Budget 2026: CGT, FIRB and Withholding Implications for Foreign Investors

Budget 2026: what changed for foreign investors and non-residents?

The Federal Budget 2026-27, handed down at 7:30 PM AEST on Tuesday 12 May 2026, introduces major structural changes to the taxation of Australian capital gains. For accountants advising overseas-domiciled clients, the headline is not that non-residents have lost the 50% CGT discount. In most cases, they lost access to that discount years ago.

The key practitioner insight is this: foreign residents have not been entitled to the 50% CGT discount on taxable Australian property (TAP) since 8 May 2012, subject to limited transitional calculations. The Budget’s replacement of the 50% CGT discount with cost base indexation and a 30% minimum tax floor from 1 July 2027 therefore changes less for non-residents than it does for resident individual clients.

However, it would be a mistake to treat the measures as irrelevant. The new regime affects non-resident CGT modelling, discretionary trust distributions to foreign beneficiaries, Foreign Resident Capital Gains Withholding (FRCGW) workflows, treaty residence advice and acquisition structuring for Australian real property.

Summary of the measures affecting overseas-domiciled clients

• CGT discount replacement: From 1 July 2027, the 50% CGT discount is replaced by cost base indexation plus a 30% minimum tax floor for individuals, partnerships and trusts.
• Non-resident CGT position: Non-residents were already excluded from the 50% discount on TAP from 8 May 2012, so the discount removal is not the main issue.
• 30% minimum tax floor: Non-resident individuals, trusts and partnerships realising CGT events on TAP may face the higher of their marginal tax outcome or 30% of the taxable capital gain.
• Cost base indexation: Assets held for at least 12 months may receive an indexed cost base, which can reduce the taxable gain for long-held Australian property.
• Discretionary trust minimum tax: From 1 July 2028, a 30% minimum tax on discretionary trusts commences, including where trust distributions flow to foreign-resident beneficiaries.
• Negative gearing quarantine: For acquisitions of established residential property after 7:30 PM AEST on 12 May 2026, negative gearing deductions are quarantined from 1 July 2027. This applies to non-residents as well as residents.
• FIRB reform: The Budget signals streamlining of foreign investment approvals for non-housing investments, removal of ineffective conditions on existing approvals, and faster processing for commercial, industrial and infrastructure proposals.
• FRCGW unchanged: The current 15% withholding on TAP disposals by foreign residents above the $750,000 threshold remains unchanged, but the final tax calculation changes for post-1 July 2027 disposals.

Why the 50% CGT discount headline is less important for non-residents

For Australian resident individual clients, the replacement of the 50% CGT discount is a major after-tax return issue. For foreign resident clients, the analysis starts from a different baseline.

Since 8 May 2012, non-residents have generally been denied the 50% CGT discount on gains accruing while they were foreign residents in respect of taxable Australian property. TAP includes Australian real property, indirect Australian real property interests, and certain business assets used through an Australian permanent establishment.

Accordingly, for a non-resident individual selling a Sydney investment property, the pre-Budget comparison is often:

• no 50% CGT discount;
• capital gain calculated on the full nominal gain, subject to existing cost base rules; and
• taxed at non-resident marginal rates, with no tax-free threshold.

From 1 July 2027, the key change is not the loss of a discount. It is the interaction of indexation and the 30% minimum tax floor.

Non-resident CGT from 1 July 2027: indexation plus a 30% floor

For assets held for 12 months or more, the new regime allows cost base indexation. In a long-held property with meaningful inflation, indexation may reduce the taxable gain materially. This can be favourable for non-residents because they were not receiving the 50% discount anyway.

However, the 30% minimum tax floor can produce a higher tax outcome in cases where the non-resident individual would otherwise have been taxed at a lower effective rate. This may occur where the gain is relatively modest, the taxpayer has limited other Australian taxable income, or the marginal rate calculation would otherwise produce an outcome below 30% of the taxable gain.

For accountants, the practical issue is that post-1 July 2027 advice cannot be reduced to “foreign clients are unaffected”. Some will pay less tax due to indexation. Others will pay more due to the minimum floor.

Worked example: foreign-resident individual selling Sydney property after 1 July 2027

Assume a foreign-resident individual sells a Sydney investment property on 1 December 2027 for $2,000,000. The property was acquired in 2015 and has a cost base of $800,000. The nominal capital gain is therefore $1,200,000.

Pre-Budget treatment

• Sale proceeds: $2,000,000
• Cost base: $800,000
• Capital gain: $1,200,000
• 50% CGT discount: not available because the taxpayer is a foreign resident and the asset is TAP
• Taxable capital gain: $1,200,000
• Tax: assessed at applicable non-resident marginal rates

Post-Budget treatment from 1 July 2027

Assume indexation increases the cost base by $200,000. The indexed cost base becomes $1,000,000, reducing the taxable capital gain to $1,000,000.

• Sale proceeds: $2,000,000
• Indexed cost base: $1,000,000
• Taxable capital gain after indexation: $1,000,000
• 30% minimum tax floor: $300,000
• Final tax: higher of the ordinary marginal rate outcome or $300,000

In this example, the taxpayer is likely looking at at least $300,000 of Australian tax, and possibly more if the marginal rate calculation exceeds the floor. The indexation uplift improves the outcome compared with taxing the full $1,200,000 gain, but the 30% floor prevents a low-rate outcome.

FRCGW remains unchanged, but settlement workflows need updating

The Budget does not change the Foreign Resident Capital Gains Withholding regime. The current rule remains that purchasers must generally withhold 15% from the sale price where a foreign resident disposes of taxable Australian property and the property value is above the $750,000 threshold, unless a clearance certificate or variation applies.

For the worked example above, a $2,000,000 sale would trigger potential withholding of $300,000, being 15% of the sale price. That amount is a payment on account, not a final tax. This is a critical client communication point.

From 1 July 2027, FRCGW workflows should capture the new CGT calculation at the same time as the settlement withholding analysis. A 15% withholding amount may be too high, too low, or broadly aligned depending on the indexed gain, the taxpayer’s status, and the 30% floor.

Practitioner workflow update

• Confirm whether the vendor is an Australian resident for tax purposes, not merely for immigration or FIRB purposes.
• Determine whether the asset is TAP.
• Check whether the sale contract settles before or after 1 July 2027.
• Model the indexed cost base where the asset has been held for at least 12 months.
• Compare ordinary tax with the 30% minimum floor.
• Prepare FRCGW clearance certificate, variation or vendor declaration documentation early.
• Warn clients that 15% withholding is not final tax and a tax return will still be required.

Discretionary trusts with foreign beneficiaries: 1 July 2028 is the key date

The Budget also introduces a 30% minimum tax on discretionary trusts from 1 July 2028. This is particularly relevant for Australian family trusts, property trusts and succession structures with foreign-resident beneficiaries.

Where an Australian discretionary trust distributes capital gains or other relevant amounts to a foreign-resident beneficiary, advisers will need to model:

• the Australian trustee-level 30% minimum tax floor;
• existing non-resident beneficiary withholding and surcharge effects;
• the beneficiary’s home country taxation of the Australian distribution;
• whether the home country recognises any Australian trustee tax credit; and
• whether double tax relief is available under domestic law or treaty mechanisms.

The double tax point should not be underestimated. A foreign tax authority may not recognise the Australian trustee tax credit in the same way an Australian resident beneficiary would. This can create economic double taxation even where the Australian side appears technically correct.

The expanded rollover relief window from 1 July 2027 to 30 June 2030 for trust restructures may create planning opportunities. However, accountants should coordinate with lawyers and foreign tax advisers before recommending changes to trust deeds, appointor roles, beneficiary classes or asset ownership.

Negative gearing quarantine applies equally to foreign investors

The Budget’s negative gearing reform applies to established residential property acquired after 7:30 PM AEST on 12 May 2026, with the quarantine operating from 1 July 2027. The rule applies to non-residents as it does to residents.

For foreign investors, this is most relevant where Australian rental losses have historically been used to offset other Australian-source income. Post-reform, losses on affected established residential property will need to be quarantined rather than immediately offset against unrelated income.

For accountants advising offshore clients, acquisition timing and asset type now matter more. Established residential property, new residential property, commercial property and indirect property investments may produce different tax profiles once negative gearing, land tax, vacancy fees, FIRB fees, CGT indexation and withholding are considered together.

FIRB streamlining: useful, but not a tax concession

The Budget’s FIRB reform direction is favourable for non-housing investment. The Government has indicated that foreign investment approvals for non-housing investments will be streamlined, ineffective conditions on existing approvals will be removed, and approvals for commercial, industrial and infrastructure investments will accelerate.

This is commercially important for overseas-domiciled clients considering Australian expansion, logistics assets, manufacturing sites, data centres, renewable infrastructure, commercial property or strategic joint ventures.

However, accountants should be careful not to conflate FIRB approval with tax efficiency. Faster FIRB approval does not change the client’s Australian income tax, GST, CGT, withholding tax, thin capitalisation, transfer pricing or treaty residence position. It simply reduces one regulatory friction point.

Tax treaty residence becomes more important

Budget 2026 increases the value of accurate treaty residence advice. Clients who are on the cusp of becoming Australian residents, ceasing Australian residence, or claiming treaty residence in another jurisdiction should model both sides of the position before any disposal.

One common trap is assuming that a double tax agreement will exempt the Australian gain. In many treaties, the capital gains article preserves Australia’s right to tax gains from Australian real property and indirect real property interests. In other words, the treaty often defers to source-state taxing rights. If Australian domestic law taxes the TAP gain, the treaty may not prevent it.

Residence analysis should include:

• Australian domestic residence tests;
• tie-breaker provisions under the relevant treaty;
• location of permanent home, habitual abode and centre of vital interests;
• timing of CGT event A1, usually contract date rather than settlement date;
• temporary resident rules where relevant; and
• foreign tax credit treatment in the client’s home jurisdiction.

Decision framework for advising non-resident clients

For each overseas-domiciled client with Australian investments, use the following framework before recommending a disposal, restructure or acquisition.

Step 1: Identify the asset class

• Is the asset Australian real property?
• Is it an indirect Australian real property interest?
• Is it used in an Australian permanent establishment?
• Is it residential, commercial, industrial or infrastructure?

Step 2: Confirm tax residence and treaty position

• Is the client a foreign resident under Australian domestic law?
• Is treaty residence available in another country?
• Does the treaty preserve Australia’s taxing right over the gain?

Step 3: Model timing

• Was the asset acquired before or after 7:30 PM AEST on 12 May 2026?
• Will the disposal occur before or after 1 July 2027?
• Does the 1 July 2028 discretionary trust minimum tax affect the structure?
• Is trust restructure rollover relief available before 30 June 2030?

Step 4: Compare tax outcomes

• Calculate the nominal capital gain.
• Calculate the indexed cost base for assets held 12 months or more.
• Apply the 30% minimum tax floor.
• Compare with ordinary non-resident marginal rates or trustee taxation.
• Overlay FRCGW at 15% of sale price if the $750,000 threshold is exceeded.

Step 5: Check foreign country consequences

• Will the client’s home country tax the gain or distribution?
• Will it recognise Australian CGT, withholding tax or trustee tax credits?
• Is there a timing mismatch between Australian and foreign tax years?

Three traps to raise with clients now

• Treaty trap: Many treaty capital gains articles preserve Australia’s source-state taxing rights over Australian real property. A treaty residence claim may not exempt the gain.
• Withholding trap: FRCGW is not a final tax. The 15% withholding is a credit against the final assessment, which may be higher or lower under the post-1 July 2027 regime.
• Trust credit trap: Foreign-resident beneficiaries of Australian discretionary trusts may not receive effective home country credit for Australian trustee tax, creating double taxation.

How accounting firms should prepare

Practices advising foreign investors should update their client review processes during the 2026-27 year rather than waiting until the first post-reform settlements occur. Priority files include non-resident landlords, foreign beneficiaries of Australian trusts, offshore family groups with pre-CGT or long-held Australian property, and clients contemplating a change in treaty residence.

Action items include:

• Run CGT projections for all non-resident clients with Australian property before 1 July 2027.
• Identify long-held assets where indexation may improve the outcome.
• Identify low-income-year disposals where the 30% floor may increase tax.
• Review Australian discretionary trusts with foreign beneficiaries before 1 July 2028.
• Update FRCGW checklists, settlement letters and vendor declaration workflows.
• Coordinate with foreign tax advisers on creditability of Australian tax.
• Review FIRB approval conditions for commercial, industrial and infrastructure clients who may benefit from streamlining.

For firms handling large volumes of catch-up records for non-resident landlords or overseas investors, tools like Fedix can assist with converting bank statements into reconciled ledgers and supporting BAS, GST and working paper review. The value is strongest where advisers need reliable historical data before modelling CGT, withholding and rental loss outcomes.

Bottom line for practitioners

Budget 2026 does not simply remove a CGT discount that foreign residents were enjoying. In most TAP cases, they were not receiving it. The real advisory work lies in modelling the new indexation rules, the 30% minimum tax floor, the continuing 15% FRCGW regime, the 1 July 2028 discretionary trust rules and the client’s treaty residence position.

For accountants advising overseas-domiciled clients, the practical message is clear: do not rely on old non-resident CGT assumptions. Every post-1 July 2027 disposal of Australian property should be modelled under the new regime before contracts are signed.

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Disclaimer: This article is for general informational purposes only and does not constitute professional financial or tax advice. Always consult a qualified accountant or tax professional for advice specific to your situation. Fedix.ai provides tools to assist accounting professionals but does not replace professional judgement.