Key takeaways:
- The foreign resident CGT regime will be significantly expanded, with a broadened definition of real property backdated to 2006 creating uncertainty for historical transactions
- A time-limited 50% CGT concession will apply to qualifying renewable energy infrastructure disposals by foreign investors, available until 30 June 2030
- Pillar 2 compliance remains onerous despite Side-by-Side package exempting US parent entities
- The ban on foreign purchases of established residential properties has been extended to 30 June 2029, directing foreign investment toward new housing supply
Expansion of foreign resident CGT regime with limited relief for investments in renewable energy projects
The 2026–27 Federal Budget confirms that the Government will proceed with reforms to Australia’s foreign resident CGT regime, while introducing a targeted and time limited concession for renewable energy investments. These measures form part of the broader package originally announced in the 2024–25 Budget, with draft legislation released by Treasury for consultation on 10 April 2026.
Under the announced transitional arrangements, foreign investors disposing of qualifying renewable energy infrastructure assets, including indirect interests in these assets, will be able to access concessional treatment on the disposal, which will be available from the first day of the next quarter after Royal Assent and ending on 30 June 2030.
The draft legislation released indicates that the concession is expected to operate as a 50% reduction in any capital gains tax on disposal.
This concession sits within a much wider reform of the CGT rules applicable to foreign residents, that will significantly expand the instances that non-residents will be subject to Australian CGT, both in respect of the direct sale of assets, or indirect sale of shares where the value of the shares is principally derived from these assets. Central to this is the introduction of a definition of ‘real property’ for CGT purposes. The broadened ‘real property’ definition will have retrospective effect from 12 December 2006, which was when the foreign resident CGT rules were first introduced. This change is intended to remove inconsistencies that have arisen from differing state-based interpretations of real property based on common law principles, particularly in relation to fixtures, infrastructure and assets that are physically connected to land but may have previously been treated as separate property.
These measures will create significant uncertainty for historical transactions that have occurred since 2006, when the foreign resident CGT rules were first introduced. For current investments, foreign residents will need to carefully examine the broadened CGT measures to ascertain whether they may be subject to CGT on exit. The CGT reduction provided in respect of investments in renewable projects is available only within a short window of time, and for indirect disposals of shares in an Australian entity or chain of entities, only where 90% of taxable Australian real property value of the entity is attributable to Australian renewable energy assets.
Global Minimum Tax (Pillar 2) – US carve out to be legislated
Australia introduced the OECD’s Global Minimum Tax rules (Pillar 2) in 2024. These rules seek to levy a global minimum effective tax rate of 15% on large multinational groups, in each jurisdiction that they operate in. The top-up tax can be recovered in one of three ways:
- from the ultimate parent entity or an intermediary parent entity via the Income Inclusion Rule (IIR),
- from a low-taxed constituent entity itself under a qualifying domestic minimum tax (DMT), or
- where the top-up tax is not collected under the IIR or DMT, it could fall to be collected by another constituent entity in the group under the Under-Taxed Payments Rule (UTPR).
In January 2025, President Trump’s Day One Executive Orders declared that the Pillar Two rules would have no force or effect for the United States (US). In January 2026, in negotiations with the OECD/G20 Inclusive Framework, the US successfully negotiated a Side-by-Side (SbS) package to exclude US headquartered groups from the Pillar 2 rules.
In the FY26 Federal Budget, the Australian Government will amend Australia’s global and domestic minimum tax legislation to implement the agreed SbS package.
Based on presentations from the ATO, the practical impact of the SbS package is that the US parent entity will be exempt from application of the IIR, and the group will not be subject to the UTPR. However, top-up taxes remain payable under the IIR, where intermediary holding companies are present in the group, or under the DMT, where low-taxed jurisdictions have implemented a qualifying DMT regime. The SbS package is unlikely to result in any reduction in the compliance burden under the Pillar 2 rules, with reporting obligations of the US parent delegated elsewhere in the group, and many countries requiring local information returns in respect of the Pillar 2 position of the group.
For groups that are parented by companies that have introduced the Pillar 2 rules, the SbS package has even less effect. Whilst any US constituent entities would not be subject to the Pillar 2 rules, any top-up tax will be captured under the IIR, DMT or UTPR of constituent entities that have introduced the Pillar 2 rules.
The Pillar 2 rules are live, with first lodgements for the 31 December 2024 year-end being due by 30 June 2026. Compliance for Australian subsidiaries is required even if no top-up tax is payable (a nil filing is required).
Because groups that are subject to the Pillar 2 rules fall under the significant global entity (SGE) regime, the penalties for late lodgement are severe, with penalties starting at A$165,000 per return filed late, increasing to a maximum of A$825,000. Whilst the ATO has noted a ‘soft-landing’ approach for those acting in good faith during the transition period, there will be no blanket penalty concession.
Extending the ban on foreign purchases of residential property
The 2026–27 Federal Budget extends the ban on foreign purchases of established residential properties from 1 April 2025 to 30 June 2029, reinforcing the Government’s focus on prioritising housing access for Australian residents and directing foreign investment toward new housing supply.
The core framework remains unchanged. Foreign persons, including temporary residents, are generally prohibited from acquiring established residential property, with continued exemptions for permanent residents and New Zealand citizens.
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