Australia To Formalize Tax Exemption For Sovereign Investments

by Mary Swire, Tax-News.com, Hong Kong

25 August 2009

Australia’s Assistant Treasurer, Nick Sherry, has announced that the government will introduce amendments to the income tax law to formalise the existing tax practice of exempting certain income earned by foreign governments.

These changes should provide greater certainty to foreign governments investing in Australia as to the income tax treatment of financial investments. "During this time of global recession,” he said, “we need to be providing as much certainty for capital investors as we can, and this tax measure will do just that.”

At present, he stated, such income is not taxed because of the doctrine of sovereign immunity. This doctrine exempts a foreign government's income from passive portfolio investments, such as interest, dividends and managed funds distributions. Income from commercial activities will continue to be subject to Australian tax.

The proposed changes will thereby codify an existing practice. “Codifying the existing exemptions will give foreign governments certainty about the taxation treatment of their investments in Australia," he continued.

"This measure will not cost a cent,” he added, “while making Australia an even more attractive and certain investment destination and contributing to Australia's financial centre hub strategy. These changes have a long history, but the Government has taken the decision to act now. I intend to release draft legislation for public consultation as soon as practicable."

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