The Australian Government has released an exposure draft of the legislation implementing the OECD Standard for Automatic Exchange of Financial Account Information (known as the Common Reporting Standard, or CRS), and an accompanying explanatory memorandum (available here).

The draft requires Reporting Financial Institutions to report to the Commissioner of Taxation on relevant account holders resident in any foreign jurisdiction. This is irrespective of whether the account holders are resident in a country which has agreed to exchange CRS information with Australia, and will significantly increase the scope of due diligence currently required under FATCA.

The draft includes some, but not all, of the modifications to the CRS suggested by OECD materials, and certain Financial Institutions may face less favourable treatment under CRS than under the FATCA rules. Entities have until 9 October 2015 to make submissions to the Australian Government.


Building on Australia’s signature of the OECD Multilateral Competent Authority Agreement in June 2015, the Australian Government proposes to enact a new Subdivision 396-C (“Common Reporting Standard”) into Schedule 1 of the Taxation Administration Act 1953 (Cth), and make consequential amendments to the existing FATCA implementing legislation in Subdivision 396-A.

The OECD materials allow for jurisdictions to make certain choices when legislating the CRS. The exposure draft indicates how some of these choices are to be made.

The proposed legislation is to be applied consistently with the OECD Commentaries on the CRS (available here).

Which accounts are reportable?

The exposure draft requires that a Financial Institution treat all jurisdictions (other than Australia) as Reportable Jurisdictions. This means that a Financial Institution may be required to collect and report information for accounts with any kind of foreign indicia.

The effect of this so-called “big bang” approach is that Financial Institutions will not need to constantly monitor which jurisdictions have signed up to CRS to determine who they have to report. The flip side of this is that a Financial Institution must have systems and processes able to capture the relevant information for all non-residents.

When do I have to report?

The amendments are intended to apply from 1 January 2017, with the first reporting of accounts required by 31 July 2018.

A transitional period allows for Financial Institutions to elect to defer their reporting obligations for 12 months, with the effect that the first reporting of accounts would occur by 31 July 2019 (for the 2018 calendar year).

A Financial Institution that wishes to defer its reporting obligations must provide a notice in writing to the Commissioner.

CRS is not FATCA

There are important differences between the due diligence obligations under FATCA and CRS that mean you cannot simply apply your current FATCA processes to meet your CRS obligations.

Some companies will find themselves having to report for the first time. Others may have to report on accounts that are not currently subject to FATCA reporting. For example, FATCA provides a specific exemption for certain captive finance companies, which has not been specifically replicated in the CRS.

FATCA also provides an exemption for reporting with respect to certain equity interests which are regularly traded on an established securities market. The CRS does not contain an equivalent exemption.

Legislated modifications to CRS

The exposure draft also includes a number of modifications of CRS from its OECD standard. These modifications are expressly contemplated by the OECD Commentaries and the Implementation Handbook, although not all modifications referred to by the OECD are reflected in the exposure draft.

The draft includes some, but not all, of the modifications to the CRS suggested by the Implementation Handbook. For example, the draft legislation does not include a suggestion from the Implementation Handbook that would allow a Financial Institution to align its reporting obligations for trusts that are Passive NFEs with trusts that are Financial Institutions. This proposed modification would reduce the reporting burden for some Financial Institutions because certain beneficiaries of a trust would only need to be reported in the years in which they received a distribution.

The Commentaries suggest that when implementing the CRS, jurisdictions may permit Reporting Financial Institutions to apply the US dollar thresholds described in the CRS along with their equivalents in other currencies. Interestingly, the draft legislation provides not for the equivalent amount to be substituted (as suggested by the Commentaries), but rather for the US amount to be read as an Australian dollar figure. This means that a Financial Institution may elect to avoid the need to perform the currency conversion, but if it does so (at least given the current USD/AUD exchange rate) this would significantly lower the threshold for an account to qualify for the more intensive “higher value” due diligence procedure.

Penalties regime

The reporting, due diligence and record-keeping obligations under CRS will be supported by Australia's general tax penalties regime in the Taxation Administration Act 1953 (Cth).

Penalties will apply for a false or misleading statement in a report to the Commissioner, or for a failure to lodge on time or to keep adequate records. There is no express penalty for failing to follow the CRS due diligence procedures, but doing so might render a statement false or misleading.

The exposure draft clarifies that account holders may be also subject to administrative penalties if they make a false or misleading self-certification to a Financial Institution.

What should I do now?

You should determine whether the CRS will apply to your business. If it does, you should consider making submissions to the Government about any concerns you have about the regime. The deadline for submissions is 9 October 2015.

More generally, entities should determine whether they are characterised as “Reporting Financial Institutions” under the CRS and should start the process of adapting their systems.

Our team has been carefully monitoring the development and implementation of FATCA and CRS. Please contact us if you would like to discuss how Australia’s implementation of the CRS might affect your business.