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Issue 126, 5 May 2006
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The Income Tax Assessment Act 1997 (ITAA 1997) has been
amended to provide exemptions from Australian tax on non-Australian
sourced income for individuals who are temporary residents of
Australia for taxation purposes.
The reforms are designed to attract international skilled labour
to Australia and to promote Australia as a business location.
Temporary residents are generally individuals who are in
Australia on temporary visas, without any time limits. Note,
however, that a person who is, or whose spouse is, an Australian
resident for social security purposes will not be entitled to the
exemptions. Further, anyone who is a temporary Australian resident
for tax purposes but not a temporary resident after the new rules
commence will not be entitled to the exemptions if they later become
the holder of a temporary visa.
Temporary residents will qualify for:
- an exemption from
income tax on all ordinary and statutory income from a foreign
source;
- an exemption from
taxation of capital gains from assets that do not have the
necessary connection with Australia; and
- an exemption from
withholding tax obligations associated with amounts owing to
foreign lenders.
The amendments also:
- effectively remove
the time limits from the ‘short-term resident’ CGT exemption
from the deemed disposal rule that applies where a person ceases
to be an Australian resident; and
- remove the
existing four-year limitation on the exemption from the foreign
investment fund rules for all temporary residents and exempts
them from attribution under the controlled foreign company and
transferor trust rules.
Similar measures were introduced into parliament on two earlier
occasions but were defeated in the Senate both times. (Note that
these earlier proposed amendments imposed a four-year time limit on
the exemptions applying to an exempt visitor; the current amendments
have no such time restriction.)
The amendments will apply for income years that begin on or after
1 July, other than the interest withholding tax exemption, which
will apply from the date of Royal Assent (6 April 2006).
This summary article appeared in the May 2006
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In an important address to the Corporate Tax Association
Convention in Melbourne on 1 May 2006, ATO Second Commissioner
Jenny Granger outlined the Tax Office’s approach to large
business compliance and how it is being improved. Some of the
points Ms Granger made in her speech (which is on the ATO website
— click
here) included:
- large business
contributes about 34% of net Tax Office collections;
- the Tax Office
has been conducting regular consultation with large corporates
at senior levels and had met with over 20 of the largest
groups so far with more meetings under way;
- the Tax Office
expects to finalise two pilot forward agreements (in the
finance and energy sectors) by the end of September 2006. Ms
Granger said that, by entering into a forward agreement, large
businesses can reduce their risk of audit, access concessions
to administrative penalties and interest charges in the event
of tax shortfalls, and ‘have a level of confidence that tax
risk has been effectively mitigated’;
- in the last 12
months, the Tax Office has seen a significant increase in the
number of private ruling applications received from large
businesses. It aims to have the majority of applications
finalised within 90 days;
- the Tax Office
is ‘deeply concerned about inappropriate use of tax havens’,
and will continue its focus on detecting the use of tax havens
to perpetrate cross-border fraud and evasion;
- key areas the
Tax Office is monitoring re income tax for large business
include: consolidation, capital management, tax payments from
the energy and resource sector, intellectual property, and
facilitation payments; and
- key areas the
Tax Office is monitoring re GST for large business include:
integrity of business systems, one-off transactions, financial
supply matters, international issues, aggressive GST planning
arrangements.
This article appeared in ATP’s daily Latest
Tax News(Tuesday 2nd May). With tax fast-moving and ever
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At a recent speech to the SMSF Professionals Association of
Australia (SPAA), the Commissioner of Taxation Michael D’Ascenzo
discussed aspects of the Tax Office approach to the administration
and compliance of SMSFs. There are now 308,000 SMSFs holding a
total of $165 billion in assets.
Some of the common errors highlighted by the Commissioner in
returns lodged by funds included:
- ticking the
non-complying fund box when in fact the fund is a complying
fund (this is a serious matter as making a fund non-complying
affects the amount of tax a fund pays);
- trustees
entering incorrect establishment dates where the date differs
from that which was notified at registration;
- labels recording
the number of fund members and total investments of the fund
being transposed; and
- incorrectly
stating that an approved auditor has conducted an audit of the
fund when this has not occurred.
Mr D’Ascenzo indicated that the Tax Office has a dedicated
team of 35 officers whose role is to contact, by phone or mail,
those funds that are behind with lodgment. During 2005/06 their
focus will be on 30,000 high-risk APRA funds and SMSFs with
outstanding income tax/regulatory returns and/or member
contribution statements.
The Tax Office also noted that it has received 5,000 audit
contravention reports (ACRs) but it expected to receive more. The
Commissioner suggested that this might indicate a ‘skills gap’
for some auditors of SMSFs.
Main areas of concern
The main areas of concern for the Tax Office include:
- contraventions
of the in-house assets rules;
- the acquisition
of assets from related parties;
- use of fund
assets by members, i.e. sole purpose test;
- funds holding
assets in trustees’ individual names, instead of in the name
of the fund;
- funds not
meeting the SMSF definition; and
- use of fund
assets to prop up an ailing related business.
The Commissioner also suggested that some funds are not
satisfying their tax obligations, for instance by claiming
deductions for certain non-deductible expenses or claiming CGT
concessions that are not available to the fund. The Tax Office
also said some funds are claiming legitimate deductions at the
incorrect label on their return, which impacts the Tax Office’s
risk assessment. Also some funds are not reporting certain income
as ‘special income’.
Enforcement activities
At the same conference, Deputy Commissioner of Taxation Raelene
Vivian indicated that so far the Tax Office has put in place
enforceable undertakings for over 80 funds (with another 100 or so
in progress), wound up 13 funds, disqualified 15 trustees and made
6 funds non-complying (with a decision pending against a further 7
funds). Prior to making a fund non-complying the Tax Office will
issue a ‘show cause’ letter and a position paper outlining why
it believes the fund should be made non-complying.
The Tax Office has also had to deal with around 1,200 taxpayers
caught up in ‘early release’ schemes.
Trust deeds
The Tax Office reminded trustees that they should be aware of
when a trust deed may need to be amended. For example, a SMSF
wishing to offer transition to retirement pensions or spouse
contribution splitting may need to amend the trust deed to offer
these ‘benefits’ to members.
Contribution reporting
Funds were also reminded that despite the abolition of the
surcharge, the reporting of employer-contributed amounts for
accumulation funds is still required. Although some fields of the
member contributions statements are no longer required, the Tax
Office will not be issuing an updated member contribution
statement specifications this year. However the Tax Office has
started preparing new specifications
This article appeared in Thomson’s InTax
(May 2006): Australia’s best independent monthly tax magazine.
It provides concise reports of the latest tax news, plus the
practical implications of tax developments in an easy-to-read
magazine format. To find out more, phone Thomson Customer Service
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