This article provides an update on key developments in taxation law for accountants and participants in the tax advice industry up to late-March. This update in summary covers:
- The revised commencement dates for the 2024-25 Budget measure Strengthening the foreign resident capital gains tax regime
- Increased funding to the ATO to target high-risk practitioners
- Top500 Private Group Tax Performance program currently underway
1 - Revised Commencement Date - 2024-25 Budget Measure Strengthening the foreign resident capital gains tax regime
The 2025-26 Budget Measure has advised that the 2024-25 Budget measure Strengthening the foreign resident capital gains tax regime will have its commencement date changed from 1 July 2025 to the later of 1 October 2025 or the first 1 January, 1 April, 1 July or 1 October after the Act receives assent. This deferment is expected to provide some certainty given the forthcoming Federal election in May.
As a reminder, in terms of CGT changes, there were three major changes aimed to amend the rules in Division 855 of the Income Tax Assessment Act 1997.
- Clarifying and Broadening the Foreign Resident CGT Base
The 2024-25 Budget Measure acknowledges the narrow CGT base for foreign residents and the failure of federal tax legislation in defining real property. The omission of this term, and leaving it to State legislation, has resulted in "the potential for inconsistent tax treatment on the same type of underlying asset depending on the location of the assets in different States or Territories."
The new measures, if the Act receives Royal assent, assets with a close connection to Australian land and/or natural resources will be captured in tax legislation where they weren't before. The following examples are types of assets with a close connection to Australian land and/or its natural resources:
- Leases or licenses to use land situated in Australia;
- Australian water entitlements in relation to land situated in Australia;
- Infrastructure and machinery installed on land situated in Australia, including land subject to a mining, quarrying or prospecting right of an entity;
- An option or right to acquire one of the above assets;
- A non-portfolio membership interest in an entity where more than 50 per cent of the underlying entity's market value is derived from the above assets.
- Extending the Testing Period for the PAT
The current Principal Asset Test operates at a point in time. The issue here is that this approach presents an integrity risk that allows foreign residents to avoid CGT by planning the sale of their membership interests at a time when the underlying entity does not satisfy the test.
The new measure amends the testing period for the PAT to the previous 365 days before the time of disposal of the Indirect Australian Real Property Interest (IARPI).
- ATO Notification of the Non-IARPI Vendor Declarations
This measure ensures that a foreign resident vendor disposing of a membership interest, exceeding $20m in value, must notify the ATO of a vendor declaration they make to a purchaser that the sale is not an IARPI.
2 - Increased funding to the ATO to target high-risk practitioners
Further, the ATO is to receive a significant increase in funding to ensure taxpayers comply with their tax obligations. This will comprise of a further $999m funding to the ATO over the next 4 years for the ATO to extend and expand its tax compliance activities.
In addition to this, extra funding to the Tax Practitioners Board will be provided with further options of regress available to the TPB and enabling them to undertake further compliance activities against high-risk tax practitioners over the next 4 years.
3 - ATO's Next 5000 Private Group program currently underway
We further note that the Next 5000 program is currently underway with many private groups being issued a notification letter. The purpose of this program is to ensure that Australia's largest privately owned groups are paying the right amount of tax. Groups covered by this include Australian resident individuals who, along with their associates control more than $50 million in wealth.
For your reference, the ATO will effectively engage with private groups through the following steps:
- Notify you in writing
- Meet with you to understand your business
- Formally request further information
- Contact you to discuss further steps
Should you wish to discuss the above, please contact Tony Pointon and Andrew Pointon of our Taxation Team.
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.
