Highlights

  • The ATO updated its guidance on 9 October, and deals now in progress are the first to be tested.
  • The changes were enacted by the Treasury Laws Amendment (Strengthening Accountability for Tax Adviser Misconduct and Other Measures) Act 2026.
  • The measure was first announced in the 2024–25 Budget on 14 May 2024 and took more than two years to take effect.
  • Foreign residents are generally taxed on Australian capital gains only where the asset is "taxable Australian property".

Since 1 October, foreign residents face a broader Australian capital gains tax net: water rights now count as real property, a new definition applies, and the land-rich test looks back over a full year. Foreign residents selling Australian assets are now dealing with a wider capital gains tax net. Since 1 October 2026, a new Commonwealth definition of "real property" has applied, water rights count as taxable Australian real property, and the test for land-rich companies and trusts looks back over 365 days instead of taking a single snapshot.

What changed on 1 October

That includes taxable Australian real property, and certain indirect interests in entities that hold it. The 1 October changes touch both parts of that system: what counts as real property, and when an entity is treated as property-rich. That matters because the scope of real property decides whether a foreign resident's gain is taxed in Australia at all. Assets such as leases, licences and fixed assets sitting on land are now expressly covered by a single Commonwealth definition. The inclusion of leases and licences is likely to be closely watched by investors in infrastructure and energy, where assets often sit on land held under a lease or licence rather than owned outright. The ATO says the change is not retrospective for disposals that have already settled. The change is most relevant to foreign investors in agriculture and irrigation, where water entitlements can be valuable assets in their own right, held separately from the land. It also feeds into the indirect test. Water rights held by a company or trust now count on the real property side of the ledger when working out whether that entity is property-rich.

The 365-day look-back

The principal asset test decides whether shares or units in an entity are treated as an indirect interest in Australian real property. Broadly, it asks whether more than half the market value of the entity's assets comes from taxable Australian real property. Previously, that test was applied at a point in time. Under the new rules, it uses a 365-day testing period before the CGT event. The ATO describes the shift in those terms but has not yet issued detailed public guidance on how values across the period should be measured. It says it is considering formal public advice on the updated test, the real property definition and the renewables discount, with public consultation.

Hypothetical example: a farming company sale

Hypothetical example: a foreign-resident investor holds a stake in an unlisted Australian farming company, large enough for the indirect interest rules to apply. For most of the past year, the company held $45 million of farmland, $15 million of water entitlements and $40 million of plant, livestock and cash. Total assets were $100 million. Under the old approach, the water entitlements did not count as real property. Real property was $45 million, or 45% of assets, which is below half.