The Commonwealth's proposed foreign resident CGT reforms could have important implications for regulated infrastructure businesses with material foreign ownership.
What has changed?
The Bill introduced on 2 July 2026 broadens the definition of Australian real property for foreign resident CGT purposes. The expanded definition captures land rights, licences, contractual rights relating to land and infrastructure fixed to land, including assets such as toll roads, ports, pipelines and data centres.
For foreign corporate investors this changes the Australian tax treatment of disposing of shares in many regulated infrastructure businesses, increasing the effective tax rate on nominal capital gains from 0% to 30%.
The Explanatory Memorandum estimates these reforms will raise approximately $2.275 billion between 2026–27 and 2030–31.
Why infrastructure is particularly exposed
Regulated infrastructure businesses derive much of their value from fixed assets, statutory access rights, easements and operating licences.
The reforms were prompted in part by litigation involving ElectraNet, where existing legislation meant certain infrastructure interests were not treated as Taxable Australian Real Property. The new legislation is intended to bring these assets within the Australian CGT regime.
Why this matters for regulatory WACC
Regulated returns are intended to provide investors with a reasonable opportunity to recover efficient financing costs. Introducing a shareholder-level exit tax reduces expected after-tax equity returns for affected foreign investors.
If allowed returns remain unchanged, the reforms create a tax wedge that could reduce incentives for reinvestment while also lowering asset values by reducing the pool of potential purchasers.
Why current regulatory methods may not capture the effect
Current Australian regulatory WACC approaches benchmark market returns, gearing, beta, debt costs and the risk-free rate. They generally do not include an allowance for foreign shareholder capital gains tax applying specifically to regulated infrastructure.
Similarly, gamma addresses the value of imputation credits rather than capital gains taxation applying to foreign shareholders.
Given the range of regulatory approaches currently used across Australia, there is no established consensus regarding how this shareholder-level tax change should be reflected in regulated revenue determinations.
Potential investor distortions
The reforms create different tax outcomes depending on whether investor returns are realised through capital gains or dividends. Because treaty-reduced withholding tax on unfranked dividends may be materially lower than the new CGT rate, the reforms may influence payout policy, asset pricing and investment decisions.
