What’s Changing in CGT for Foreign Residents
From 1 July 2025, proposed amendments to Division 855 of the Income Tax Assessment Act 1997 will alter how foreign residents are taxed on capital gains. These changes aim to clarify, broaden and strengthen the CGT framework for non-residents. (ato.gov.au)
Key proposed changes include:
- Extending the scope of what types of assets are subject to Australian CGT for foreign residents.
- Replacing the point-in-time principal asset test with a 365-day testing period.
- Requiring foreign residents to notify the ATO prior to disposing of shares or membership interests over AUD 20 million in value. (ato.gov.au)
These reforms are still in the proposal stage—not yet passed into law. (ato.gov.au)
Implications for Investors and Asset Owners
| Situation | Before Changes | Under Proposed Rules |
|---|---|---|
| Selling Australian real property or indirect interests | May avoid CGT if principal asset test met as at a point in time | Length of ownership (365-day period) matters and triggers broader coverage of assets under CGT obligations |
| Large scale share disposals by non-residents (>AUD 20m) | No prior ATO notification required | Transaction must be notified before execution, even if vendor believes asset is non-taxable real property |
| Compliance exposure | Minimal if structures already CGT compliant | Increased risk if holdings are indirect or complex, or if investor unaware of new asset definitions |
Planning Strategies Going Forward
- Review your asset portfolio to identify whether any holdings fall within categories that may now be taxable.
- Track time owned for each asset carefully to meet the 365-day test where applicable.
- Consider structuring large share or membership interest disposals so that notification is possible and done in advance of execution.
- Seek advice on whether assets held via trusts, funds or overseas entities are indirectly exposed under these reforms.
Case Study
Alex, a foreign resident, holds shares in an Australian company valued at AUD 25 million. Under the new proposal, even though he owns shares rather than real property, if he disposes of them after owning them for more than a year, the transaction may be caught by new CGT rules—and he must notify the ATO before executing the sale. Failure to notify could trigger penalties or unexpected taxation.
Action Points
- Audit all share holdings, membership interests, and property or property-related assets.
- Make sure your tax advisor is monitoring progress on the legislation so you understand timing and final rules.
- Regularly check ATO guidance for how “principal asset test” is being recast into the 365-day test.
- Build in compliance steps for large disposals—e.g. internal approvals and notification timelines.
Takeaway: If you’re a foreign resident with Australian assets, these proposed CGT changes are significant. They're still under consideration, so planning carefully now can help you adapt when they become law.