VERY INTERESTING FOLKS MUST READ WHAT AN EYE OPENER72 Present reform Non-resident taxpayers are taxed only on their Australian-sourced income. During the past decade, the taxation of capital gains has been subject to much change and continues to be an area focused on by successive governments in order to balance decreasing tax revenues with the desire to keep Australia an attractive place for investment. Two features of the current law have now been identified as having loopholes where non-resident taxpayers can avoid paying CGT. These are in the use of permanent establishments in the context of section 855-15 and section 23H of the ITAA 1997; and the principal asset tests for indirect Australian real property interests. On 14 May 2013, the previous Government announced amendments to the principal asset test in the 2013-14 Budget.73 The changes to the principal asset test would treat mining, quarrying and prospecting information and goodwill together with mining rights as real property for the purposes of the ‘principal asset test’ which is relevant in working out whether a foreign resident has an indirect TARP and thus subject to CGT on disposal of TARP. Schedule 3 amends the ITAA 1997 to ensure that the foreign residents CGT regime operates as intended by preventing the double counting of certain assets under the Principal Asset Test. A technical correction is also made to the meaning of ‘permanent establishment’ in section 855-15 of the ITAA 1997. In addition, these amendments will also ensure that transactions within a tax consolidated or multiple entry consolidated (MEC) group are ignored for the purposes of applying the principal asset test where the effect of the transaction is to create an asset (such as a debt) that is not TARP.74 Policy Position of non-government parties/independents At the time of writing this Bills Digest, the Australian Labor Party, the Australian Greens and independents had not expressed a view on the proposed CGT changes in the Bill. The Australian Labor Party, however, while in Government, introduced the changes proposed in Schedule 3 in the 2013-14 Budget. Key Issue-Foreign residents capital gains tax regime - and main provisions There are two key issues that Schedule 3 focusses on: the permanent establishment test, and the indirect Australian real property interests and principal asset test. 70. Explanatory Memorandum, p. 43. 71. C Harding, ‘Taxation of non-residents’, The Tax Specialist, June 2014, p. 200, accessed 14 August 2014. 72. Ibid. 73. Australian Government, ‘Part 1: revenue measures’, Budget measures: budget paper no. 2: 2013-14, op. cit., p.35. 74. PricewaterhouseCoopers (PwC), ‘Tightening the CGT treatment of indirect Australian real property interests’, Federal Budget 2014, PwC website, accessed 15 August 2015.
Posted on: Sat, 01 Nov 2014 18:31:09 +0000
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