What Australian buyers, sellers and transaction teams need to consider in M&A
Australia’s strengthened foreign resident capital gains tax regime commences on 1 October 2026. The changes extend beyond foreign vendors: Australian purchasers, target groups and deal teams may need to revisit due diligence, transaction documentation and settlement processes where foreign ownership or Australian real property is involved.
At a glance
The reforms broaden and clarify the assets that can fall within Australia’s foreign resident CGT net, replace the point-in-time principal asset test with a 365-day testing period and introduce additional ATO notification requirements for certain disposals of membership interests of $50 million or more.
What is changing?
The legislation received Royal Assent on 15 September 2026 and the principal reforms apply from 1 October 2026. They strengthen Division 855 and associated administration of foreign resident CGT, with a particular focus on direct and indirect interests connected with Australian real property.
The changes are relevant to transactions involving foreign vendors, but their practical effect can extend to Australian purchasers and Australian groups with foreign shareholders. A transaction that appears to be a conventional share sale may require a more detailed analysis of the target group’s asset composition and recent history.
The principal asset test now looks back 365 days
Under the existing indirect Australian real property interest rules, a key question is whether the relevant entity’s value is principally attributable to taxable Australian real property. From 1 October, the principal asset test moves from a point-in-time test to a 365-day testing period.
This is significant for transaction planning. A group cannot necessarily alter its asset mix immediately before signing or completion and assume the CGT analysis will be determined only by the balance sheet on that day. Historic asset composition during the preceding year can now be relevant.
For acquisitive groups, property-rich businesses and businesses that have recently sold or transferred substantial Australian real property, this may increase the factual work required during due diligence.
A broader and clearer real property concept
The reforms also introduce a statutory definition of real property for these purposes. The policy intent is to provide greater clarity while ensuring that foreign residents are taxed on gains from assets with a close economic connection to Australian land and natural resources.
This can be particularly relevant in infrastructure, resources, energy and property transactions, where the economic value of an asset may arise from rights, infrastructure or arrangements connected with land rather than conventional freehold ownership alone.
$50 million transactions: additional notification requirements
A further compliance change applies where a foreign vendor provides a declaration in relation to a disposal of shares or other membership interests, and the relevant disposal (including related transactions) is $50 million or more. In those circumstances, the vendor may be required to notify the ATO in the approved form.
The notification requirement should be considered early in a transaction timetable. It should not be left as a settlement-day administrative issue, particularly where the parties are relying on a declaration to manage foreign resident capital gains withholding obligations.
Purchasers also have a role
Purchasers must consider the reliability of a vendor declaration throughout the period from receipt to settlement. The reforms require attention to whether the purchaser reasonably believes, at any time during that period, that the declaration is false.
Why this matters in practice
Foreign resident CGT is no longer only a “vendor tax” issue. For purchasers, an incorrect or unreliable declaration can affect withholding and settlement mechanics. Deal teams should ensure that tax due diligence, warranties, declarations and completion checklists speak to each other.
Which transactions are most exposed?
- share sales involving Australian entities with significant land, infrastructure or natural-resource assets;
- property-rich corporate and trust structures;
- infrastructure, resources and renewable energy transactions;
- transactions involving foreign shareholders or upstream foreign ownership;
- groups that have materially changed their asset mix during the 365 days before disposal; and
- transactions at or above the $50 million notification threshold where a relevant vendor declaration is contemplated.
What should buyers and sellers do differently?
- Start the foreign resident CGT analysis during transaction scoping rather than at settlement.
- For indirect interests, test the target’s asset composition over the full 365-day period, not only at the proposed disposal date.
- Identify whether assets or rights may fall within the broadened real property concept and obtain valuation support where required.
- For transactions of $50 million or more, determine early whether an ATO notification will be required and allocate responsibility for it in the transaction timetable.
- Purchasers should establish a process for assessing vendor declarations and considering information obtained between signing and completion.
- Ensure sale agreements, tax warranties, indemnities and withholding provisions reflect the new regime and are consistent with the tax due diligence findings.
Renewable energy transactions
The reform package also includes transitional support for eligible renewable energy assets, including a temporary 50% CGT discount for certain non-individual foreign residents. The availability and application of that relief is fact-specific and should be assessed as part of transaction modelling rather than assumed from the nature of the project alone.
Our view
The most important change for mainstream M&A is procedural as much as technical: foreign resident CGT needs to move earlier in the deal process. The 365-day test increases the historical diligence burden, while the notification and purchaser-declaration rules create additional execution risk if they are addressed too late. Australian buyers and sellers should incorporate the new rules into transaction checklists for deals completing from 1 October 2026.
How we can assist
We can assist with foreign resident CGT analysis, principal asset testing, transaction tax due diligence, valuation coordination, withholding implications and review of the tax aspects of sale documentation and completion processes.
