Changes to foreign investor tax Bill affect disability and student accommodation

The Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2018 has moved to the Senate, with two amendments. The Bill, a cornerstone of the 2018 Federal Budget, aims to reform the tax treatment of stapled structures and certain foreign investors.

The amendments to Schedule 1 of the Bill:

  • enable managed investment trusts (MITs) to receive concessional tax treatment when investing in dwellings used for disability accommodation under the NDIS; and
  • remove proposed rules relating to the tax treatment of student accommodation. Student accommodation will instead be treated the same as all other premises – the income of a MIT attributable to the premises will not be MIT residential housing income and therefore will not be non-concessional MIT income.

Neither of these amendments change the general requirement that, for a MIT’s investment to be ‘eligible investment business’, it must be primarily for the purpose of deriving rent.

As outlined in our 2018 Federal Budget insight, the Bill proposes to:

  • increase the MIT withholding rate on fund payments that are attributable to non-concessional MIT income;
  • modify the thin capitalisation rules to prevent double gearing structures;
  • limit the withholding tax exemption for superannuation funds for foreign residents; and
  • limit access to tax concessions for foreign investors by codifying and limiting the scope of the sovereign immunity tax exemption.

OECD seeks input on tax challenges of digital economy

As part of the OECD’s Inclusive Framework on Base Erosion and Profit Shifting (BEPS), the OECD is seeking input on how to solve the tax challenges of digitalisation. Submissions are due by 6 March 2019.

The OECD’s public consultation paper seeks comment on the following two pillars:

  • The three proposed models for allocating taxing rights in the digital economy:
    • ‘User participation’ proposal: considers data and content from engaged users as being valuable for digitalised enterprises, and proposes to expand profit allocation rules to capture this value creation.
    • ‘Marketing intangibles’ proposal: assumes the value of marketing intangibles (such as trademarks and brand names) is inherently linked to the market in which sales takes place, and proposes to modify transfer pricing and treaty rules to require returns from marketing intangibles to be allocated to the country where the relevant consumers are located. Value derived from patents or copyrights are generally viewed to be more closely linked with the place where an invention was made or work was created.
    • ‘Significant economic presence’ proposal: considers that enterprises have rendered the nexus and profit allocation rules ineffective by becoming involved in jurisdictions without any physical presence, and proposes rules which would allow for the recognition of a taxable presence in a jurisdiction when a non-resident enterprise has a significant economic presence there.
  • Other BEPS issues, including proposals to develop an income inclusion rule (which draws on the US regime for taxing Global Intangible Low-Taxed Income, or GILTI) and a tax on base eroding payments (based on the US Base Erosion Anti-abuse Tax, or BEAT).

In our response to Treasury’s ICO Discussion Paper, Hall & Wilcox strongly recommended that Treasury have regard to the work being undertaken internationally to address the tax challenges of the digital economy. Blockchain-based businesses generally rely on network effects from user participation to improve the network’s value as well as the token’s value. As such, blockchain-based businesses are likely to be caught within measures that may be proposed by the OECD, which are focused on the taxation of user created value and network effects. Any measure that is not cognisant of the OECD’s work may be short-lived policy.

New land tax exemptions for NSW social and affordable housing

From 15 February 2019, long-term leases of social and affordable housing in NSW will no longer attract land tax.

The Land Tax Management Regulation 2019 provides lessees of land from the NSW Land and Housing Corporation with an immediate exemption from land tax where the dominant purpose of the lease is providing housing (which may include social and affordable housing), and the lease is for a term of at least 10 years.

Cheers to lower excise on beer

In (potentially) good news for imported beer drinkers, the Customs Tariff Amendment (Craft Beer) Bill 2019 has been introduced to Federal Parliament. The Bill proposes to lower the rate of excise-equivalent customs duty applied to certain imported beers. It is unclear whether consumers will benefit from the lower rate.

Currently, the rate of excise-equivalent customs duty for imported beer is inconsistent. If imported in a container of less than 48 litres (about the size of a standard keg), the beer attracts a higher duty than the same beer imported in larger containers.

If the Bill is passed, from 1 July 2019 the lower rate would extend to imported beer in containers of 8 litres or more, provided the container is designed to connect to a pressurised gas or pump delivery system.

To ensure that imported beer continues to be subject to the same treatment as domestic beer, the Bill is consistent with proposed amendments to the Excise Tariff Act 1921 which would apply to equivalent containers of domestic beer.