Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon. Ralph Willis, M.P.)Note: References to paragraph numbers contained in the explanation of the Agreement relate to the relevant paragraph of the Article under discussion.General Outline and Financial Impact
What will the Bill do?
The Bill will amend the Income Tax (International Agreements) Act 1953 (IT(IA)A) to give the force of law in Australia to a new comprehensive agreement with New Zealand for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income (DTA). The DTA covers the various forms of income flows between Australia and New Zealand.
Who will be affected by the agreement in the Bill?
Any taxpayers who, for the purposes of the DTA, are residents of either Australia or New Zealand and who derive income, profits or gains from the other country.
In what way does the Bill change the Act
The Bill will make the following changes to the IT(IA)A:
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- it will amend the long and short titles of the IT(IA)A to reflect the inclusion of a provision covering fringe benefits in the DTA. The long title of the Act will be the Income and Fringe Benefits Tax (International Agreements) Act 1953 and the Act will be cited by the short title of the International Tax Agreements Act 1953.
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- it will amend the definition of 'agreement' in subsection 3(1) by omitting from paragraph (c) the reference to the 'previous' New Zealand agreement and substituting a reference to the '1960' New Zealand agreement. A new paragraph, paragraph (ca), will be inserted into the definition so that the term 'agreement' also refers to 'the 1972 New Zealand agreement'. The inclusion of these references in the definition of agreement facilitate the continued operation of those agreements in income years to which they relate and the DTA to be given the force of law by this Bill does not operate.
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- it will amend the definition of 'Australian tax' to include a reference to tax imposed on fringe benefits by the Fringe Benefits Tax Act 1986 and to remove references to social services contribution as being no longer relevant. The Bill also provides that this amendment does not affect income tax and social services contribution imposed before the commencement of the amendment.
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- it will insert in subsection 3(1) definitions of 'the 1960 New Zealand agreement' and 'the 1972 New Zealand agreement'.
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- it will insert after section 4 of the IT(IA)A a new section 4AA. Subsection (1) of this section will incorporate into the IT(IA)A the Fringe Benefits Tax Assessment Act 1986 (FBTAA). Subsection (2) will provide that provisions of the IT(IA)A will have effect despite anything inconsistent with those provisions in the FBTAA other than the anti-avoidance section of that Act (section 67). This will facilitate the operation of the fringe benefits provision in the DTA.
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- it will insert new subsection (1A) into section 6B of the IT(IA)A which will give the force of law in Australia to the DTA.
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- it will amend subsections (1), (2) and (3) of section 6B to ensure that the previous New Zealand DTAs, the 1960 New Zealand agreement and the 1972 New Zealand agreement, continue to have the force of law in relation to the years of income to which they respectively relate.
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- it will repeal Schedule 4 of the IT(IA)A which contains a copy of the 1972 New Zealand agreement and will add the text of the DTA as Schedule 4.
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- it will amend various provisions of the FBTAA, the Income Tax Assessment Act 1936 (ITAA), the Petroleum Resource Rent Tax Assessment Act 1987 and the Sex Discrimination Act 1984 to alter the references in those provisions to the IT(IA)A to the International Tax Agreements Act 1953 in line with the change to the short title of the IT(IA)A.
When will these changes take place?
The DTA will enter into force on the latest date on which diplomatic notes are exchanged between Australia and New Zealand formally advising that all the requirements necessary to give the DTA the force of law in the respective countries have been finalised.
Amendments effected by the Bill will commence on the day on which the Act receives the Royal Assent.
When the agreement enters into force from what date will it have effect?
The DTA with New Zealand will have effect:
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- in Australia, for withholding tax and fringe benefits tax purposes, in respect of income derived and benefits provided on or after 1 April following the entry into force of the DTA; and for other Australian taxes covered by the DTA, in respect of income, profits or gains of any year of income beginning on or after 1 July following the entry into force.
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- in New Zealand, for withholding tax and fringe benefits tax purposes, in respect of income derived and benefits provided on or after 1 April following entry into force of the DTA; and for other New Zealand taxes covered by the DTA, in respect of the year of income beginning on or after 1 April following entry into force.
The Financial Impact of the Bill
The operation of the agreement contained in this Bill is not expected to have a significant effect on revenue.