The new Federal Coalition government has recently announced that
it will not proceed with the 2005/06 proposal to codify into
legislation the exemption from Australian tax of certain passive
income derived by foreign governments and sovereign wealth funds
The exemption has its foundation in the doctrine of sovereign
immunity, but its precise scope is unclear. As a result, foreign
governments and SWFs are faced with a compliance burden of applying
to the Australian Taxation Office (ATO) for a private binding
ruling if they require certainty that certain income from their
non-commercial investments into Australia is exempt from Australian
income tax and Australian withholding tax. The proposed measures
would have enshrined the ATO's current administrative practice
in legislation, thereby allowing affected entities to effectively
self-assess the Australian tax implications of their passive
investments into Australia.
The proposals were the subject of detailed consultation in 2009
and 2011, but were never finalised.
In November 2012, after the election of the current Federal
government, the Australian Assistant Treasurer announced that the
above proposal was amongst a suite of proposed but not enacted
measures that would be the subject of further consultation with
relevant stakeholders before a decision would be made whether to
proceed with those measures. However, on 14 December 2012, the
Assistant Treasurer made a further announcement confirming that the
proposal had been shifted to the "not to proceed"
Although the demise of the above proposal may be seen to
represent a missed opportunity to reduce the compliance burden on
those looking to invest in Australia, it remains open to foreign
governments and SWFs to apply to the ATO for confirmation of the
exemption by way of a private binding ruling. There are more than
100 examples of such rulings on the ATO's register of private
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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