After a close election result, the Federal government has indicated that it will present its Budget legislation to parliament before the end of the year.
The measures will include tax cuts, a new diverted profits tax (modelled on the UK rules), goods and services tax (GST) changes, the introduction of corporate and limited partnership collective investment vehicle tax regimes and controversial changes to the superannuation regime.
Taxation of foreign residents
From July 1 2016, purchasers of certain direct or indirect interests in Australian land valued at A$2 million ($1.5 million) or more from foreign resident vendors are required to pay a 10% non-final withholding tax. This intends to boost the collection of Australian capital gains tax liabilities and bring foreign resident vendors into the Australian tax net by entitling them to credits for Australian withholding tax. For real estate transactions, vendors are assumed to be foreign residents unless they prove otherwise by providing a clearance certificate from the Australian Taxation Office (ATO) or a residency declaration.
The Australian States of Queensland (QLD), New South Wales (NSW) and Victoria (VIC) have recently introduced or increased stamp duty surcharges payable by foreign purchasers of residential real estate in those States. While the rules slightly differ in each State, the key features are that the surcharges:
- Are in addition to the normal transfer duties payable on acquisition of real estate in each State, being an additional 3% (QLD), 4% (NSW) or 7% (VIC) on the higher of the purchase price and unencumbered value of the property;
- Apply to transactions entered into from October 1 2016 (QLD), June 21 2016 (in NSW), and July 1 2016 (VIC);
- Only apply to foreign purchasers. All States have ownership tracing rules to determine whether companies and trusts are a foreign purchaser. Generally, this is where a foreign individual has at least a 20% (NSW) or 50% (in QLD and VIC) interest in the company or trust;
- Only apply to "residential land" as defined in each State; and
- Also apply to indirect acquisitions of residential real estate by foreign persons that are subject to stamp duty under the landholder duty provisions.
In VIC, an exemption from the surcharge is available for developers in certain circumstances. QLD is proposing a similar exemption. NSW does not have an exemption for developers.
To help Australian entities understand new country-by-country reporting (CbCR) requirements, the ATO has released the high-level design of the local file, forming part of the CbCR package.
Australian entities with global annual income of at least A$1 billion must submit annual statements on their global operations, beginning with the first income year starting on or after January 1 2016. The CbC reports are due for filing within 12 months after the end of the income year.
In addition, the Board of Taxation has designed a voluntary tax transparency code, which applies for some taxpayers for the year ended June 30 2016 (the names of the first 12 companies to commit to the code have been publicly released). The code contains principles and minimum standards of tax transparency for medium and large businesses, including information on their effective tax rate, overall tax contributions and approach to tax strategy and governance. The code was developed to encourage businesses to publicly disclose their tax affairs to highlight those that are paying their fair share and to discourage aggressive tax avoidance.
Revised tax conditions for approvals by the Foreign Investment Review Board (FIRB) have been released. The revisions retain the existing conditions, but significantly change their substance, generally by relaxing them. For example, the requirement for an applicant (foreign investor) to comply with Australia's tax laws has been narrowed to relate only to Federal tax laws and is not breached where the applicant takes reasonable care and has a reasonably arguable tax position. Further, the requirement for an applicant to use best endeavours to ensure its "associates" both comply with Australian tax laws and provide all information requested by the FIRB now only applies to the applicant's "control group". Another significant change is the removal of the requirement for an applicant to notify the ATO where, in connection with the proposed transaction, it entered into a material transaction to which the transfer pricing or anti-avoidance provisions may "potentially" apply. FIRB expects to release further guidance on the tax conditions shortly.
The ATO has issued further guidance on the application of new attribution managed investment trust (MIT) rules. The new attribution MIT rules provide long awaited improvements, simplifications and certainty to the existing MIT rules. The attribution MIT rules began to apply for many MITs that opted in from July 1 2016. The ATO's new guidance extends the deadline to October 31 2016 (an extra four months) for MITs to opt into the new rules for the 2016-17 income year. Typically, this requires amendments to the trust deed.
In addition, from July 1 2016, certain investors in early stage Australian innovation companies qualify for tax incentives including a 20% non-refundable tax offset and a 10-year exemption from capital gains tax. This is part of the Federal government's national innovation and science agenda, which incentivises investors to support innovative, high growth potential start-ups.
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