What Australia’s tax overhaul changes

Australia’s draft foreign resident capital gains tax rules would widen what counts as taxable Australian real property and change how indirect real-estate holdings are tested. The package was released April 10 and consultation closed April 24, but it’s not law yet.

The draft adds a statutory definition of real property that covers land rights, related licences or contractual rights, fixed or installed items such as pipelines and solar installations and water rights. Some parts would apply retrospectively from Dec. 12, 2006. A separate rule would replace the current point-in-time asset test with a 365-day lookback before a CGT event.

Who the changes hit

The draft is aimed at foreign residents selling direct real property or indirect interests backed by Australian land. That includes some investors in infrastructure and renewables, along with former Australian residents who now live abroad and still hold qualifying assets.

For sales of membership interests worth $50 million or more that are treated as non-IARPI, foreign sellers would have to notify the Australian Taxation Office and tell the buyer. Purchasers would then face a reasonable person test before relying on a seller declaration and avoiding withholding.

What sellers and buyers should check now

Foreign vendors need to self-assess whether an asset is TARP or an indirect Australian real property interest, then keep records to support that position. If the sale is over the threshold and the vendor claims it isn't an IARPI, the notice must reach the ATO at least 28 days before settlement or as soon as possible if the deal closes sooner.

Buyers in large deals should verify declarations before settlement, since failure to do so can trigger 15% foreign resident CGT withholding. Read our full Australia guide for the complete picture and visa updates for more policy changes.