The Government today introduced a bill (Tax Laws Amendment (2006 Measures No 4) Bill 2006) to implement a number of changes and improvements to Australia’s taxation system. Representing the Minister for Revenue and Assistant Treasurer, Peter Dutton, Parliamentary Secretary, Chris Pearce, introduced the bill that will amend the taxation laws as follows:
Improve the CGT marriage breakdown roll-over
This measure extends the existing capital gains tax (CGT) roll-over to include assets transferred under binding financial agreements and arbitral awards. It will encourage separating couples (including de factos) to settle their own affairs rather than involve the courts.
The amendments will also ensure that the CGT main residence exemption rules interact appropriately with the CGT roll-over and that marriage breakdown settlements do not give rise to CGT liabilities. In relation to the CGT main residence exemption, the amendment will take into account the way in which both the transferor and transferee spouses have used the dwelling when determining the transferee spouse’s eligibility for the main residence exemption.
Capital gains tax and foreign residents
The CGT and foreign resident amendments introduced today will better target and strengthen the application of capital gains tax (CGT) to foreign residents. This will further enhance Australia’s status as an attractive place for business and investment.
These reforms represent a further part of the Government’s implementation of fundamental changes to Australia’s taxation system, that arose from the Government’s review of international taxation arrangements, by addressing the disincentives to foreign investment (and regional holding companies) in Australia arising from the current broad, but ineffective, application of CGT to foreign residents.
The amendments address these issues by firstly narrowing the range of assets on which a foreign resident is subject to Australian CGT to Australian real property, and the business assets of Australian branches of a foreign resident.
Secondly, in order to protect the integrity of this narrower CGT tax base, foreign residents will be subject to Australian CGT when using foreign entities to hold their Australian assets. Australian CGT will now be applied to non-portfolio interests (10 per cent or more) in Australian and foreign entities, where more than half of the value of the entities’ assets is attributable to underlying Australian real property.
Improve the interaction between the consolidation rules and the demerger rules
Currently a consolidation integrity measure causes certain CGT roll-overs to be ignored for consolidation tax cost setting purposes.
Under the bill, this integrity measure will not apply to a consolidated group or multiple entry consolidated group (MEC group) that forms after a demerger, provided that the company with the rolled-over asset does not join the same consolidated group or multiple entry consolidated group as the company that originally held the asset. The amendments will apply from 1July2002 (that is, from the commencement date of the consolidation regime).
Further enhance the simplified imputation system
The amendment will ensure that franking credits are available to an Australian company which receives a franked distribution that is non assessable non exempt income from a New Zealand company that has elected into the Australian imputation system. This change will apply from 1 April 2003 (that is, from the commencement of the trans-Tasman imputation measures).