Australia's Key Tax Issues Reviewed

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

14 April 2010

During a recent speech to the Institute of Chartered Accountants Business Forum in Perth, Australia’s Assistant Treasurer, Nick Sherry, reviewed certain key tax issues facing the government, including those relating to Australia as a financial centre and to private equity investments in the country.

Firstly, with regard to the Johnson Report on the development of Australia as a financial centre, he said that the government is still looking at its recommendations, and some of the issues may overlap with those within the Henry tax review.

The recommendations included the abolition of interest withholding tax on offshore borrowings; the removal of state-based taxes on insurance; and the commissioning of a Board of Taxation review to ensure a level playing field for Islamic finance products in Australia.

Secondly, he referred to the private equity draft determinations of the Australian Taxation Office (ATO), in particular whether the gain from the disposal of the target assets is of a revenue or capital nature, and whether the general anti-avoidance provision of the income tax law can apply where the private equity investment is routed through holding companies in foreign jurisdictions, which could include a tax haven.

He pointed out that the ATO has received submissions and consulted with interested parties on its draft determinations. While he believed that the due process should be allowed to run its course, he also confirmed that “the government is following the process closely, and is itself also consulting widely with industry and other stakeholders.”

He reiterated that “the government actively encourages foreign investment and seeks to enhance the competitiveness of the financial services industry. That's why, for example, we reduced withholding tax on fund payments from Australian managed investment trusts. But we need to strike the right balance between achieving our goals and protecting the integrity of the tax system.”

“Our tax rules must be robust,” he added, “so Australians know their tax system is fair and equitable. Australians expect businesses, whether large or small, to meet their tax obligations. We will consider stakeholder views, along with advice from the Treasury and the ATO before determining what action, if any, may be needed in coming months.”

He also gave an update on Australia’s consolidation tax rules. While the government recently introduced legislation to overcome, for example, existing barriers for consolidated groups that restructure, he disclosed that the Board of Taxation is now reviewing other elements of the consolidation regime. He said that “its focus is on the operation of the single entity rule and the inherited history rule, interactions with other parts of the income tax law and operation of the regime for small businesses.”

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