Commonwealth Numbered Regulations - Explanatory Statements

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Select Legislative Instrument 2005 No. 181


Issued by authority of the Minister for Revenue
and Assistant Treasurer

Income Tax Assessment Act 1936

Income Tax Amendment Regulations (No. 5)

Section 266 of the Income Tax Assessment Act 1936 (the Act) provides in part that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed, or which are necessary or convenient to be prescribed for giving effect to the Act.

The Regulations amend Schedule 12 of the Income Tax Regulations 1936 (the Principal Regulations) to include the Bermuda Stock Exchange on the list of approved stock exchanges for the purposes of Australia’s foreign investment fund (FIF) regime. 

The FIF regime is established under Part XI of the Act.  The FIF rules are intended to reduce the extent to which Australian taxpayers can defer payment of tax on their interests in foreign companies, trusts and life insurance policies.  Broadly, and subject to certain exemptions, these rules attribute the undistributed profits of the foreign company or trust to the Australian taxpayer in proportion to their interest in the company or trust. 

There are currently over 120 stock exchanges, covering 54 countries, listed for the purposes of the FIF regime.  The listing of a stock exchange provides benefits to Australian taxpayers holding investments in foreign companies or trusts listed on that exchange, by reducing their costs in complying with the FIF regime.  Australian taxpayers in this circumstance have access to a wider range of methods for valuing FIF interests and can more easily establish eligibility for an ‘active business’ exemption from the regime.

Listed stock exchanges maintain competitive neutrality with other listed exchanges in attracting Australian investors.

The inclusion of the Bermuda Stock Exchange followed a request for listing from the Bermudan Government in the course of negotiations for a Tax Information Exchange Agreement (TIEA) with Australia.

Consultation was not undertaken in relation to this instrument because it is minor or machinery in nature and does not substantially change the law.

A Regulation Impact Statement was not required to be prepared. 

The inclusion of the Bermuda Stock Exchange is expected to have a negligible impact on the forward estimates.

The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2005.

The Regulations commence on 1 September 2005.  This is expected to assist TIEA negotiations with Bermuda.

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