KPMG warns Australia draft CGT rules could reach 20 years back

KPMG Australia has warned that draft changes to the foreign resident capital gains tax regime could quickly become a workload issue for tax, deal advisory and legal teams serving international clients. The exposure draft, released by Treasury on April 10 and open for consultation until April 24, would clarify which assets foreign residents must pay CGT on, expand the scope of real property, and in some cases apply that broader reach back to December 12, 2006.

That retroactive element is what has rattled advisers. KPMG’s tax team said the amendments were generally proposed to apply prospectively, but the expanded definition of real property would sweep in earlier CGT events and could catch transactions that firms and clients had long treated as settled. For KPMG staff, that means a wave of impact assessments, history checks and documentation work for multinational groups, private capital investors and foreign residents with Australian assets.

The practical effect inside the firm is immediate. Tax specialists will have to coordinate with legal, deal advisory and valuation colleagues to test holdings, transaction histories and entity structures, and to review any prior disposals that might now fall within the revised scope. The draft also changes the non-resident CGT withholding regime for some transactions valued at $50 million or more, adding another layer of compliance for purchasers and their advisers. That is the sort of change that lands first on the desks of partners, managers and senior associates already stretched across busy-season deadlines and client work on cross-border deals.

Treasury said the reform is designed to protect revenue by taxing foreign residents on assets with a close economic connection to Australian land and natural resources, and to align Australia’s rules more closely with the OECD model rules. The Treasury minister’s release said the changes were targeted amendments applying to investments since the regime was introduced in 2006, and Treasury also said the draft clarifies that state and territory property-law severance rules should not determine which assets fall in scope. It also includes transitional relief until 2030 for renewable energy assets through a 50% CGT discount.

Reaction has been cautious. The Tax Institute warned in an August 20, 2024 submission that rushed consultation could reduce effectiveness and increase the risk of poor policy outcomes and unintended consequences. Herbert Smith Freehills Kramer said the 2026 draft represented a material expansion of the Australian tax base for non-residents, with the retrospective reach from 2006 especially alarming.

For KPMG and its clients, the bigger question now is how far the chill spreads. If the draft survives, finance chiefs, in-house tax teams and advisers on infrastructure, energy and cross-border M&A will need to reassess pricing, withholding, filing positions and risk on deals they may have assumed were already behind them.