New law tightens foreign resident CGT rules on Australian property assets

New laws that toughen the rules around capital gains tax (CGT) to ensure foreign residents pay their fair share of tax on Australian real property have passed both houses of parliament.

Treasury Laws Amendment (Strengthening Accountability for Tax Adviser Misconduct and other Measures) Bill 2026 covers numerous new reforms that included strengthening the integrity of the tax profession and refining mergers rules.

For foreign residents invested in Australia's land and natural resources, the new law broadens and clarifies the definition of Taxable Australian Real Property (TARP) and introduces a definition of real property into the Income Tax Assessment Act 1997 that forms part of the definition of TARP.

Two of these categories are the subject of these amendments: Taxable Australian real property (TARP) and indirect Australian real property interests (IARPIs). IARPIs are defined as membership interests in entities, the underlying value of which is principally derived from TARP.

TARP currently includes mining, quarrying and prospecting rights. It may soon include water entitlements in relation to a water resource situated in Australia, and an option or right to acquire a CGT asset over TARP assets.

"The changes to the foreign resident CGT regime bring Australia's tax laws into closer alignment with the OECD Model Rules for the taxation of foreign residents and ensure foreign residents pay tax on assets including for infrastructure and other assets closely connected to Australian land," Treasurer Jim Chalmers said.

The bill contains other key reforms, such as tougher penalties for misconduct, providing certainty and clarity for investors, supporting renewable energy, improving the new merger system, and supporting charitable giving by expanding deductible gift recipient status and reforming giving funds.

The new law also extends support for foreign investment in renewable energy infrastructure, extending the timeframe for the transitional 50% CGT discount for certain foreign residents who dispose of Australian renewable energy assets to 30 June 2040, which was previously 30 June 2030.

Furthermore, it addresses controversial issues that stemmed from the PwC tax leaks scandal, and recommendations from an earlier review of the Tax Practitioners Board (TPB), through amendments to the Tax Agent Services Act.

This includes a stronger sanctions framework including criminal penalties for unregistered tax preparers, new civil penalties for breaches of the Code of Professional Conduct, and increased penalty amounts, as well as new powers for the Tax Practitioners Board.

"This is about strengthening the tax system overall, delivering more, cleaner energy and more certainty for investors," Chalmers said.

"The successful passage of this legislation is part of this government's ambitious reform agenda to deliver a fairer, more sustainable tax system, boost productivity and resilience and make the budget more sustainable."