On 19 May 2008, the Chairman of the Board of Taxation
announced the release of the Board's issues papers on
possible reforms to Australia's foreign source income
anti-tax-deferral (attribution) rules. This paper complements
the Board's position paper that was released on 12
We believe that the Board's recommendations are
admirable and we strongly support their implementation.
We will continue to agitate to remove a number of the
discrepancies and impediments in this area, particularly in
respect of transfers of funds in Australian superannuation
plans upon initial arrival in Australia.
This update focuses on the interaction with
Australia's Foreign Investment Fund rules.
In general, under Australia's taxation rules, tax
residents of Australia are taxable on their worldwide
To ensure residents cannot accumulate income offshore and
thereby defer or avoid Australian an accruals basis on their
share of income accumulating offshore.
Australia's attribution regimes include the foreign
investment fund (FIF) rules.
A FIF is any foreign company or foreign trust. A foreign
superannuation fund will fall within the meaning of a foreign
There are a number of exemptions from the FIF rules
A temporary resident;
Employer sponsored superannuation funds; and
De minimis rules
However an individual who is treated as a tax resident will
be caught by these rules and a number of issues arise in
respect of foreign non employer sponsored superannuation
A "temporary resident" of Australia is exempt from
the foreign investment fund rules. An individual if a temporary
they hold a temporary visa granted under the Migration
Act 1958; and
they are not an Australian resident within the meaning of
the Social Security Act 1991; and
their spouse (married or de facto) is not an Australian
resident within the meaning of the Social Security Act
Board of Taxation position
The Board has adopted the following positions that impact on
"Position 4.7 - That uniform de minimis exemptions be
applied to all interests in foreign entities and that:
a $200,000 threshold apply to the total value of
interests in foreign entities;
the balanced portfolio threshold be increased to 20 per
cent and that it apply to an entity's total assets
(rather than being confined to offshore investments
"Position 4.15 - That an exemption apply to funds that
have been rolled over from an employer-sponsored superannuation
Board of Taxation principles
The Board adopted the following high level principles in
reaching its position:
"4.111 The current FIF regime contains an exemption for
foreign employer-sponsored superannuation funds. The exemption
helps to align the treatment of foreign employer-sponsored
superannuation funds with other government initiatives in
regards to superannuation. Such treatment recognises that
domestic superannuation arrangements are subject to
concessional tax treatment and, therefore, there is no
significant deferral benefit that can be gained by investing in
foreign employer-sponsored superannuation funds.
4.112 The Board noted in its discussion paper, however, that
the current exemption is very narrowly cast and that this has
led to problems with the operation of the exemption. Key among
these is the situation outlined in the paper whereby an
employer-sponsored superannuation fund is rolled over (and
subject to lock-in arrangements) when the employee leaves their
employment to move to Australia. Since the fund is no longer
employer-sponsored, the FIF regime may therefore apply.
4.114 While the Board's proposal to raise the de
minimis threshold to $200,000 will accommodate many taxpayers,
the Board's position is that the exemption should apply
to those funds that are rolled over from an employer-sponsored
4.115 Some submissions suggested widening the exemption even
further to include all foreign superannuation funds. However,
the Board is mindful of the need to ensure the continuing
integrity of the exemption.
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Exemptions or concessions on stamp duty could apply when contemplating the purchase or transfer of NSW real estate.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).