Tax Planning
Tax Planning for Foreign Property Investors: Understanding CGT Reforms
Recent proposed changes to Division 855 CGT rules for foreign residents demand careful tax planning for those investing in Australian property — here’s how to get ahead.
By NomadicTax Research Team • 5-8 min read • September 14, 2026
## What Are the Proposed CGT Reforms?
- As of recent announcements, Australia plans to **clarify and broaden the range of assets** on which foreign residents are subject to Capital Gains Tax (CGT) under Division 855 of the Income Tax Assessment Act 1997.([ato.gov.au](https://www.ato.gov.au/api/public/content/0-b12d922f-3ffe-47a6-a868-289919bcf50a?utm_source=openai))
- Key features include changing the **point-in-time principal asset test** to a **365-day testing period**, and introducing a requirement that foreign residents disposing of shares or membership interests exceeding **AUD 20 million** notify the ATO *before* execution of the transaction.([ato.gov.au](https://www.ato.gov.au/api/public/content/0-b12d922f-3ffe-47a6-a868-289919bcf50a?utm_source=openai))
- These changes, **proposed but not yet law**, will apply for CGT events 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))
## Why This Matters for Foreign Property Investors
- Previously, foreign residents were taxed on **taxable Australian property**, and often escaped CGT on certain indirect interests (e.g. shares) if they passed principal asset tests. The new rule broadens the net.
- The extension to a 365-day test means that holding periods shorter than a year may now trigger CGT in cases previously exempt.
- The notification requirement for large disposals increases **pre-transaction compliance risk**. Missing it may lead to penalties or disallowed exemptions.
## Practical Implications & Planning Tips
- **Review your asset holdings**: Identify if you hold shares or membership interests in entities tied to Australian land or property, especially if their value exceeds AUD 20 million.
- **Check holding periods**: If you acquired your interests recently, be aware that shorter holding periods may now be insufficient to satisfy the revised principal asset test.
- **Plan large transactions ahead**: If you intend to sell something over the threshold, you’ll likely need to **notify the ATO in advance** — schedule your legal and tax work early.
- **Get good valuation**: Ensuring clear valuations will help in determining whether you’re above the notification threshold and if assets are taxable property under the expanded rules.
## Example Scenario
Suppose **Ms. Lee**, a foreign resident, owns 100 % of a company, which owns an Australian commercial property. The company value exceeds **AUD 22 million**. If she sells her shares in the company on **1 August 2025**, she must:
- satisfy the 365-day principal asset test to avoid CGT liability;
- notify the ATO ahead of executing sale, since the value exceeds AUD 20 million;
- If either fails, she faces tax on gains and potential penalties.
## Actionable Insights
- Consult a tax professional early if you hold or intend to acquire high-value interests tied to Australian property.
- Keep detailed records of asset values and holding periods.
- Monitor when legislation is passed to move from “proposed” to “law”, because once it’s enacted, there is no “back-dating”.
**Key Takeaway:** The CGT reforms for foreign residents will increase liability if your holdings are substantial and are tied in with Australian land. Proactive structuring and early notification will be more important than ever.