Commonwealth Numbered Regulations - Explanatory Statements

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INCOME TAX AMENDMENT REGULATIONS 2001 (NO. 2) 2001 NO. 100

STATUTORY RULES 2001 No. 100

Issued by authority of the Assistant Treasurer

INCOME TAX ASSESSMENT ACT 1936

INCOME TAX AMENDMENT REGULATIONS 2001 (NO. 2)

Section 266 of the Income Tax Assessment Act 1936 (the Act) provides that the GovernorGeneral may make regulations prescribing matters required to give effect to the Act.

The Regulations are required to implement the Assistant Treasurer's approval of 4 countries for inclusion in the Limited Exemption List of countries contained in Schedule 10 of the Regulations to the Act. The effect of this is to exempt from Australian company tax, nonportfolio dividends and branch profits remitted from those countries to Australian companies. The countries are Argentina, Iran, South Africa and the Slovak Republic. The basis for their listing is these countries are considered to have tax systems broadly comparable to Australia's. The approval was announced in the Assistant Treasurer's Press Release No. 45 of 8 September 2000.

Part 8A and associated schedules of the Regulations prescribe matters that give effect to Part X of the Act - Controlled Foreign Companies (CFCs). The objective of the CK measures is to tax Australian shareholders on their pro rata share of a CK's tainted income as earned, unless the income has either been comparably taxed offshore or the CK satisfies an active income test. These measures ensure that offshore investments are not favoured over similar investments in Australia for purely taxation reasons.

Subsection 320(1) of the Act as amended by Taxation Laws Amendment (Foreign Income Measures) Act 1997 (Act No. 155 of 1997) authorises the declaration of broad exemption and limited exemption listed countries in the Regulations which are 2 lists of comparable tax countries. Accordingly, Schedule 10 of the Regulations contains 2 lists of comparable tax countries. These are the highly comparable countries (broad exemption listed countries) and the sufficiently comparable tax countries (limited exemption listed countries).

The lists are used to reduce compliance and administrative costs arising from accruals taxation under the CFC measures, and from taxation under the Foreign Tax Credit System on the repatriation of profits. The costs are reduced by exempting both active and tainted income from broad exemption listed countries, and active income from limited exemption listed countries.

Details of amending Regulations

Regulation 1

Regulation 1 contains the name of the amending Regulations.

Regulation 2

Regulation 2 contains the commencement date. The Regulations commence from 8 September 2000. Although the proposed Regulations will take effect retrospectively from 8 September 2000 they will not contravene subsection 48(2) of the Acts Interpretation Act 1901 which prohibits the retrospective operation of regulations which affect the rights of, or impose liabilities, on a person. The commencement date is to the benefit of the taxpayer and it places no burden on any person other than the Crown.

Regulation 3

Regulation 3 is procedural and is designed to modify the existing Income Tax Regulations as necessary. Part 2 of Schedule 10 (limited exemption listed countries) is modified by the inclusion of 4 countries:

• Argentina;

• Iran;

• the Slovak Republic; and

• South Africa.