Just before the end of the Parliamentary Budget sittings, two new tax Bills, Tax Laws Amendment (2006 Measures No 4) Bill 2006 and Tax Laws Amendment (Repeal of Inoperative Provisions) Bill 2006 were introduced into Federal Parliament. In addition, several amendments have been made to the income tax regulations recently, primarily as a result of the new personal income tax rates applicable from 1 July 2006, and the new fringe benefits tax rate applicable from 1 April 2006. We review these legislative and regulatory changes below. Parliament will resume for the Spring sittings on 8 August 2006.
Demergers, NZ imputation and marriage breakdown roll-overs
Tax Laws Amendment (2006 Measures No 4) Bill 2006 was introduced into Federal Parliament on 22 June 2006. This Bill proposes to:
- enact new capital gains tax rules applicable to non-residents - see PricewaterhouseCoopers TaxTalk Special Edition, "Foreign Investment Into Australia - A Whole New Ball Game”, of 23 June 2006
- ensure that the tax consolidation integrity measure that requires certain roll-overs to be ignored for asset tax cost setting purposes does not apply to a consolidated group or multiple entry consolidated (MEC) group after a demerger, subject to certain conditions being satisfied
- ensure franking credits are available to an Australian company which receives certain dividends from a New Zealand company that has elected into the Australian imputation system, and
- extend the marriage breakdown capital gains tax (CGT) roll-over to assets transferred to a spouse or former spouse because of certain binding or written agreements or arbitral awards.
Tax consolidation - interaction with the demerger rules
The Bill proposes amendments to ensure that the integrity provision that requires certain roll-overs to be ignored for tax cost setting purposes does not apply to a tax consolidated or MEC group that forms after a demerger, provided that the company that received the rolled-over asset does not join the same consolidated group or MEC group as the company that transferred the asset. The amendments also seek to clarify the operation of the integrity provision.
The Bill gives effect to measures announced on 1 December 2005 by the former Minister for Revenue and Assistant Treasurer, Mr Mal Brough. The amendments will apply from 1 July 2002, being the commencement date of the tax consolidation regime.
Imputation for New Zealand resident companies
The Bill proposes amendments to ensure that franking credits arise in the franking account of an Australian company, which receives a franked distribution from a New Zealand company that has elected into the Australian imputation system, where the distribution is non-assessable non-exempt income of the Australian company because it is:
- paid out of income which has previously been subject to attribution under Australia’s controlled foreign company (CFC) rules
- a non-portfolio dividend, or
- paid out of income which has previously been subject to attribution under Australia’s foreign investment fund (FIF) rules.
The measures will apply from 1 April 2003, being the date of commencement of the trans-Tasman imputation measures.
Roll-over on marriage breakdown
The Bill proposes to extend the marriage breakdown CGT roll-over to assets transferred to a spouse or former spouse as a result of entering into:
- a binding financial agreement under the Family Law Act 1975 or a binding written agreement under a comparable foreign law
- an arbitral award under the Family Law Act 1975 or a corresponding State law, Territory law or foreign law, or
- a written agreement that is binding under a State, Territory or foreign law in respect of de facto marriage breakdowns, where the agreement cannot be overridden by a court order except to avoid injustice.
These measures extend the CGT roll-over relief which is currently only available to marriage breakdowns where asset transfer to a spouse or former spouse occurs because of a court order.
The proposed amendments also ensure that the CGT main residence exemption interacts more appropriately with the marriage breakdown roll-over, by taking into account the way in which both the transferor and transferee spouses use the dwelling during their combined period of ownership when determining the transferee spouse's eligibility for the main residence exemption.
The proposed amendments also ensure that marriage breakdown settlements do not give rise to CGT liabilities.
The proposed measures generally apply to CGT events that happen after the date of Royal Assent of the amending legislation. At the time of writing, the relevant legislation was still before Parliament.
For further information, please complete the following form, or contact:
Norah Seddon, Partner
PricewaterhouseCoopers Tax
International Tax and Transactions
Phone: +61 (2) 8266 5864
Tim Walton, Partner
PricewaterhouseCoopers Tax
International Tax and Transactions
Phone: +61 (2) 8266 9068
Mike Forsdick, Partner
PricewaterhouseCoopers Tax
Private Client Services
Phone: +61 2 8266 5767
