The Labor Government has released an Industry Consultation
Paper which requests comment on proposed changes to Division
6C. The main proposal is to introduce a "25% safe
harbour" to allow 25% of Australian Real Estate Investment
Trusts' ("AREITs") income to be classified
non-rental income without the AREIT being taxed as a company.
It is hoped that the easing of the restrictions in Division 6C
will allow AREITs to operate more easily in the global
Public unit trusts conducting trading businesses will be
taxed as a corporate entity pursuant to Division 6C.
The current wording of Division 6C has several ambiguities
which has caused concern among the industry.
In particular, the current provisions provide that an
eligible investment business (a business that will not trigger
Division 6C) includes an investment in land for the purpose, or
primarily for the purpose of deriving rent. Currently, there
are no guidelines to explain what will constitute as
"primarily". Hence, the paper outlines a proposal to
replace the "primary purpose test" with a safe
harbour test. The safe harbour test would allow public unit
trusts an allowance of up to 25% for gross non-rental income
(excluding capital gains) per annum.
Another area which has caused concern to the industry in the
current application of Division 6C is the definition of rent.
The paper states that it would be appropriate to clarify that
the concept of rent covers only rental and similar payments
payable as a passive investment return for the right to use the
land. In our opinion the paper has not adequately dealt with
the issue of what constitutes 'rent' and we
will be seeking further clarification regarding this.
Finally, the Government proposes to expand the range of
financial securities that can be invested in without triggering
Division 6C. The definition of financial arrangements provided
in Tax Law Amendment (Taxation of Financial Arrangement) Bill
2007 (which has now lapsed) will be used as a basis to
determine which investments will be within the range of
financial securities for the purpose of Division 6C.
A full copy of the consultation paper can be found at:
The review by the Board of Taxation s still in progress and
the Treasury has encouraged members of industry to comment on
the consultation paper by 17 March 2008. Moore Stephens will be
providing comments to the Treasury and do encourage others to
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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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