Income Tax Regulations (Amendment) 1993 No. 275
EXPLANATORY STATEMENT
STATUTORY RULES 1993 No. 275
Issued by Authority of the Treasurer
Income Tax Assessment Act 1936
Income Tax Regulations (Amendment)
GENERAL OUTLINE
Purposes of regulations
The purposes of these regulations, which amend the Income Tax Regulations, are to:
(a) insert a list of approved stock exchanges to replace and expand the list of approved stock exchanges in Schedule 3 to the Income Tax Assessment Act 1936 (the Act), and
(b) insert a list of approved international sectoral classification systems to replace and expand the list of approved international sectoral classification systems in Schedule 5 to the Act.
The legislation giving effect to the FIF measures, the Income Tax Assessment Amendment (Foreign Income) Act 1992, received Royal Assent on 18 December 1992.
Background to the FIF measures
The FIF measures apply to Australian resident taxpayers who, at the end of an income year, have an interest in a foreign company or trust and broadly attribute to those taxpayers undistributed income of the company or trust. These measures aim to remove the tax advantage of deferring Australian tax by accumulating income in offshore companies and trusts that are not controlled by Australian residents.
Other measures, commonly referred to as controlled foreign company and transferor trust measures, apply to interests in foreign companies and trusts which are controlled by Australian residents.
The FIF measures provide a number of exemptions from FIF taxation, including an exemption for interests of Australian residents in certain foreign trusts. These exemptions are designed to exclude from the FIF measures interests in FIFs which are not the target of the measures. Where an exemption does not apply, the amount of FIF income to be included in a taxpayer's assessable income is determined using one of the following three taxing methods:
(a) the market value method;
(b) the deemed rate of return method; or
(c) the calculation method.
Matters covered by regulations
The amending regulations will insert two new regulations, namely, 152N and 152P, into the Income Tax Regulations and will also insert new schedules into the regulations.
New regulation 152N replaces the list of approved stock exchanges for the purposes of the FIF measures. This list was originally included Schedule 3 of the Act and this regulation will add two new stock exchanges to the list.
New regulation 152P replaces the list of approved international sectoral classification system for the purposes of the FIF measures. This list was originally contained in Schedule 5 of the Act and this regulation will add two new international classification systems to that list.
DETAILED NOTES ON THE REGULATIONS
Regulation 1 - Commencement
Amending regulation 1 specifies the date on which the amending regulations are to take effect, i.e., 1 January 1993. This commencement date will benefit affected taxpayers. Thus, they will not contravene subsection 48(2) of the Acts Interpretation Act 1901, which prohibits the retrospective operation of regulations which affect the rights of, or impose liabilities on, taxpayers,
Regulation 2 - Amendment
Amending regulation 2 formally provides for the Income Tax Regulations to be amended.
Regulation 3 - New regulations 152N and 152P
Amending regulation 3 is the provision which inserts the new regulations 152N and 152P into the Income Tax Regulations.
Regulation 152N
Regulation 152N provides for the inclusion of certain approved stock exchanges in Schedule 12 of the Income Tax Regulations.
A specific exemption has been included in the FIF measures for a taxpayer's interest in foreign companies principally engaged in certain active businesses (known as eligible activities). The stock exchange listing method may only be used if the taxpayer can establish that the foreign company is listed on either an approved stock exchange or an approved international sectoral classification system under a classification or designation that describes an eligible activity.
Schedule 3 of the Act currently stipulates the particular stock exchanges that fall within section 470 but the Act provides for the approved stock exchanges to be named in the regulations, including the original list contained in Schedule 3.
Following representations to the Government, it has been decided to add two new stock exchanges to the existing list. Accordingly, these new stock exchanges and the existing stock exchanges contained in Schedule 5 of the Act will be named in the Income Tax Regulations by amending Regulation 4.
Regulation 152P
Regulation 152P provides for the inclusion of certain international sectoral classification systems in Schedule 13 of the Income Tax Regulations.
A specific exemption has been included in the FIF measures for a taxpayer's interest in foreign companies principally engaged in certain active businesses (known as eligible activities). The stock exchange listing method may only be used if the taxpayer can establish that the foreign company is listed on either an approved stock exchange or an approved international sectoral classification system under a classification or designation that describes an eligible activity.
Schedule 5 of the Act currently stipulates the particular international sector