Foreign resident CGT discount on renewable assets takes shape

As part of the energy transition, Treasury is proposing a 50% capital gains tax (CGT) discount for foreign residents disposing renewable assets.

The CGT discount is designed to operate for a transitional period to assist foreign investors in renewable energy assets to price CGT into their investment models, according to exposure draft documents.

Under Treasury Laws Amendment Bill 2026: Renewable energy asset discount capital gains for foreign residents, certain foreign residents that dispose of Australian renewable energy assets or eligible indirect interests in such assets may be eligible for the 50% CGT discount.

The discount applies to CGT events that happen from commencement of the new law until 30 June 2030.

"The discount is available only to foreign residents that are not individuals, for example, corporate entities and trustees of foreign trusts to the extent that the trust is taxed on these gains in their capacity as trustees," the documents state.

"This reflects the targeted nature of the transitional concession to apply to foreign institutional investors who contribute to the growth of Australia's renewable energy sector."

For a renewable energy asset that is directly disposed, it must have the primary purpose of generating, or directly facilitating the generation of, electricity in Australia using an eligible renewable energy source.

For indirect disposals, such as shares or units, the renewable energy asset test ensures that the discount applies to indirect interests only where 90% of the underlying value of the entity's taxable Australian real property (TARP) assets is attributable to Australian renewable energy assets.

The proposed reform was announced in the 2024-25 Budget when the government pledged to strengthen the foreign resident CGT regime to ensure that foreign residents pay their fair share of tax in Australia and provide certainty about the operation of foreign resident CGT rules.

The consultation is conducted in line with tightening the CGT rules for foreign residents.

The first pillar, Strengthening the Foreign Resident CGT Regime, broadens and clarifies the definition of TARP and introduces a definition of real property into the Income Tax Assessment Act 1997 that forms part of the definition of TARP.

Treasury is taking submissions for the two sets of reforms until April 24.