Australia’s Tax Proposals Mean No Capital Gain Without Pain

The Australian Treasury’s draft legislation amending the country’s capital gains framework could have detrimental tax consequences for foreign investors who have current and historical interests in Australia.

The proposed laws would:

• Expand what is considered real property, broadening the Australian tax base for foreign investors.
• Apply to transactions from Dec. 12, 2006, retroactively, meaning that foreign investors could be taxed on transactions that occurred up to 20 years ago.
• Apply a revised principal asset test across the 365 days prior to sale, not only the sale date.
• Require additional notifications by foreign residents disposing of Australian interests and additional compliance requirements for purchasers relying on these declarations.

If these proposed laws are passed, foreign investors should consider the positions they have taken on Australian disposals since Dec. 12, 2006, particularly relevant for positions involving infrastructure, mining, energy ,or other land-connected assets where a capital gain was disregarded.

Foreign investors should also review current asset holdings to determine if future disposals might now be captured.

It’s unclear how Treasury will respond to extensive comments made during a two-week consultation period raising concerns about the changes, including retroactivity, which wasn’t mentioned two years ago when the 2024-25 Federal Budget was announced.

The 2026-27 Federal Budget reaffirmed the retroactive changes, indicating that the government is intending to push the laws through in their current form.

Expanding ‘Real Property’

Under Australia’s capital gains tax regime, foreign residents generally aren’t subject to tax unless the gain arises from items defined as being taxable Australian property. This includes real property, as well as companies whose value is principally derived from real property.

The meaning of real property in this context wasn’t previously defined and took an ordinary general law meaning instead. This historically required reference to the common law principles of fixtures and chattels, as well as state and territory legislation governing the characterization of property.

Under the proposed laws, real property would be given a broad statutory definition that disregards any relevant state or territory laws, and would include any interest in or rights over land and assets that are fixed or installed on land and expected to be situated on the land for the majority of their useful life.

Examples in the explanatory materials include data center licenses, mining plant and equipment, and statutory infrastructure rights for gas works—a significant expansion beyond just land.

The proposed laws also include a prospective treaty override to align the meaning of real property or immovable property in Australia’s tax treaties with the new expansive definition of real property in Australia’s domestic tax laws.

Extreme Retroactivity

The most controversial aspect of the proposed laws is their retroactivity. Some of the amendments would apply to transactions from Dec. 12, 2006, when this version of the capital gains tax regime was first introduced. Many foreign investors wouldn’t have lodged an Australian tax return on the basis that a disposal wasn’t taxable, meaning that statutory time bars are likely to be unavailable.

This retroactivity will harm taxpayers in disputes with the Australian Taxation Office on these issues because it would override the Federal Court of Australia’s recent interpretation of real property, and foreign resident taxpayers who had adopted or relied on that interpretation may understandably feel aggrieved.

Further, Australian states and territories made changes long ago to capture things “fixed to the land” for stamp duty purposes, regardless of whether they would be a fixture in law. This brings into question Treasury statements that the proposed changes are only a “clarification” of the original intent of the 2006 legislation.

The ATO has website guidance indicating that it will review historical transactions that are currently subject to review and have occurred in the past four years. However, this guidance isn’t binding on the ATO, is expressed in highly qualified terms, and was uploaded in the absence of Parliament passing or publishing final legislation, so it might cause more concern rather than providing comfort.

Revised Asset Test

The proposed laws also modify the principal asset test when determining if a company is land-rich, changing this from being a point-in-time test just before the transaction, to covering the whole of the preceding 365 days.

This increases the compliance burden for foreign investors, particularly where the land-rich calculation is finely balanced.

Notification and Compliance

The proposed law would increase ATO notification requirements for foreign investors and compliance requirements for prospective purchasers.

For transactions over AU$50 million ($35.3 million), a foreign vendor declaring that a transaction isn’t taxable would need to notify the ATO within specified timelines.

Purchasers couldn’t simply accept a vendor declaration at face value and would be liable to a penalty for accepting a false statement unless they satisfy an objective test that they didn’t know, and couldn’t reasonably be expected to know, that the declaration was false.

The notification requirements need to be built into deal timelines, and it’s unclear how the ATO will react to declarations it disagrees with, including how readily it will seek to have taxpayers pay deposits of disputed tax.

What’s clear is that the tax landscape in Australia is far from certain.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Angela Wood is a tax controversy partner at DLA Piper in Melbourne, focusing on complex tax disputes for multinationals, and is head of DLA Piper’s Asia Pacific tax controversy practice.

Andy Bubb is a tax controversy partner at DLA Piper in Melbourne, focusing on complex tax disputes for multinationals.

Patrick Norman is a tax controversy senior associate at DLA Piper in Melbourne, focusing on complex tax disputes for multinationals.

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