Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Wayne Swan MP)General outline and financial impact
DUAL LISTED COMPANY ARRANGEMENT
This Bill amends the Income Tax Assessment Act 1997 to align the definition of a dual listed company arrangement with the 2009 Australia-New Zealand Convention.
Date of effect: This amendment applies to capital gains tax events happening on or after this Bill receives Royal Assent.
Proposal announced: This measure was announced in the Assistant Treasurer's Media Release No. 078 of 22 October 2009.
Financial impact: The financial impact of this amendment is unquantifiable, however it is expected to be minimal.
Compliance cost impact: This amendment is expected to have a low overall compliance cost impact, comprised of a low implementation impact and a low decrease in ongoing compliance costs.
THE AUSTRALIA-NEW ZEALAND CONVENTION
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 the Convention between Australia and New Zealand for the Avoidance of Double Taxation with Respect to Taxes on Income and Fringe Benefits and the Prevention of Fiscal Evasion (the Convention) that was signed in Paris on 26 June 2009.
The Convention is Australia's fourth comprehensive tax treaty with New Zealand. It will modernise the tax relationship between the two countries and will serve to facilitate trade and investment between Australia and New Zealand. The Convention will replace the Agreement between the Government of Australia and the Government of New Zealand for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income that was signed in Melbourne on 27 January 1995, and the Protocol Amending the Agreement between the Government of Australia and the Government of New Zealand for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income that was signed in Melbourne on 15 November 2005 (together referred to as 'the existing New Zealand Agreement').
Who will be affected by this Bill?
Persons who are residents of Australia and/or New Zealand and who derive income, profits, gains or fringe benefits from Australia or New Zealand 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 (FBTAA 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 inconsistent 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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- FBTAA 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 the Convention 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 the Convention enter into force, and from what date will the Convention have effect?
The Convention will become law from the date of Royal Assent. Further, the Convention will enter into force after the date of the last notification by diplomatic notes and once the domestic processes to give the Convention the force of law in the respective countries have been completed. In Australia, enactment of this Bill giving the force of law to the Convention, along with tabling the Convention in Parliament, are prerequisites to such notification.
Once it enters into force the Convention 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 next following the date on which the Convention enters into force.
For fringe benefits tax, on fringe benefits provided:
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- on or after 1 April next following the date on which the Convention enters into force.
For other Australian taxes, on income, profits or gains:
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- of any year of income beginning on or after 1 July next following the date on which the Convention enters into force.
Application in New Zealand
For withholding taxes, on income, profits or gains derived:
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- on or after the first day of the second month next following the date on which the Convention enters into force.
For other New Zealand taxes:
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- for any income year beginning on or after 1 April next following the date on which the Convention enters into force.
The financial impact of this Bill
The impact of the first round effects on the forward estimates has been estimated as unquantifiable.
Identifiable costs to revenue associated with reductions in the rates of withholding tax and the change in taxing rights for pensions have been estimated as $142 million over the forward estimates. However, reductions in New Zealand withholding taxes can be expected to result in an increase in the amount of Australian tax revenue through reduced Foreign Income Tax Offsets claimed and increases in Australian taxable income.
Given the bilateral flows between Australia and New Zealand, the current features of the Australian and New Zealand tax systems, and the impact of the changes in the arrangements under the Convention, the revenue costs are expected to be broadly offset by revenue gains.
Compliance costs
No significant compliance costs will result from the entry into force of the Convention.
Summary of regulation impact statement
Regulation impact on business
Impact: Low.
Main points:
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- The Convention is expected to have an impact on Australian residents doing business with New Zealand, including Australian investors, banks, suppliers of technology, consultants and exporters; Australian employees working in New Zealand; and Australian residents receiving pensions from New Zealand. The Convention will also impact on the Australian Government and the Australian Taxation Office (ATO).
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- While source country tax on interest will generally continue to be limited to 10 per cent, there will be no withholding tax charged on interest derived by a financial institution that is resident in the other country. However, in the case of interest derived from New Zealand, the zero rate will only apply where the interest is paid by a person who has paid New Zealand's Approved Issuer Levy. The zero rate will also apply to interest derived by governments, their political subdivisions and local authorities (including government investment funds). No tax is payable on dividends in the source country where the dividend recipient is a company that holds directly or indirectly at least 80 per cent of the voting power of the company paying the dividends. The zero dividend withholding tax rate also applies where the beneficial owner of the dividends is a government, political subdivision or local authority (including a government investment fund) and they hold no more than 10 per cent of the voting power of the company paying the dividends. A 5 per cent rate limit applies to other dividends where the dividend recipient is a company that holds directly at least 10 per cent of the voting power of the company paying the dividend. A 15 per cent limitation applies to other dividends. The general limit for royalties will be reduced from 10 per cent to 5 per cent.
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- The Convention will assist the bilateral relationship by updating an important treaty in the network of commercial treaties between the countries and provides for greater cooperation between tax authorities to prevent fiscal evasion and tax avoidance.
THE SECOND PROTOCOL WITH BELGIUM
This Bill amends the International Tax Agreements Act 1953 to give the force of law in Australia to a Second Protocol amending the Agreement between Australia and the Kingdom of Belgium for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income signed at Canberra on 13 October 1977 as amended by the Protocol signed at Canberra on 20 March 1984 (Second Protocol), which was signed in Paris on 24 June 2009.
Date of effect: 1 January 2010.
Proposal announced: This measure was announced in the Assistant Treasurer and Minister for Trade's joint Media Release No. 007 of 25 June 2009.
Financial impact: Treasury has estimated the revenue impact of the Second Protocol which updates the Exchange of Information Article in the tax treaty as unquantifiable. As the Article seeks to expand the scope of taxpayer information available to the Commissioner of Taxation, the proposal is expected to improve taxpayer compliance and increase tax revenue.
Compliance cost impact: This proposal is expected to result in a low overall compliance cost impact, comprised of a low implementation impact and no change in ongoing compliance costs relative to the affected group.
THE AUSTRALIA-JERSEY AGREEMENT
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 the Agreement between the Government of Australia and the Government of Jersey for the Allocation of Taxing Rights with Respect to Certain Income of Individuals and to Establish a Mutual Agreement Procedure in Respect of Transfer Pricing Adjustments (the Jersey Agreement), which was signed in London on 10 June 2009.
This Agreement contains Articles that are based on corresponding Articles contained in Australia's bilateral tax treaties.
The Jersey Agreement is the third agreement of its type signed between Australia and a low-tax jurisdiction and was signed in conjunction with the Agreement between the Government of Australia and the Government of Jersey for the Exchange of Information with Respect to Taxes (the Jersey Information Exchange Agreement), which was signed in London on 10 June 2009.
Who is affected by this Bill?
The amendments made by this Bill will impact:
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- individuals who are residents of Australia and/or Jersey who derive income from pensions or retirement annuities or the provision of government services, or receive payments in their capacity as visiting students or business apprentices; and
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- residents of Australia or Jersey that wish to contest a transfer pricing adjustment made by the Australian or Jersey tax authorities.
How the legislation is 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 (FBTAA 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 inconsistent provisions of the:
- •
- ITAA 1936 (other than the general anti-avoidance rules under Part IVA);
- •
- ITAA 1997; and
- •
- FBTAA 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 the Jersey Agreement as a Schedule to that Act, which will give it the force of law.
When will these changes take place?
The amendments made by this Bill will take effect from the date of Royal Assent.
When will the Agreement enter into force, and from what date will it have effect?
The Jersey Agreement will enter into force on the date of the last exchange of diplomatic notes notifying that the domestic procedures to give this Agreement the force of law have been completed. In Australia, enactment of the legislation giving the Agreement the force of law along with tabling this Agreement in Parliament are prerequisites to the exchange of diplomatic notes.
Once it enters into force the Jersey Agreement will apply as follows
Application in Australia
In respect of any income year beginning on or after 1 July in the calendar year next following the date on which the Agreement enters into force.
Application in Jersey
In respect of any income year beginning on or after 1 January in the calendar year next following the date on which the Agreement enters into force.
The financial impact of this Bill
The impact of the Jersey Agreement on the forward estimates is estimated to be negligible.
Compliance costs
No significant compliance costs are expected to result from the entry into force of the Jersey Agreement.
Summary of regulation impact statement
Regulation impact on business
Impact: Minimal.
Main points:
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- The Jersey Agreement is likely to have an impact on recipients of Australian source pensions or retirement annuities who reside in Jersey; individuals providing services in Jersey to an Australian government (or political subdivision or local authority); Australian students and business apprentices temporarily residing in Jersey for education or training purposes; the Australian Government and the ATO.
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- The Jersey Agreement will also have an impact on Australian residents (including non-individuals) that wish to contest a transfer pricing taxation adjustment made by the Jersey tax authorities.
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- The Jersey Agreement will promote a closer bilateral relationship between Australia and Jersey by eliminating double taxation of certain income derived by individuals, specifically pension recipients, government employees, students and business apprentices.
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- In conjunction with the Jersey Information Exchange Agreement, the Jersey Agreement will provide for greater cooperation between tax authorities to prevent tax avoidance and evasion.
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- No material costs to taxpayers have been identified as likely to arise from the Jersey Agreement but there is likely to be a small, unquantifiable administration cost.