House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Treasurer, the Hon Wayne Swan Mp

General outline and financial impact

What will this Bill do ?

This Bill amends the International Tax Agreements Act 1953 (Agreements Act 1953) to give the force of law in Australia to a Protocol amending the Agreement between the Government of Australia and the Government of the Republic of South Africa for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (Protocol), which was signed in South Africa on 31 March 2008.

This Protocol updates the Agreement between the Government of Australia and the Government of the Republic of South Africa for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (existing Agreement), which will enhance Australia's relationship with South Africa by assisting trade and investment flows.

Who will be affected by this Bill ?

Persons who are residents of Australia and/or South Africa and who derive income, profits or gains from Australia or South Africa will be affected by this Bill.

How is the legislation structured ?

The Agreements Act 1953 gives the force of law in Australia to Australia's tax treaties which appear as Schedules to that Act. The provisions of the Income Tax Assessment Act 1936 (ITAA 1936), the Income Tax Assessment Act 1997 (ITAA 1997) and the Fringe Benefits Tax Assessment Act 1986 are incorporated into and read as one with the Agreements Act 1953. The provisions of the Agreements Act 1953 (including the terms of the tax treaties) take precedence over provisions of the:

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ITAA 1936 (other than the general anti-avoidance rules under Part IVA);

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ITAA 1997; and

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Fringe Benefits Tax Assessment Act 1986 (other than section 67 which is an anti-avoidance rule).

In what way does this Bill change the International Tax Agreements Act 1953 ?

The Agreements Act 1953 is amended to insert the text of this protocol as a Schedule to that Act. Australia's tax treaties appear as Schedules to the above Act, which gives them the force of law in Australia.

When will this Protocol enter into force, and from what date will this Protocol have effect ?

The provisions of the Protocol will become law from the date of Royal Assent. The Protocol will enter into force after the date of the last notification by diplomatic notes and once the domestic processes to give this protocol the force of law in the respective countries have been completed. In Australia, enactment of this Bill giving the force of law to this Protocol is the prerequisite to such notification.

Once it enters into force this Protocol will apply as follows

Application in Australia

For withholding taxes, on income derived:

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on or after the first day of the second month following the date on which the Protocol enters into force.

For other Australian taxes, on income, profits or gains:

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any year of income beginning on or after 1 July in the calendar year next following the date on which the Protocol enters into force.

Application in South Africa

For taxes withheld at source, on amounts paid or credited:

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from the day after the date on which the Protocol enters into force.

For other South African tax:

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in respect of years of assessment beginning on or after 1 January next following the date on which the Protocol enters into force.

The financial impact of this Bill

Treasury has estimated the impact of the first round effects on forward estimates as negligible.

Compliance costs

No significant additional compliance costs are expected to result from entry into force of this Protocol.