Review of the Anti-Tax-Deferral Regimes

The Chairman of the Board of Taxation, Mr Richard Warburton, tonight welcomed the Assistant Treasurer’s announcement  that the Government supports all but one of the recommendations in the Board of Taxation’s report on its review of the foreign source income anti-tax-deferral regimes.

The Board’s key findings are:

  • The CFC provisions be retained as the primary set of rules designed to counter tax deferral arrangements. The CFC provisions be modernised by updating the definitions of what constitutes active and passive income together with the removal of the base company income rules.
    • The existing exemptions within the CFC rules are retained and additional exemptions be introduced in certain circumstances for complying superannuation entities.
    • A choice of attribution methods apply (the branch‑equivalent calculation, market value, and deemed rate of return methods) where taxpayers are required to include attributable income in their assessable income.
    • The CFC provisions are rewritten in the Income Tax Assessment Act 1997 (ITAA 1997).
  • The foreign investment fund (FIF) provisions are repealed and replaced with a specific anti-roll-up fund measure targeting accumulation funds that reinvest interest-like returns.
  • The deemed present entitlement rules are repealed.
  • The transferor trust rules are retained with amendments to enhance their effectiveness and improve their integrity.

The Board believes that its recommendations will make an important contribution towards ensuring that Australia’s tax policy does not unnecessarily impede Australian businesses with offshore operations. This is in line with the Government’s aim of making Australia a more attractive financial centre.

The Chairman expressed his thanks to those who contributed to the review, including the individuals and organisations that participated in the Board’s consultation forums and made submissions, members of the Board’s working group chaired by Mr Chris Jordan AO, officers of the Treasury and the Australian Taxation Office and the staff of the Board’s Secretariat.

The report is available from the Board’s website at www.taxboard.gov.au.