House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon S. J. Morrison MP)

General outline and financial impact

Common Reporting Standard

This Bill amends Schedule 1 to the Taxation Administration Act 1953 to require certain financial institutions in Australia to report information to the Commissioner of Taxation (Commissioner) about financial accounts held by foreign tax residents. In turn, the Commissioner will provide this information to the foreign residents' tax authorities, and in parallel, will receive information on Australian tax residents with financial accounts held overseas.

In order to identify relevant accounts, financial institutions will need to carry out the due diligence procedures outlined in the Standard for Automatic Exchange of Financial Account Information in Tax Matters, commonly known as the Common Reporting Standard (CRS).

Date of effect: This Bill applies from 1 July 2017.

Proposal announced: The Government announced on 20 September 2014 that Australia would be committing to implement the CRS following the release of a discussion paper for public consultation on 19 June 2014 seeking stakeholder views on the implementation of the CRS.

Financial impact: The implementation of the CRS is estimated to deliver a small but unquantifiable revenue gain.

Human rights implications: This Bill raises human rights issues. See Statement of Compatibility with Human Rights - Chapter 2, paragraphs 2.1 to 2.30.

Compliance cost impact: The estimated compliance costs are $67.2 million per year. Financial institutions in Australia will need to collect information about their customers that are foreign tax residents and report that information to the Commissioner.

Summary of regulation impact statement

Regulation impact on business

Impact: These amendments will affect certain financial institutions in Australia.

Main Points:

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The CRS is a standardised automatic exchange model that has been developed by the Organisation for Economic Co-operation and Development (OECD) and non-OECD G20 countries, at the request of the G20. As it is a standardised model, the policy options are limited to Australia not implementing the CRS and the timing of implementation.

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The six options are:

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Option one - Australia does not implement the CRS (status quo).

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Option two - CRS implementation on 1 January 2016, with the first exchange of information occurring by September 2017;

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Option three - CRS implementation on 1 January 2017, with the first exchange of information occurring by September 2018;

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Option four - CRS staged implementation from 1 January 2017 . This option permits financial institutions to voluntarily implement the CRS on 1 January 2017 and requires all financial institutions to implement it on 1 January 2018;

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Option five - CRS implementation on 1 January 2018, with the first exchange of information occurring by September 2019; or

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Option six - CRS implementation on 1 July 2017, financial institutions report information for the period 1 July 2017 to 31 December 2017 in 2018 and the Australian Taxation Office (ATO) exchanges information with other tax authorities by September 2018.

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Each option is estimated to impose the following compliance costs each year:

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Option one - there are no compliance costs under this option;

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Option two - $76.8 million;

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Option three - $68.4 million;

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Option four - $64.8 million;

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Option five - $65.9 million; or

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Option six - $67.2 million.

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Option 1 has the lowest compliance costs, however the ATO will not receive CRS information from other tax authorities.

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Options 3, 4, 5 and 6 have similar compliance costs.

Regulation impact on individuals

Impact: Individuals and entities will be required to provide additional information to financial institutions when opening new accounts after the CRS has been implemented.

Main Points:

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For individuals, they will generally be answering two additional questions on their tax residence and taxpayer identification number.

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For entities, they will generally be providing additional information on their controlling persons' tax residence and their taxpayer identification numbers.

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The expected cost for all of the options, except Option 1 is approximately $2 million per year.