The principal asset test will look back

Changes to the foreign resident capital gains tax regime take effect on 1 October 2026. For the principal asset test, the ATO says the revised rule will apply over the 365 days before a CGT event, rather than only at the time of the event.

That is a narrower change than a general instruction to begin every foreign resident CGT review earlier. It changes the period relevant to the principal asset test under the foreign resident CGT rules. The practice question is whether the team has identified that period when a client is considering a relevant CGT event.

The event date is no longer the only reference point

A reasonable prediction is that the principal asset test would be assessed at the point of the CGT event, because that is when the transaction occurs. The ATO's stated change is different. The test will apply over the 365 days before a CGT event, rather than only at the time of the event.

For a practice, a sensible control is to flag the 365 days before a CGT event when a foreign resident client is considering a relevant transaction. The team can then coordinate with the tax adviser on the facts needed to apply the test. That is a recommended workflow control, not a requirement stated by the ATO.

The distinction matters because the change is specific to the principal asset test. It does not, on the ATO's description, establish that every part of foreign resident CGT analysis must begin before a sale or that every client file needs the same process.

The real property changes are separate questions

The changes also clarify and broaden the meaning of taxable Australian real property for the foreign resident CGT rules. The ATO says this includes a new definition for real property and the addition of water rights.

Those changes give practices specific questions to raise in relevant cases. A recommended control is to identify whether the transaction involves an asset or rights that may require consideration under the revised meaning of taxable Australian real property, then coordinate with the tax adviser. The ATO's description does not turn every asset label into a conclusion about the tax treatment.

The same caution applies to membership interests. The financial planning workflow can identify the proposed transaction, the client information available to the practice and the ownership structure. The tax adviser can then assess how the revised rules apply. That is a coordination recommendation, rather than a statement about which professional must make the tax determination.

Vendor notifications have a qualification

The ATO says the changes introduce a notification requirement for certain foreign resident vendors. It also describes a declaration that membership interests are not indirect Australian real property interests.

The word "certain" matters. The ATO's description does not say that every foreign resident vendor must make that declaration. Practices should therefore avoid turning the change into a universal declaration step for every foreign resident disposal.

A recommended control is to ask, where a foreign resident vendor is involved, whether the notification requirement applies and whether the declaration concerning membership interests is relevant. The control should sit alongside tax coordination, rather than treating the declaration as an administrative step that automatically applies to every transaction.

The renewable energy discount is also limited

The ATO identifies a transitional 50% CGT discount for eligible foreign residents disposing of certain Australian renewable energy assets. That is a specific measure, not a general statement that a discount applies to every asset held by a foreign resident.

A practice response is to keep eligibility and asset classification as separate questions in the tax referral. The fact that the measure is described as a transitional 50% CGT discount does not resolve whether a particular client or asset falls within it.

The ATO also says the Treasury Laws Amendment (Strengthening Accountability for Tax Adviser Misconduct and Other Measures) Act 2026 is now law. That does not remove the need to distinguish between the different changes and assess which one is relevant to the particular client and transaction.

What should change in the workflow

For relevant cases, add a prompt when a foreign resident client raises a possible CGT event. The prompt should direct the team to note that the principal asset test applies over the 365 days before a CGT event, rather than only at the time of the event, and to coordinate with the tax adviser.

A separate prompt can cover the revised meaning of taxable Australian real property, including the new definition for real property and the addition of water rights. Another can ask whether a foreign resident vendor is within the notification requirement and whether the declaration concerning membership interests is relevant.

These are recommended practice controls. They should not be presented as additional requirements stated by the ATO.

The broader foreign resident CGT changes address taxable Australian real property, vendor notifications and a transitional 50% CGT discount for eligible foreign residents disposing of certain Australian renewable energy assets. Practices should treat those as separate questions, not as a blanket instruction to apply one new workflow to every foreign resident client.¹