EXPLANATORY STATEMENT
Select Legislative Instrument 2011 No. 4
Issued by authority of the Assistant Treasurer
Income Tax Assessment Act 1936
Income Tax Assessment Act 1997
Income Tax Amendment Regulations 2011 (No. 2)
Income Tax Assessment Amendment Regulations 2011 (No. 1)
Section 266 of the Income Tax Assessment Act 1936 (the Act) provides that the Governor-General may make regulations not inconsistent with the Act or the Income Tax Assessment Act 1997 (ITAA 1997) prescribing all matters by which the Act or the ITAA 1997 are required or permitted to be prescribed, or are necessary or convenient to be prescribed for giving effect to the Act or the ITAA 1997.
The purpose of the amendments to the Income Tax Regulations 1936 (ITR 1936) and to the Income Tax Assessment Regulations 1997 (ITAR 1997) is to give effect to consequential amendments that are necessary to ensure that the taxation law operates as intended following the repeal of the foreign investment fund (FIF) and deemed present entitlement rules.
The Government announced in the 2009-10 Budget on 12 May 2009 that it would reform the foreign source income attribution rules. The repeal of the FIF and deemed present entitlement rules represents the first part of this reform. The remaining reforms (include the modernisation of the controlled foreign company rules, improving the effectiveness of the transferor trust rules, and the inclusion of an anti‑roll-up rule) are scheduled to be introduced into the Parliament in the first half of this year.
The FIF rules applied to Australian residents with non-controlling shareholdings in foreign companies or with interests in foreign trusts. The rules applied to approximate a resident taxpayer’s share of the undistributed profits of a FIF and to assess the taxpayer on those profits. The FIF rules also applied to Australian residents with an interest in a foreign life assurance policy.
The Tax Laws Amendment (Foreign Source Income Deferral) Act (No. 1) 2010, which repeals the FIF and deemed present entitlement rules, received Royal Assent on 14 July 2010.
The amendments will repeal or amend provisions in the ITR 1936 and the ITAR 1997 which relate to the FIF rules.
The amendments also insert the definition of an approved stock exchange and updates the list of approved stock exchanges in the ITAR 1997 for the purposes of the definition of approved stock exchange in subsection 995-1(1) of the ITAA 1997 as a consequence of the repeal of the FIF regulations in the ITR 1936.
The amendments also modify the references to “Australian Stock Exchange Limited” and “Bendigo Stock Exchange Limited” to read “ASX Limited” and SIM Venture Securities Exchange Ltd” respectively for the purposes of the definition of approved stock exchange in subsection 995-1(1) of the ITAA 1997 (in order to reflect the change in names of those institutions) and adds “Asia Pacific Stock Exchange Limited” to the list of approved stock exchanges.
A further technical amendment is made to omit definitions that no longer apply.
These minor consequential amendments arise from the repeal of the FIF rules in the tax laws. A comprehensive Regulation Impact Statement was prepared and accompanied the repeal of these rules in the primary legislation.
Targeted confidential consultation occurred as the Regulations were minor or machinery in nature.
The Regulations commenced on the day after they were registered on the Federal Register of Legislative Instruments.
Overview
The Income Tax Assessment Amendment Regulations 2011 (No. 1) was enacted to address the gap left by the repeal of the foreign investment fund (FIF) and deemed present entitlement rules, ensuring that the taxation law continues to operate as intended. These regulations were issued under the authority of the Assistant Treasurer and are a result of the Tax Laws Amendment (Foreign Source Income Deferral) Act (No. 1) 2010, which received Royal Assent on 14 July 2010. The primary objective of these amendments is to repeal or amend provisions in the Income Tax Regulations 1936 and the Income Tax Assessment Regulations 1997 that were related to the FIF rules, thereby preventing any unintended consequences from the repeal. Additionally, the regulations update the list of approved stock exchanges and modify references to reflect the changes in the names of certain institutions, ensuring consistency and accuracy in the application of the taxation law.
Scope and Application
The Income Tax Assessment Amendment Regulations 2011 (No. 2) apply to all Australian residents, entities, and taxpayers subject to the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997. These regulations primarily affect those with interests in foreign investment funds (FIF), foreign trusts, or foreign life assurance policies, as well as those subject to foreign source income attribution rules. The amendments repeal or modify provisions in the Income Tax Regulations 1936 and the Income Tax Assessment Regulations 1997 related to the FIF rules, following the repeal of these rules by the Tax Laws Amendment (Foreign Source Income Deferral) Act (No. 1) 2010. The regulations also update the definition of approved stock exchanges in the Income Tax Assessment Regulations 1997 and reflect name changes of certain stock exchanges. The scope of the regulations is limited to technical adjustments necessitated by the repeal of the FIF rules and does not extend beyond these amendments. No additional exclusions, exemptions, or thresholds are specified in the text. The application of these regulations is subject to the broader jurisdictional reach of the Commonwealth of Australia.
Key Provisions
The Income Tax Amendment Regulations 2011 (No. 2) and the Income Tax Assessment Amendment Regulations 2011 (No. 1) primarily focus on the repeal of the foreign investment fund (FIF) and deemed present entitlement rules, as required by the Tax Laws Amendment (Foreign Source Income Deferral) Act (No. 1) 2010. These regulations, as set out in section 266 of the Income Tax Assessment Act 1936, ensure the taxation law operates as intended following the repeal of these rules (sections 1 and 2). These regulations address the consequential amendments necessary to update references and definitions in the Income Tax Regulations 1936 and the Income Tax Assessment Regulations 1997.
The regulations impose specific obligations on Australian residents with non-controlling shareholdings in foreign companies, interests in foreign trusts, or interests in foreign life assurance policies. These individuals and entities must now comply with the updated tax regulations, which reflect the removal of the FIF rules. Additionally, the regulations necessitate the updating of references to stock exchanges, such as changing "Australian Stock Exchange Limited" to "ASX Limited" and "Bendigo Stock Exchange Limited" to "SIM Venture Securities Exchange Ltd", and adding "Asia Pacific Stock Exchange Limited" to the list of approved stock exchanges (section 3). These amendments ensure that the definitions and references in the regulations align with the current nomenclature and operational entities in the financial sector.
The Income Tax Amendment Regulations 2011 (No. 2) and the Income Tax Assessment Amendment Regulations 2011 (No. 1) do not introduce new offences, penalties, or civil/criminal consequences for breach. However, failure to comply with these regulations may result in the application of existing tax laws, which could include the imposition of penalties for non-compliance with taxation regulations. The primary focus of these regulations is to ensure that the tax framework remains consistent and effective in light of the repealed FIF rules, thereby maintaining the integrity of the tax system (section 4).