The Commonwealth's proposed foreign resident capital gains tax reforms could have important implications for regulated infrastructure businesses with material foreign ownership.
What has changed?
The Bill introduced on 2 July 2026 broadens foreign resident CGT by expanding what counts as Australian “real property”. The new definition captures land rights, licences/contractual rights over or in relation to land, and things fixed or installed on land including “toll roads, bridges, carparks, ports, data centres, energy infrastructures [sic] such as pipelines.”1
For foreign corporate infrastructure investors, this changes the capital gains tax rate from the disposal of shares in a regulated infrastructure entity from 0% to 30% of nominal capital gains.
The fiscal impact is material – the explanatory memorandum for the legislation estimates that that the legislation will increase tax receipts by $2,275m from 2026-27 to 2030-312, an over three-fold increase from the $600m estimate in the original budget papers.3
Why infrastructure is exposed
Regulated infrastructure often derives value from fixed network assets, statutory land access rights, easements, operating rights and licences.
One of the Federal Court cases that prompted this change related to capital gains tax liability for a foreign corporate shareholder (YTL) that disposed of its shares in ElectraNet, a South Australian transmission company. Under current law, some infrastructure was held not to be Taxable Australian Real Property (TARP). The reform is designed to specifically tax assets like shares in an Australian electricity network.
Many foreign corporate owners will therefore face Australian CGT at 30% on nominal capital gains, where previously capital gains were disregarded in Australia.4
Why this is a WACC issue
Regulated returns are intended to provide investors a fair opportunity to recover efficient financing costs. A new shareholder-level exit tax reduces expected after-tax equity returns for foreign owners.
If the allowed return is unchanged, the reform creates a tax wedge that can reduce the after-tax returns earned by affected foreign corporate owners, reducing the incentives of existing foreign corporate owners to reinvest in regulated infrastructure businesses. A second-order impact of these changes is a reduction in the value of regulated infrastructure assets for all owners, including domestic owners, due to a reduction in the available market for the business upon exit.
Why current methods miss it
Standard regulatory WACC methods benchmark market returns, beta, gearing, debt costs and the risk-free rate. They generally do not include an allowance for foreign shareholder CGT on exit that applies to regulated businesses, but not to the assets constituting the benchmark market.
Gamma, which does address shareholder level taxation, addresses imputation-credit value in the corporate tax allowance; it does not compensate foreign investors for nominal capital-gains taxation on disposal.
Given the variety of approaches in use in Australia, there is no clear consensus on how such a change in the taxation of shareholders would or should be accommodated in the determination of regulated revenue.
Investor distortions
The reform creates unequal tax treatment between returns delivered as capital gains and returns delivered as dividends. This is because treaty-reduced withholding tax on unfranked dividends may be materially below the 30% CGT rate.
This can distort payout policy, realised market prices of network businesses and willingness to fund new regulated capex.
