Recent Australian tax changes targeting foreign persons
Recent Australian tax changes targeting foreign persons
Australian governments, both at the Federal and state level continue to target foreign individuals and other foreign investors in a range of ways. This has been the case for several years and has included such measures as introducing a higher basic tax rate for non-resident individuals as well as removing the 50% discount that would otherwise apply to capital gains crystallised on assets owned for more than 12 months.
Most recently, 2017 has seen legislation at both the Federal and state levels which will introduce new provisions apply to foreign and non-resident persons or will extend laws already in place. In May 2017, the Treasurer announced several measures targeted specifically at foreign residents in the 2017-18 Australian Federal Budget.
The recent Federal budget changes will have the following impacts:
- The loss of the main residence exemption for non-residents selling their homes
- Limiting the benefits for non-resident investors of the newly introduced tax incentive for investments in afforable housing
- Restricting foreign ownership in new housing developments; and
- Introducing an annual charge on foreign owners of underutilised residential property
Following the Federal Budget, the list of key issues tht apply to property transaction for non-residents has grown to include:
- The loss of the main residence exemption;
- Capital gains tax (CGT) withholding tax;
- A $5000 Vacancy Tax;
- The loss of the 50% CGT discount;
- Stamp duty surchage with implications for trusts;
- Land tax surchage with implications for trusts; and
- The implications of the stamp duty surcharge and the land tax surchage for trusts.
Some of these provisions are in federal legislation and so apply to all Australia. Others were introduced by state or territory governments. These will apply only to a particular state or territory and may apply differently to similar provisions in other states.
This article addresses the measures applying at the Federal level, and we will address recent changes at the State level in a separate article.
Increase in the unincorporated small business tax discount
The Treasury Law Amendment (Enterprise Tax Plan) Bill 2016 was passed on 19 May 2017 and will be effective from 1 July 2016. The bill brings into play multiple benefits for small businesses including a progressive increase in the unincorporated small business tax discount, and an increase in the small business turnover threshold for the purposes of applying the discount.
The proposed new similar business test
The government has recently introduced draft legislation (Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017) that proposes amendments to the existing law for determining whether a business can carry forward and use tax losses and bad debts it incurred prior to a change of control or ownership of that business.
The proposed legislation introduces a new test, the ‘similar business test’ to supplement the existing, and less flexible ‘same business test’. It is intended the similar business test will give companies (and certain trusts) greater scope to innovate and expand their business following a change of ownership without risking losing their tax losses.
The proposed new law will apply to businesses that have had, or are expecting to have, a change of ownership and will apply to losses or bad debts incurred from 1 July 2015.
ATO provides additional 7 years to repay unpaid present entitlement loans
The Australian Taxation Office ('ATO') has recently released Practical Compliance Guideline PCG 2017/13 ('PCG 2017/13'). This guideline will allow trusts an additional 7 years to repay certain unpaid present entitlement (‘UPE’) loans to corporate beneficiaries (i.e. private company beneficiaries of such trusts).
Avoid losing valuable franking credits
dVT Group, our fellow members of Walker Wayland Australasia, have considered an opportunity for small businesses to address the potential loss of franking credits that may otherwise remain unuseable following the reduction in the corporate tax rate to 27.5%.
Their solution considers liquidating the company and paying distributions to shareholders in a later year when the company has ceased to trade. As it will no longer be defined as a small business entity, it reverts to the corporate tax rate of 30%. All distributions can then be franked at a maximum rate of 30%, or to the extent of franking credits available.
The opportunity has specific applicability to companies nearing the end of their useful lives.
The full article can be found on their website at dVT Group: Avoid losing valuable franking credits.
Apportioning the income of professional sportspersons to their other entities
On 19 July 2017 the Australian Taxation Office (ATO) released Practical Compliance Guideline PCG 2017/D11 ('the Guideline').
The Guideline addresses the matter of the extent to which lump sum payments for the provision of a professional sportsperson's services and the use and exploitation of their 'public fame' or 'image' under licence can be apportioned. The Guideline sets out a 'Safe Harbour' for doing so.
This PCG can be relied upon in circumstances where:
- a professional sportsperson grants an "associated resident entity" (such as a trust) a non-exclusive licence to use and exploit the sportsperson's 'public fame' or 'image',
- that resident entity (and not the sportsperson) is contractually entitled to receive the income from the use and exploitation of the professional sportsperson's 'public fame' or 'image', and
- the payment is not referable to the use or exploitation of rights which are recognised and specifically protected under Australian law, such as copyright, trademarks or registered design rights.
GST on supplies of digital products and other services to consumers from 1 July 2017
With effect from 1 July 2017, GST applies to supplies of digital products and other services to Australian consumers by foreign entities. Such supplies will be subject to GST in a similar way to equivalent supplies made by Australian entities to domestic consumers. In particular:
- supplies of things other than goods or real property made to a recipient who is an “Australian consumer” (see below) are taken to be connected with Australia. This will generally bring the following into the GST net:
- supplies of digital products such as streaming or downloading of movies, music, apps, games and e-books
- other services such as consultancy and professional services supplied from overseas to an Australian consumer.
- where a supply of anything other than goods or real property supplied to an Australian consumer from offshore (an inbound intangible consumer supply) is made through an “electronic distribution platform”, the operator of the platform instead of the actual supplier is taxed. This represents a significant departure from the general rules that make the actual supplier liable, although there are some exceptions.
Changes to Higher Education Loan Program (HELP) and Trade Support Loan (TSL) repayment obligations
The Australian Government has recently introduced changes relating to Higher Education Loan Program (HELP) and Trade Support Loan (TSL) repayment obligations.
If you live and work overseas and earn worldwide income that exceeds the minimum HELP and TSL repayment thresholds, you are required to make repayments against your loan. The two main changes the Australian Government has introduced require you to do the following:
update your contact details and submit an overseas travel notification if you have an intention to reside, or already reside, overseas for 183 days or more in any 12-month period; and
lodge your worldwide income or a non-lodgment advice.
These changes apply to new and existing HELP and TSL debts.