Commonwealth revenue measures introduced into Parliament or registered as legislative instruments or regulations since our previous TaxTalk publication include the following:
Customs (International Obligations) Amendment (China-Australia Free Trade Agreement) Regulation 2015, registered on 27 November 2015, amends the Customs (International Obligations) Regulation 2015 to prescribe new circumstances for refunds of customs duty, in respect of goods imported from China, to fulfil obligations under the China-Australia Free Trade Agreement (ChAFTA).
Income Tax Assessment Act 1997 – Exploration Development Incentive Modulation Factor – Declaration Instrument (No. 1) 2015, registered on 27 November 2015, declares the modulation factor for the exploration development incentive for the 2015-16 income year to be 1. The modulation factor ensures that the total amount of exploration credits created by entities cannot exceed the exploration credit cap for the relevant income year ($25 million for 2015-16).
A New Tax System (Goods and Services Tax) (Particular Attribution Rules for Certain Motor Vehicle Incentive Payments Made to Motor Vehicle Dealers) Legislative Instrument 2015, registered on 30 November 2015, overrides the basic attribution rules (under section 29-5 of the A New Tax System (Goods and Services Tax) Act 1999), by specifying different rules that apply to attribute goods and services tax payable on an intended taxable supply of a motor vehicle by a dealer.
Treasury Legislation Amendment (ChinaAustralia Free Trade Agreement) Regulation 2015, registered on 27 November 2015, amends the Foreign Acquisitions and Takeovers Regulation 2015 and the Life Insurance Regulations 1995 to give effect to Australia’s obligations under ChAFTA.
Customs (Chinese Rules of Origin) Regulation 2015, registered on 27 November 2015, prescribes matters relating to the rules of origin that will be required to be prescribed under new Division 1L of the Customs Act 1901 (Chinese originating goods).
Customs Amendment (Fees and Charges) Regulation 2015, registered on 14 December 2015, amends the Customs Regulation 2015 to give effect to recommendations made by the Joint Review of Border Fees, Charges and Taxes.
Customs (International Obligations) Amendment (Anti-Dumping) Regulation 201 , registered on 15 December 2015, amends the Customs (International Obligations) Regulation 2015 to enable the Department of Immigration and Border Protection to process refunds for a range of duties that are exempt under the Customs Tariff (Anti Dumping) Act 1975.
Petroleum Resource Rent Tax Assessment Regulation 2015, registered on 17 December 2015, repeals and remakes the Petroleum Resource Rent Tax Assessment Regulations 2005 with some minor changes to modernise the drafting style, reduce compliance costs for industry and ensure that the Regulation is fit for purpose. The key changes are designed to reduce costs and regulatory burden by:
- allowing taxpayers to jointly make an election for an onshore integrated gas to liquid (GTL) operation to aggregate the relevant costs into one upstream phase. For integrity reasons, the election is subject to restrictions
- allowing an election for an onshore integrated operation to use the depreciated replacement cost method, to be made by taxpayers that use the Residual Pricing Method (RPM). This changes the current requirement that the election be made by all of the participants in the integrated operation allowing taxpayers to jointly make an election, for an integrated operation, to use the value of their own share of the end products as a component of the netback price in specified circumstances, instead of requiring them to obtain the value of the end products of all of the taxpayers in the operation. For integrity reasons, this election is subject to restrictions
- adding an example to the Regulation to clarify that the Commissioner of Taxation’s power to agree to or to determine an RPM price can be used when required information is not accessible for practical or commercial reasons
- correcting the inconsistent treatment of storage costs for project sales gas in an integrated operation so that the cost for storage of sales gas after a non-arm’s length sale is treated as a downstream cost.
Tax and Superannuation Laws Amendment (2015 Measures No 6) Bill 2015, introduced into the House of Representatives on 3 December 2015, proposes amendments to the Income Tax Assessment Act 1997 (ITAA 1997) to change the capital gains tax (CGT) treatment of ‘earnout arrangements’ and introduce a new regime that imposes withholding obligations on the purchase of certain Australian assets from foreign residents.
With respect to ‘earnout arrangements’, the amendments propose to disregard capital gains and losses arising in respect of ‘look-through earnout rights’ and instead, treat the payments received or paid under these arrangements as part of the capital proceeds and cost base of the underlying asset or assets to which the earnout arrangement relates. There are also consequential amendments regarding amended assessments, interest charges, recognition of capital losses and access to capital gains tax (and other) concessions to ensure this new treatment provides taxpayers with outcomes broadly consistent with those that would have arisen had the value of all of the financial benefits under the earnout right been included in the capital proceeds from the disposal of the underlying asset for the seller and the cost base or reduced cost base of the underlying asset for the buyer at the time of the relevant ‘CGT event’. Broadly, these amendments will apply to earnout arrangements entered into on or after 24 April 2015. However, taxpayers that have made statements to the Commissioner or undertaken other actions in reasonable anticipation of announcements made about the amendments in the 2010-11 Budget are protected against the Commissioner applying the law in a way that is inconsistent with what they have anticipated.
With respect to foreign resident capital gains tax withholding, the Bill proposes a new regime that imposes a 10 per cent non-final withholding obligation on the purchasers of certain Australian assets where the asset is acquired from a relevant foreign resident. Broadly, the obligation will apply to a transaction involving the acquisition of an asset that is:
- taxable Australian real property (TARP)
- an indirect Australian real property interest
- an option or right to acquire such property or such an interest.
unless a specific exemption applies, the Commissioner has provided a clearance certificate certifying that the entity is not a relevant foreign resident for the purposes of these amendments, the vendor has made a declaration that they are an Australian resident for tax purposes, or, where the CGT asset acquired is a membership interest, and the vendor has made a declaration that the interest is not an indirect Australian real property interest.
This withholding measure is proposed to apply in relation to acquisitions on or after 1 July 2016. A purchaser is generally taken to have acquired a CGT asset on the date they entered into the contract to acquire it. Therefore, the amendments will not apply to transfers that occur under a contract entered into prior to 1 July 2016.
Tax Laws Amendment (New Tax System for Managed Investment Trusts) Bill 2015, introduced into the House of Representatives on 3 December 2015, together with three related Bills, proposes to implement the new attribution tax regime for managed investment trusts (MITs) and a number of related amendments. For further details see our TaxTalk Monthly feature article The New Managed Investment Trust Regime – Legislation introduced into Parliament.
Tax Laws Amendment (Implementation of the Common Reporting Standard) Bill 2015, introduced into the House of Representatives on 3 December 2015, proposes to implement the OECD’s Common Reporting Standard (CRS) in Australia from 1 July 2017.
Schedule 1 of the Bill amends the Taxation Administration Act 1953 (TAA 1953) to require certain financial institutions in Australia (known as Reporting Financial Institutions) to report information to the Commissioner of Taxation about financial accounts held by foreign tax residents. This report (statement) will need to contain reportable information in accordance with the Standard for Automatic Exchange of Financial Account Information in Tax Matters, commonly known as the Common Reporting Standard or CRS. In turn, the Commissioner will provide this information to the foreign residents’ tax authorities and will receive information on Australian tax residents with financial accounts held overseas.
The CRS sets out the due diligence rules that Reporting Financial Institutions must follow to identify Account Holders who are tax residents of another Participating Jurisdiction and to report the relevant account information to their local tax authority.
Each statement is due to the Commissioner by 31 July of the year following the year to which the information relates. Of note, transitional arrangements that apply in 2017 require a statement that relates to a Reportable Account that is either a Lower Value Account or a Pre-existing Entity Account be given to the Commissioner by 31 July 2019. Section 388-55 of Schedule 1 to the TAA 1953 allows the Commissioner to defer the time that entities must lodge a statement in the approved form.
Penalties may be applied to Reporting Financial Institutions that do not comply with their reporting obligations.
This measure applies to the period 1 July 2017 to 31 December 2017, as if the period were a calendar year, and to later calendar years. There will be transitional arrangements until 31 December 2019 for certain entities that will not be treated as passive non-financial entities for the purposes of triggering the 'look through' due diligence procedures.