Commonwealth Numbered Regulations - Explanatory Statements

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Select Legislative Instrument 2005 No. 32


Issued by authority of the Minister for Revenue
and Assistant Treasurer

Income Tax Assessment Act 1936

Income Tax Amendment Regulations 2005 (No. 1)


The regulations insert Bendigo Stock Exchange Limited into Schedule 12 to the Income Tax Regulations 1936. Schedule 12 is a list of ‘approved stock exchanges’ for the purposes of the foreign investment fund (FIF) rules.

The Governor‑General is authorised to make this regulation by section 266 of the Income Tax Assessment Act 1936 (the Act). Section 266 allows the Governor‑General to make regulations not inconsistent with the Act, prescribing all matters which by the Act are required or permitted to be prescribed, or which are necessary or convenient to be prescribed for giving effect to the Act.

The purpose of the regulations is to include the Bendigo Stock Exchange (BSX) to the list of approved stock exchanges. This adds to an already extensive list of approved exchanges available to investors for FIF purposes. The change will assist the BSX to compete equally with other listed exchanges in attracting foreign company listings. Also, this change will reduce the compliance costs for Australian residents that invest in foreign entities that list on the BSX.

The FIF rules are found in Part XI of the Act. These rules tax Australian taxpayers that have interests in foreign companies or foreign trusts, by treating them as having derived foreign income in relation to the interests.

There are a substantial number of exemptions, one of which is the ‘active business exemption’. This exemption is only available for interests in foreign companies, and is available where the foreign company is engaged in activities that are not included in a specified ‘blacklist’.

The most convenient way for Australian residents that have interests in foreign companies to prove that the company is not engaged in a blacklisted activity is to use the sectoral classification given to the company by an approved stock exchange.

If an exemption from the FIF rules does not apply, there are three ways in which the FIF rules calculate the Australian resident’s tax liability. The most preferred method for taxpayers – known as the market value method – is only available if the foreign company’s shares are listed on an approved stock exchange. The market value method involves measuring how much the price of the foreign company’s shares has changed during the relevant accounting period.

The list of approved stock exchanges that allows Australian residents to use the sectoral classification (for the active business exemption) and the market value method has operated since 1 January 1993.

The list currently comprises 120 stock exchanges in 54 countries. It was amended in 1997 (by Statutory Rule No. 368 of 1997) to add four stock exchanges. It was again amended in 2003 (by Statutory Rule No. 2 of 2003) to add a further stock exchange.

Details of the specific amendments are in the Attachment.

The inclusion of the BSX is expected to have a negligible impact on the forward estimates.

The Regulations commenced on the day after they were registered on the Federal Register of Legislative Instruments.


Details of the Income Tax Amendment Regulations 2005 (No. 1)

Regulation 1

Regulation 1 sets out the name of the regulations as the Income Tax Amendment Regulations 2005 (No. 1).

Regulation 2

Regulation 2 provides that the regulations commence on the day after they are registered.

Regulation 3

Regulation 3 provides that the Income Tax Regulations 1936 are amended by Schedule 1.

Schedule 1 – Amendment

Item 1

Item 1 inserts Bendigo Stock Exchange Limited after Australian Stock Exchange Limited in Schedule 12‑Approved stock exchanges for the purposes of Part XI of the Income Tax Assessment Act 1936.

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