By Melinda Peters, Andrew Bukowski, Kate Swain and Melissa Simpson from McCullough Robertson Lawyers
As Australia accelerates its transition to renewable energy, foreign capital continues to play a critical role in funding large‑scale projects such as wind farms, solar developments and battery storage infrastructure.
At the same time, the Australian Government has been moving to tighten the capital gains tax (CGT) rules that apply to foreign residents, particularly where assets derive their value from Australian land and natural resources.
Happily, ahead of this year’s federal budget (and as first announced in the 2024-25 Federal Budget), the Government has published draft legislation to implement a targeted, time‑limited 50 percent CGT discount for certain foreign investors investing in renewable energy assets.
The concession is expressly transitional and is designed to support continued capital inflows into the renewables sector, while investors and markets adjust to the new long‑term tax settings.
In an investment environment which has been continuously hit by supply chain disruptions and delays, this tax concession offers welcome support for the sector.
What is the proposal?
The proposed measure provides a 50 percent capital gains tax discount for eligible foreign investors who dispose of qualifying Australian renewable energy assets or qualifying indirect interests in those assets.
The discount applies independently of the existing CGT discount regime available to resident taxpayers and is available even where a foreign investor would not otherwise be entitled to claim the CGT discount under general taxation laws.
The concession applies only to CGT events occurring from the commencement of the legislation (which is not yet known) through to June 30, 2030.
Eligibility for the new concession is limited to foreign residents who are not individuals, such as foreign companies and trustees of foreign trusts.
This eligibility requirement reflects the targeted nature of the transitional concession, applying to foreign institutional investors who contribute to the growth of Australia’s renewable energy sector.
The discount applies to both direct disposals of Australian renewable energy assets and indirect disposals, such as the sale of shares or units in an entity holding those assets.
For direct disposals, the asset must be taxable Australian real property with the primary purpose of generating, or directly facilitating the generation of, electricity in Australia using an eligible renewable energy source, as defined under the Renewable Energy (Electricity) Act 2000.
Assets that are not yet operational or in the early stages of development may still qualify, provided there is clear and objective evidence that they are genuinely intended for renewable energy use, such as development approvals, grid connection arrangements or offtake agreements.
Where an asset could be categorised as meeting the primary purpose requirement, but is also directed towards other purposes, the primary purpose shall be the determining factor.
For disposals of indirect interests (i.e. shares in a company that holds interests in real property), the draft legislation requires that at least 90 percent of the value of the entity’s taxable Australian real property be attributable to qualifying renewable energy assets at the time of disposal.
This test applies on a look‑through basis, with integrity rules designed to take into account the renewable and non-renewable energy components when calculating to prevent artificial value inflation or double counting within corporate groups.
What Does This Mean in Practice?
For foreign investors, this new measure provides a window of opportunity to manage CGT exposure during the transition period, hopefully increasing project returns to make development and investment in renewables projects more appealing to foreign capital.
Investors are encouraged to reassess exit strategies and divestment timing, accelerate transactions that would otherwise occur after the concession ends, and recalibrate valuation models to reflect the temporary discount.
For developers and project sponsors, the guidelines highlight the importance of robust project documentation, especially for early‑stage assets. Demonstrating a clear and credible renewable energy purpose will be critical to accessing the concession where assets are not yet operational.
Looking Ahead
The Government has made clear that the concession is not intended to be permanent and is to assist foreign investors in renewable energy assets to price CGT into their investment models.
Stakeholders should continue to monitor legislative developments and final design details following the Treasury’s consultation process which closes this week.
This article was originally published by McCullough Robertson here.
Melinda Peters, Andrew Bukowski and Kate Swain are Partners at McCullough Robertson Lawyers. Melissa Simpson is a Senior Associate at McCullough Robertson Lawyers.
