Treasurer releases draft reforms to strengthen foreign resident CGT legislation

The government has released draft legislation for consultation, which aims to strengthen the forgone CGT regime and provide certainty for investors.

The reforms, first announced in the 2024–25 budget, address a longstanding area of uncertainty by confirming that CGT applies to foreign investors selling assets with a close economic connection to Australian land and our natural resources.

Treasurer Jim Chalmers said that, over time, the absence of a clear definition of real property in the law and interactions with state and territory property laws have created uncertainty about its meaning. The proposed legislation aims to address these concerns.

"Clarifying the interaction with state and territory laws reinforces the original intent of the law and ensures that the CGT treatment for assets held by foreign investors applies consistently, regardless of which state or territory the asset is located in. State revenue laws already generally disregard severance provisions for their own tax purposes," he said.

"This will protect revenue by ensuring foreign residents disposing of an interest in large-scale infrastructure assets which are fixed on Australian land are subject to CGT. This includes buildings and energy, transport and telecommunications assets."

Chalmers said the legislation would bring Australia's tax laws closer into alignment with the OECD Model Rules for the taxation of foreign residents and also bring the tax treatment of foreign investors closer into alignment with the treatment of Australian residents.

"This reflects the government’s commitment to improve tax fairness and make the budget more sustainable."

As part of the proposed reforms, the government will provide a time-limited, targeted concession in the foreign residents' CGT regime for investment in the renewables sector to support its clean energy objectives.

It will provide a 50 per cent CGT discount to investors in renewable energy assets, enabling them to price CGT into their investment models. The transitional relief will be available until 2030 for the sale of renewable energy assets.

The Treasurer said it was important that the new arrangements strike the right balance between "supporting investment in clean energy while ensuring foreign investors pay their fair share of tax".

"The government continues to support productivity enhancing investment, including in the renewable energy sector," Chalmers added.

"Through our Capacity Investment Scheme, specialist investment vehicles such as the Clean Energy Finance Corporation’s Rewiring the Nation Fund, and the Investor Front Door we are accelerating private investment in our clean energy transition."