over **AUD 20 million** notify the ATO **before** undertaking the transaction. ([ato.gov.au](https://www.ato.gov.au/api/public/content/0-b12d922f-3ffe-47a6-a868-289919bcf50a?utm_source=openai))
These measures are meant to capture both **direct and indirect sales** with close economic connections to Australian land, enhancing tax fairness and certainty. ([ato.gov.au](https://www.ato.gov.au/api/public/content/0-b12d922f-3ffe-47a6-a868-289919bcf50a?utm_source=openai))
## Proposed (Not Yet Enacted): Implication Timeline
- These changes are **not yet law**, but legislators have confirmed they will apply to **CGT events occurring 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))
- The **notification requirement for large transactions** is part of the compliance and oversight enhancements. ([ato.gov.au](https://www.ato.gov.au/api/public/content/0-b12d922f-3ffe-47a6-a868-289919bcf50a?utm_source=openai))
## Who Will Be Affected
- Foreign residents owning or disposing of **shares, units or membership interests** in trusts, companies or other entities with AUD 20 million+ value.
- Investors holding assets with indirect links to Australian land.
- Foreign homeowners or residents who currently assume exemptions or thresholds safe from CGT may see those narrowed.
## How to Prepare—Practical Planning Advice
1. **Asset review & valuation**: Identify if your investments fall under proposed rules—what is the nature of the asset? Does it tie to Australian land? If yes, assess value and ownership structure.
2. **Timing transactions carefully**: For assets that could be disposed before 1 July 2025, completing transactions before the new rules may avoid certain obligations.
3. **Notify the ATO when required**: If disposal thresholds exceed AUD 20 million, make sure you know when to notify the ATO **before** transaction execution.
4. **Consult on points-based compliance**: Seek tax advice on what “principal asset test” over 365 days means for your asset mix, exposure, and treaty implications.
## Example Scenarios
- **Scenario A**: A Singaporeanz company holds 100% of an Australian trust owning real property; the trust units are sold—notification to ATO needed if value exceeds AUD 20 million before disposal.
- **Scenario B**: A foreign investor with a shareholding in a property trust wants to sell—if the trust is land-rich, the proposed broader definitions may force CGT even if previously exempt.
## Risks & Compliance Imperatives
- Failing to notify the ATO or misclassifying assets could lead to retroactive liabilities once laws pass.
- Treaty-based exemptions or reliefs may change interpretation—important to keep up with both ATO guidance and budget papers.
- Non-residents should review existing holdings and potential disposals ahead of time.
**Final take-away:** These reforms—if passed—will expand Australia’s tax base, particularly for foreign investors. While the law isn’t in effect yet, early planning can reduce exposure and smooth transitions.