Australia Tightens Foreign Resident CGT Rules From October 1 With a 365-Day Principal Asset Test

Australia's foreign resident capital gains tax regime changes on 1 October 2026, when the Treasury Laws Amendment (Strengthening Accountability for Tax Adviser Misconduct and Other Measures) Act 2026 commences. From that date the principal asset test is satisfied if an interest passes it at the time of a CGT event or at any point during the 365 days before it, and foreign vendors disposing of membership interests worth A$50 million or more must notify the Australian Taxation Office ahead of settlement or leave the buyer paying 15 percent of the purchase price.

What it means for a foreign buyer

If you hold Australian property through a company or a trust rather than in your own name, your exit calculation changes on 1 October. Until now the principal asset test looked at a single moment, the time of the CGT event, so an entity whose Australian real property sat just below half its total asset value at that instant fell outside the Australian capital gains net. From 1 October the test bites if the interest passes at the CGT event or at any time in the preceding 365 days. Injecting cash, adding non-property assets or restructuring in the months before a sale no longer moves an interest out of scope, because the ATO can now look back across a full year rather than at the closing snapshot. If you were planning a disposal built on the old timing, the window closes on 30 September.

If you are the one buying, the notification rule puts your money at risk in a way it was not before. Where a foreign vendor sells membership interests of A$50 million or more and declares that those interests are not indirect Australian real property, the vendor must lodge a notification with the ATO at least 28 days before settlement when the gap between signing and settlement exceeds 31 days, and as soon as reasonably practicable after entering the contract otherwise. If the vendor does not lodge it, the purchaser has to pay 15 percent of the purchase price under the foreign resident capital gains withholding rules. The failure is the seller's and the bill is yours.

Get written confirmation that the vendor's notification is lodged before you settle, not after.

What changed

The Act makes four changes that take effect for CGT events from 1 October 2026.

The principal asset test moves from a point-in-time assessment to a 365-day look-back. The test is now satisfied if the relevant interest passes it at the time of the CGT event or at any time during the 365-day period preceding that time.

The definition of taxable Australian real property is broadened. It now takes in interests or rights over land regardless of how a state or territory characterises them, personal rights to call for an interest in land, a licence or contractual right exercisable over or in relation to land, things fixed or installed on land including wind turbines, solar panels and substations, and leases or licences over those assets. The ATO also lists water rights.