Overview on draft tax bills defining 'real property' in Australia

The Australian Treasury released two exposure draft tax bills on Friday, 10 April 2026 that seek to alter and retrospectively expand the way Australia defines 'real property' (ie 'land') for the purposes of taxing non-resident investors. The changes are extensive, far reaching, and likely to impact many non-resident investors into Australia over the last 20 years. 

While not intended to outline a detailed overview of the rules (we will release this on a sector-by-sector basis shortly), below is a brief summary and outline of specific features that may provide relevant guidance.

Given the Australian parliamentary cycle and the short two-week consultation period, the Government may push to have the legislation passed and in effect by 1 July 2026. The extensive submissions arguing against retrospectivity will likely be largely disregarded and, absent lobbying being successful in the Senate, taxpayers should assume the legislation will pass largely as drafted given the long gestation period (originally announced over two years ago).

The legislation was well telegraphed and described as prospective in its application. However, the proposed new rules would surprisingly, in some cases, apply to gains dating back to 2006, despite no compelling policy rationale being articulated in the explanatory materials or related announcements.

 

KEY TAKEAWAYS:

Much will be written about specific constitutional arguments as well as the precise operation of the rules. However, it is fair to say:

1. Concept of land:

From enactment (ie prospective), the concept of land will be extended and will be extremely broad, covering arrangements not often thought of as being land. This can include contractual rights in relation to land as well as traditional interests in land. The extension to contractual rights and licences is very broad and likely to have unintended consequences as real life examples are worked through. For example, are contractual interests such as royalties included?

2. Property and plant:

With effect from 12 December 2006, the definition of land will be extended to include property and plant fixed on land for the majority of its effective life (things not fixed but installed will only be prospectively included in the definition).

Property and plant fixed to or installed on the land will be counted as land irrespective of whether they are a fixture at law or are owned separate to land under State legislation. The words are extremely broad and likely catch renewable projects and most equipment of significant size that cannot be easily moved.

3. Capital Gains Tax:

The changes are primarily in regards to Capital Gains Tax. The definition of land for trading trust, managed investment trust, depreciation etc will not change and will continue to be more narrowly defined.

4. Discount eligibility:

From enactment until 30 June 2030, certain renewable projects will be eligible for a 50% discount on any gain for foreign residents. Although, it is unclear whether the pre-discount tax imposed will be at 45% or 30% as the nature of the investor will be relevant. 

 

THE ISSUE OF RETROSPECTIVITY

The retrospective aspect of the proposed laws will be most challenging for taxpayers to navigate, particularly without further guidance. This means that for taxpayers who, in good faith, have acted in accordance with Australian Taxation Office (ATO) guidance (for example, rulings that expressly stated that wind farms held subject to a ground lease and a requirement to remediate at lease end would not be considered part of the land, as well as case law) could now have a historical risk in respect of a transaction that could have occurred up to 20 years ago. Specifically:

1. If no tax filing was made, the ATO may be able to issue an assessment for years back to 2006 (ie there is no time bar);
2. As most transactions would have required FIRB approval, the ATO has access to ready information on the relevant transactions;
3. The changes seek to unilaterally alter Australia's existing tax treaties. Understandingly, we expect treaty partners to question the validity of this, although based upon prior amendments it is unlikely they will be successful. However, as this is a prospective change, from 2006 until this legislation is passed, there are significant differences between treaties and domestic law. Previously, there was little benefit in relying on treaties for real property. Since Australia has 28 treaties that are OECD based and exclude movable property, there are definite instances where a treaty argument could provide significant protection; and
4. If a taxpayer is in the midst of a deal, specific drafting should be inserted into the contract around change in law, and in particular, should cover specific withholding mechanisms to allow the purchaser to potentially withhold a portion of the purchase price even if a declaration is given by the vendor.

 

REQUIREMENTS FOR FOREIGN RESIDENTS

As a separate measure, foreign residents selling interests in non-land rich Australian companies or trusts with a value of AUD50 million or more will be required to notify the ATO of the sale after exchange but before completion. This notification requirement will need to be taken into account for transaction timetables.

 

HOW WE CAN HELP YOU

DLA Piper's Australian tax team are putting together more detailed overviews on a sector-by-sector basis which will be published shortly. Although we consider the tenor of submissions to be universal, we are happy to discuss with clients whether they would like us to put in a submission on any issue. We are currently supporting a number of industry groups, but will do our own submission if beneficial to any of our clients.