House of Representatives

Petroleum (Timor Sea Treaty) (Consequential Amendments) Bill 2003

Explanatory Memorandum

(Circulated by authority of the Minister for Industry, Tourism and Resources, the Hon. Ian Macfarlane, MP)

Notes on individual clauses

Part 1 - Preliminary

Clause 1 - Short title

1. This clause provides for the Act to be cited as the Petroleum (Timor Sea Treaty) (Consequential Amendments) Act 2003.

Clause 2 - Commencement

2. This clause provides for certain provisions of the Act to have come into affect on 20 May 2002 to coincide with the date of East Timorese independence. Other parts of the Act, namely Sections 1 to 4 and Schedule 1, items 53, 76, 77 and 82, are taken to have come into effect on the day in which this Act receives Royal Ascent.

Clause 3 - Schedule(s)

3. This clause provides that each Act specified in the Schedule is amended or repealed as appears in the Schedule.

Clause 4 - Amendment of Assessments

4. This clause confirms that Section 170 of the Income Tax Assessment Act does not prevent amendment of assessments made prior to this Act as a result of amendments to this Act.

Schedule 1 - consequential amendments

Part 1 - Amendments

CRIMES AT SEA ACT 2000

Item 1 - Section 4 (definition of Area A of the Zone of Cooperation)

5. This clause repeals the definition.

Item 2 - Section 4 (definition of East Timor)

6. This clause repeals the definition.

Item 3 - Section 4

7. This clause inserts a definition for "Joint Petroleum Development Area", and gives it the same meaning as in the Petroleum (Timor Sea Treaty) Act 2003.

Item 4 - (definition of petroleum)

8. This clause repeals the previous definition and subsequently provides that "petroleum" has the same meaning as in Schedule 1 to the Petroleum (Timor Sea Treaty) Act 2003.

Item 5 - Subsection 6A(1)

9. Substitutes "the Joint Petroleum Development Area" for "Area A of the Zone of Cooperation", which is omitted.

Item 6 - Subsection 6A(6)

10. Substitutes "the Joint Petroleum Development Area" for "Area A of the Zone of Cooperation", which is omitted.

Item 7 - Subsection 6B(1)

11. Substitutes "the Joint Petroleum Development Area" for "Area A of the Zone of Cooperation", which is omitted.

Item 8 - Subsection 6C(1)

12. Substitutes "the Joint Petroleum Development Area" for "Area A of the Zone of Cooperation", which is omitted. The heading to Section 6C is similarly altered.

Item 9 - Subparagraph 6C(2)(b)(i)

13. Substitutes "the Joint Petroleum Development Area" for "Area A of the Zone of Cooperation", which is omitted.

Item 10 - Subparagraph 6C(2)(b)(ii)

14. Substitutes "the Joint Petroleum Development Area" for "Area A of the Zone of Cooperation", which is omitted.

Item 11 - Subparagraph 6C(2)(c)(i)

15. Substitutes "the Joint Petroleum Development Area" for "Area A of the Zone of Cooperation" which is omitted.

Item 12 - Subparagraph 6C(2)(c)(ii)

16. Substitutes "the Joint Petroleum Development Area" for "Area A of the Zone of Cooperation" which is omitted.

Item 13 - Subclause 1(1) of Schedule 1 (definition of Area A of the Zone of Cooperation)

17. The definition is repealed.

Item 14 - Subclause 1(1) of Schedule 1

18. This clause inserts a definition for "Joint Petroleum Development Area", and gives it the same meaning as in the Petroleum (Timor Sea Treaty) Act 2003.

Item 15 - Clause 10 of Schedule 1

19. Substitutes "the Joint Petroleum Development Area" for "Area A of the Zone of Cooperation" which is omitted. The heading to Clause 10 is similarly altered.

Item 16 - Paragraph of 14(3)(b) of Schedule 1

20. This clause repeals the previous paragraph, and inserts "(b) is not within the Joint Petroleum Development Area".

Item 17 - Subparagraph 14(4)(a)(ii) of Schedule1

21. Substitutes "the Joint Petroleum Development Area" for "Area A of the Zone of Cooperation", which is omitted.

Item 18 - Schedule 1 (legend of the map in appendix 1)

22. Substitutes "the Joint Petroleum Development Area" for "Area A of the Zone of Cooperation", which is omitted.

CUSTOMS ACT 1901

Item 19 - Subsection 4(1) (definition of Area A of the Zone of Cooperation)

23. The definition is repealed.

Item 20 - Subsection 4(1) (definition of Australian seabed)

24. Substitutes "the Joint Petroleum Development Area" for "Area A of the Zone of Cooperation", which is omitted.

Item 21 - Subsection 4(1)(definition of East Timor)

25. The definition is repealed.

Item 22 - Subsection 4(1)

26. This clause inserts a definition for "Joint Petroleum Development Area", and gives it the same meaning as in the Petroleum (Timor Sea Treaty) Act 2003.

Item 23 - Subsection 4(1) (paragraph (a) of the definition of place outside Australia)

27. Substitutes "the Joint Petroleum Development Area" for "Area A of the Zone of Cooperation", which is omitted.

Item 24 - Subsection 4(1) (paragraph (b) of the definition of place outside Australia)

28. Substitutes "the Joint Petroleum Development Area" for "Area", which is omitted.

Item 25 - Subsection 4(1)(definition of resources installation in Area A)

29. The definition is repealed.

Item 26 - Subsection 4(1)

30. Inserts a definition of "resources installation in the Joint Petroleum Development Area".

Item 27 - Subsection 4(9A)

31. Repeals the previous subsection 4(9A) and substitutes a new subsection 4(9A) that aids determination of whether a resource installation is attached to the seabed in the Joint Petroleum Development Area.

Item 28 - Subsection 58B(2)

32. Substitutes "Joint Petroleum Development Area" for "Area A", which is omitted.

Item 29 - Subsection 58B(3)

33. Substitutes "Joint Petroleum Development Area" for "Area A", which is omitted.

Item 30 - Subsection 58B(4)

34. Substitutes "Joint Petroleum Development Area" for "Area A", which is omitted.

Item 31 - Subsection 58B(5)

35. Substitutes "Joint Petroleum Development Area" for "Area A", which is omitted.

Item 32 - Section 131AA

36. This clause repeals the existing section and substitutes a new section 131AA dealing with special provisions for customs duty for goods taken into and out of Australia for use in the Joint Petroleum Development Area.

FRINGE BENEFITS TAX ASSESSMENT ACT 1986

Item 33 - Subsection 67(12)

37. This clause updates the reference in subsection 67(12) from the "Petroleum (Timor Gap Zone of Cooperation) Act 1990" to the "Petroleum (Timor Sea Treaty) Act 2003".

INCOME TAX ASSESSMENT ACT 1936

Outline

38. This part explains amendments to the Income Tax Assessment Act 1936 (ITAA1936) that will:

·
update references from the previous treaty arrangements to refer to the Timor Sea Treaty;
·
apply the transfer pricing provisions to transactions between Australia and areas such as the JPDA where Australia has a shared allocation of taxing rights with another country, and
·
provide foreign tax credits for foreign tax paid to the other country (e.g. East Timor) by Australian residents on income from such an area.

Context of amendments

Reference Updates

39. Certain references in the ITAA1936 that relate to the Timor Gap Treaty require updating to ensure that they refer to the Timor Sea Treaty arrangements.

Transfer pricing

40. Under the Taxation Code applying to the JPDA, taxpayers will be taxed in Australia on their income, profits and capital gains from the JPDA differently from how they are taxed in respect of income, etc from other parts of Australia. For example, companies will be taxed on only 10 per cent of their business profits from the JPDA (the other 90 per cent is taxable in East Timor).

41. These differences could lead to a situation where international profit shifting (or transfer pricing) takes place. International profit shifting occurs when taxable profits are shifted from one jurisdiction to another through non-arm's-length dealings, either between different entities or between parts of the one entity outside Australia to the detriment of the Australian revenue. The parties to the transaction are usually related.

42. Under current rules, the Commissioner is not empowered to apply the arm's length principle contained in section 136AD of Division 13 of Part III of the ITAA1936 to non-arm's-length transactions entered into between two resident taxpayers. Similarly, the Commissioner cannot apply the arm's length principle contained in section 136AE of Division 13 of Part III of the ITAA1936 to correct an inappropriate allocation of income and expenses between parts of an entity (e.g. a branch and a head office) in different parts of Australia (e.g. areas such as the JPDA and the rest of Australia). Amendments to the law are required to counter such profit shifting between different parts of Australia.

Application of Australia's arm's length rules to the JPDA

43. Applying the transfer pricing rules to the JPDA is necessary to protect Australia's income tax interests. Without modifications to Australia's transfer pricing rules it would be possible for companies to shift profits from activities occurring in Australia into the JPDA, thereby avoiding Australian taxation on 90% of these profits.

44. Applying the transfer pricing rules will enable the ATO to make full use of its arm's length approach to consider the adequacy of returns under agreements between companies operating inside and outside the boundary of the JPDA.

45. The transfer pricing rules as they apply to the JPDA will provide the mechanism for the ATO to enter into advanced pricing arrangements (APAs) with 'contractors' and other taxpayers operating in the JPDA, including those operating in the Greater Sunrise and Bayu-Undan oil and gas fields.

Foreign tax credits

46. Under the Taxation Code, individuals who are residents of Australia may be taxed on 100 per cent of their JPDA income and capital gains, with a tax offset being allowed for East Timorese tax paid on 90 per cent of that JPDA income.

47. However, under Australian tax law, foreign tax credits are only available when foreign tax has been paid on income, etc derived in a foreign country. As the JPDA is not considered to be a foreign country, a change to that law is required to give a foreign tax credit for East Timor tax paid by these Australian residents on their JPDA income.

Summary of new law

48. Amendments to the transfer pricing provisions will allow the Commissioner to substitute an arm's length consideration in all cases of non-arm's length dealing involving a party carrying on a business in areas subject to revenue sharing. They will extend the definition of an international agreement in section 136AC to include situations where a taxpayer is conducting business operations in an area such as the JPDA. They will also amend section 136AE to bring within the transfer pricing provisions internal dealings between a head office and a permanent establishment, or between permanent establishments of the same organisation, where one is in the JPDA and one is in another part of Australia. The amended law will enable the Commissioner to determine to what extent income is derived from the JPDA as distinct from elsewhere in Australia or to what extent an expense is incurred in deriving income from the JPDA as distinct from the rest of Australia.

49. Amendments to the provisions dealing with the amendment of assessments will allow the Commissioner, at any time, to apply the business profits and petroleum valuation articles in the Taxation Code.

50. Amendments to the foreign tax credit provisions will provide a credit for East Timor tax paid by Australian residents where the income to which the tax applies is sourced in the JPDA.

Comparison of key features of new law and current law
New law Current law

The transfer pricing provisions will be extended to include transactions by taxpayers who carry on business in an area covered by an international tax sharing agreement (e.g. the JPDA) and who supply or acquire property in the course of that business.

The transfer pricing provisions will also be extended to include those arrangements which take place between the parts of a single entity, partnership or trust, where that taxpayer carries on a business in an area covered by an international tax sharing treaty and in the rest of Australia.

The provisions dealing with the power of the Commissioner to amend an assessment at any time to apply the business profits and associated enterprises articles of a double taxation agreement will be extended to allow the Commissioner to apply the business profits and petroleum valuation articles in the Taxation Code.

The transfer pricing provisions contained in Division 13 allow the Commissioner to substitute arm's length consideration for that received or given in an international agreement where an international transaction is not conducted on an arm's length basis. An international agreement is an agreement where:

·
a non-resident has supplied or acquired property under the agreement other than in the course of carrying on business through a permanent establishment in Australia, or
·
a resident carrying on a business outside Australia has supplied or acquired property under the agreement.

In cases where dealings occur between the parts of a single entity, partnership or trust, the arm's length principle can only be applied where one of the parts is in Australia and the other is not.

The Commissioner may, at any time, amend an assessment to apply the business profits and associated enterprises articles of a double taxation agreement.

An Australian resident will be entitled to a foreign tax credit for tax paid on income, profit or gain that is derived from a source in an area of Australia that is covered by an international tax sharing treaty where that income is taxed in the foreign country which is party to the treaty. An Australian resident is entitled to a foreign tax credit for foreign tax paid on income derived in a foreign country.

Detailed explanation of new law

Reference Updates (Clauses 34 - 37 and 52)

Clause 34 - Subsection 6(1) (definition of Timor Gap Treaty)

51. This clause repeals the definition of the Timor Gap Treaty in subsection 6(1).

Clause 35 - Subsection 6(1)

52. This clause provides that Timor Sea Treaty means the Treaty defined by subsection 5(1) of the Petroleum (Timor Sea Treaty) Act 2003.

Clause 36 - Paragraph 6AA(4)(e)

53. This clause substitutes a new paragraph 6AA(4)(e) for the previous paragraph 6AA(4)(e) which is repealed. The new paragraph extends the definition of "Petroleum Act adjacent area" to include the Joint Petroleum Development Area within the meaning of the Petroleum (Timor Sea Treaty) Act 2003. This ensures that the Joint Petroleum Development Area is treated as part of Australia for the purposes of section 6AA.

Clause 37 - Subsection 23AG(7) (paragraph (b) of the definition of double tax agreement)

54. This clause updates the reference in subsection 23AG(7) from "Timor Gap Treaty" to "Timor Sea Treaty".

Clause 52 - Subsection 177B(1)

55. This clause updates the reference in subsection 177B(1) from "Petroleum (Timor Gap Zone of Cooperation) Act 1990" to "Petroleum (Timor Sea Treaty) Act 2003". This provision makes it clear that nothing in the Petroleum (Timor Sea Treaty) Act 2003 interferes with the anti-avoidance provisions contained in Part IVA of the ITAA1936.

Transfer pricing (Clauses 38-48 and 50-51)

56. The provisions that aim to counter transfer-pricing arrangements are contained in Division 13 of Part III of the ITAA1936. They apply to supplies of property and services under an international agreement between separate legal entities and to dealings between the head office and a permanent establishment or between permanent establishments of a multinational enterprise.

57. Section 136AD of Division 13 operates, where an international transaction is not conducted on an arm's length basis, to allow the Commissioner to substitute arm's length consideration for that received or given in an international agreement.

58. Under section 136AC, an international agreement occurs where there is an agreement under which:

·
a non-resident supplied or acquired property other than in connection with a business carried on in Australia by the non-resident at or through a permanent establishment of the non-resident in Australia, or
·
a resident carrying on a business outside Australia supplied or acquired property, being property supplied or acquired in connection with that business.

59. Because the JPDA forms part of Australia for income tax purposes, this definition is sufficient to bring within the scope of section 136AD transactions between a business in the JPDA and the rest of the world. However, it does not extend to a transaction between a business in the JPDA and the rest of Australia because neither of the elements of an international agreement is present.

60. To extend the operation of these provisions to such transactions, the scope of an international agreement will be expanded to include agreements under which taxpayers who carry on business in an area covered by an international tax sharing treaty supply or acquire property under the agreement. [Schedule 1, Item 41, subsection 136AC(c)] This will then cover their transactions with other parties regardless of where the other parties are operating.

61. An international tax sharing treaty will be defined to mean an agreement between Australia and another country under which Australia and the other country share tax revenues from activities undertaken in an area identified in the agreement. Double tax agreements or conventions covered by the International Tax Agreements Act 1953 are not included in this concept. The area where the activities subject to tax sharing take place will be called the area covered by an international tax sharing treaty. The Taxation Code that is part of the Timor Sea Treaty will be an international tax sharing treaty and the JPDA will be an area covered by an international tax sharing treaty. [Schedule 1, Items 38, 39 and 40 subsections 136AA(1) and (4)]

62. These changes will allow the Commissioner to apply arm's length consideration to all transactions involving a taxpayer carrying on business in an area such as the JPDA where the parties to the transactions are not dealing with each other on an arm's length basis.

63. Section 136AE of Division 13 deals with the allocation of income and expenses between different parts of a single entity (e.g. a branch and the head office), partnership or trust. Presently, this provision only deals with the allocation of income and expenses between Australia and the rest of the world.

64. Subsections 136AE(4), (5) and (6) will be amended so that they can do the same job where a taxpayer needs to allocate income and expenses between an area such as the JPDA and the rest of Australia. This situation could apply in cases where a resident company is carrying on business in the JPDA and has other operations elsewhere in Australia or where a non-resident company is carrying on business in both the JPDA and somewhere else in Australia through a permanent establishment. [Schedule 1, Items 42 and 43, paragraphs 136AE(4)(a) and 136AE(4)(e)] Similar amendments will be made to deal with partnerships and trusts. [Schedule 1, Items 44, 45, 46 and 47 paragraphs 136AE(5)(a), 136AE(5)(e), 136AE(6)(a) and 136AE(6)(e)]

65. These changes will enable the Commissioner to determine the extent to which income is sourced in an area such as the JPDA or elsewhere in Australia both in the case of adjustments made to non-arm's-length dealings between separate entities and to the allocation of income between parts of the one entity where there is business carried on in the JPDA. A similar decision has to be made as to the source of income in relation to which a particular expense is incurred. [Schedule 1, item 48, subsection 136AE(8A)]

66. Subsection 170(9B) gives the Commissioner power to amend an assessment at any time to substitute arm's length consideration for that received or given under Division 13 under a double tax agreement. Because international tax sharing treaties such as the Taxation Code in the Timor Sea Treaty are not double tax agreements, the Commissioner could not rely on subsection 170(9B) when using the Code to make such amendments.

67. Amendments to subsection 170(14) will allow the Commissioner to apply the business profits and petroleum valuation articles in the Taxation Code at any time. [Schedule 1, items 50 and 51, subsection 170(14)]

Foreign tax credits (Clause 49)

68. Foreign tax credits are generally only available for foreign tax paid on a resident's assessable income derived in a foreign country (i.e. foreign income). As the areas such as the JPDA subject to special tax sharing are still regarded as part of Australia, income or gains sourced there is not foreign income. Amendments to subsection 160AF(1) will entitle an Australian resident to a foreign tax credit for tax paid on income, profit or gain that is derived from a source in an area that is covered by an international tax sharing treaty. This will provide for foreign tax credits in respect of assessable income, profits or gains of Australian residents that is sourced in the JPDA and is taxed in East Timor. [Schedule 1, Item 49, subsection 160AF(1)]

69. In accordance with the Taxation Code, these amendments will generally apply only to Australian resident individuals in the case of the JPDA. Most forms of their income and capital gains from the JPDA may be taxed in full in Australia and as to 90 per cent in East Timor. This will not apply to dividends, interest or royalties derived by residents but nevertheless a foreign tax credit will be available for East Timor tax paid on this income because the Taxation Code deems it to be sourced in East Timor.

70. Because a foreign tax credit will only be available for foreign tax paid on income, profit or gain sourced in the JPDA to the extent it is taxed in Australia, no credit is intended to be allowed for East Timor tax paid by a resident company (other than for dividends, interest or royalties) For taxpayers other than individuals, generally 10 per cent of their income, etc is taxable in Australia and 90 per cent is taxable in East Timor and no double tax relief is required. The requirement that foreign tax be paid on the amount included in assessable income will not be satisfied. [Schedule 1, item 49, paragraph 160AF(1)(b)] his will apply also to any East Timor tax on after-tax profits (sometimes called a branch profits tax) levied in accordance with paragraph 5 of Article 8 of the Taxation Code.

Application and transitional provisions

The amendments made by this Schedule apply from 20 May 2002, the date of signature of the Timor Sea Treaty. [Schedule 1, item 81]

INTERNATIONAL ORGANISATIONS (PRIVILEGES AND IMMUNITIES) ACT 1963

Item 53 - After section 5A

71. This item inserts into the Act a new section 5B that provides for the Designated Authority created by the Treaty to be an international organisation to which the Act applies for the period contemplated by the Treaty, even though it may not meet the definition of such an organisation in section 5.

MIGRATION ACT 1958

Item 54 - Subsection 5(1) (definition of Area A of the Zone of Cooperation)

72. Repeals the definition.

Item 55 - Subsection 5(1) (definition of Australian seabed)

73. Substitutes "Joint Petroleum Development Area" for "Area A of the Zone of Cooperation" which is omitted.

Item 56 - Subsection 5(1)

74. Inserts a definition of "Joint Petroleum Development Area" giving it the same meaning as in the Petroleum (Timor Sea Treaty) Act 2003.

PASSENGER MOVEMENT CHARGE COLLECTION ACT 1978

Item 57 - Section 3 (definition of Area A of the Zone of Cooperation)

75. Repeals the definition.

Item 58 - Section 3

76. Inserts a definition of "Joint Petroleum Development Area" giving it the same meaning as in the Petroleum (Timor Sea Treaty) Act 2003.

Item 59 - Section 3 (definition of petroleum)

77. Substitutes "Timor Sea Treaty" for "Timor Gap Treaty", which is omitted.

Item 60 - Section 3

78. Inserts a definition of "petroleum activities" giving it the same meaning as in the Timor Sea Treaty.

Item 61 - Section 3 (definition of petroleum operations)

79. Repeals the definition.

Item 62 - Section 3 (definition of Timor Gap Treaty)

80. Repeals the definition.

Item 63 - Section 3

81. Inserts a definition of the Timor Sea Treaty as meaning the Treaty as defined in the Petroleum (Timor Sea Treaty) Act 2003.

Item 64 - Section 3 (definition of Zone of Cooperation)

82. Repeals the definition.

Item 65 - Paragraph 5(I)

83. Substitutes "Joint Petroleum Development Area" for "Area A of the Zone of Cooperation" which is omitted.

PETROLEUM (SUBMERGED LANDS) ACT 1967

Item 66 - Subsection 5(1) (definition of Area A of the Zone of Cooperation)

84. Repeals the definition.

Item 67 - Subsection 5(1)

85. Inserts a definition of "Joint Petroleum Development Area" giving it the same meaning as in the Petroleum (Timor Sea Treaty) Act 2003.

Item 68 - Paragraph 5A(1A)(c)

86. Substitutes "Joint Petroleum Development Area" for "Area A of the Zone of Cooperation", which is omitted.

Item 69 - 5A(3)(b)

87. Substitutes "Joint Petroleum Development Area" for "Area A of the Zone of Cooperation", which is omitted.

PETROLEUM (TIMOR GAP ZONE OF COOPERATION) ACT 1990

Item 70 - The whole Act

88. Repeals the entire Act.

QUARANTINE ACT 1908

Item 71 - Subsection 5(1) (definition of Area A of the Zone of Cooperation)

89. Repeals the definition.

Item 72 - 5(1) (definition of Australian seabed)

90. Substitutes "Joint Petroleum Development Area" for "Area A of the Zone of Cooperation", which is omitted.

Item 73 - Subsection 5(1)

91. Inserts a definition of "Joint Petroleum Development Area" giving it the same meaning as in the Petroleum (Timor Sea Treaty) Act 2003.

Item 74 - Paragraph 6A(a)

92. Substitutes "Joint Petroleum Development Area" for "Area A of the Zone of Cooperation" which is omitted. The heading to section 6A is similarly altered.

Item 75 - Paragraph 6A(b)

93. Substitutes "Joint Petroleum Development Area" for "Area A", which is omitted.

SUPERANNUATION GUARANTEE (ADMINISTRATION) ACT 1992

Outline of chapter

94. Schedule 1 to this bill will amend the Superannuation Guarantee (Administration) Act 1992 so that it applies in the Timor Sea Joint Petroleum Development Area (JPDA), but only in respect of salary or wages paid by an employer (whether they are an Australian resident or not) to an Australian resident employee for work done in the JPDA.

Context of amendments

Background

95. The Timor Sea Treaty, incorporating a Taxation Code, was signed by Australia and East Timor in Dili on 20 May 2002. The Superannuation Guarantee (SG) Charge is listed in the Taxation Code.

96. The SG Charge is the penalty imposed on employers who fail to meet their obligations to make superannuation contributions for their employees under the Superannuation Guarantee (Administration) Act 1992. In general terms, that Act requires employers to pay superannuation contributions equivalent to 9% of an employee's salary or wages. If they fail to do so they may be liable to the SG Charge imposed under the Superannuation Guarantee Charge Act 1992.

97. As the SG Charge is listed in the Taxation Code this means that the SG legislation can be applied in the JPDA (but the Code does limit its application so that it can only apply in the JPDA in respect of Australian resident employees in the JPDA).

98. The extent to which the SG will ultimately apply in the JPDA is dependent on how the SG legislation itself applies to the JPDA.

Summary of new law

99. The amendment ensures that the SG legislation applies in the JPDA to an employer (whether they are a resident or non-resident of Australia) in respect of salary or wages paid to an Australian resident employee for work done in the JPDA. It will not apply to an employer in respect of salary or wages paid to an employee who is not an Australian resident for work done in the JPDA.

Detailed explanation of new law

Item -76 After section 4

100. New section 4A is inserted into the Superannuation Guarantee (Administration) Act 1992. This section extends the application of the Superannuation Guarantee (Administration) Act 1992 so that the JPDA is considered part of Australia for the purposes of the Act. [Schedule 1, Item 75]

Item -77 After paragraph 27(1)(c)

101. New paragraph 27(1)(ca) provides that salary or wages paid to an employee who is not a resident of Australia for work done in the JPDA will not be subject to the SG. [Schedule 1, Item 76]

102. The combined effect of these amendments is that work in the JPDA will normally be subject to SG requirements (pursuant to new section 4A), however, where the work is undertaken by an employee who is not an Australian resident SG will not apply (pursuant to new paragraph 27(1)(ca).

Application and transitional provisions

103. The amendments made by this Schedule apply, in relation to superannuation guarantee shortfalls from the year of income starting on 1 July 2003.

TAXATION ADMINISTRATION ACT 1953

Outline

104. Schedule 1 to this bill will amend the Tax Administration Act 1953 (TAA 1953) so that it allows for the exchange of information in relation to income tax, fringe benefits tax (FBT), the superannuation guarantee surcharge (SGC) and goods and services tax (GST) for the purpose of fulfilling Australia's obligations under the Timor Sea Treaty. These amendments will also apply broadly to international agreements between Australia and other countries in relation to provisions for exchange of information.

Context of amendments

Background

105. The Timor Sea Treaty, incorporating a Taxation Code, was signed by Australia and East Timor in Dili on 20 May 2002. Australia has an obligation under the Taxation Code to exchange information with East Timor in relation to the taxes covered by the Code. These taxes are:

·
Income Tax;
·
FBT;
·
SGC; and
·
GST.

106. Amendments are required to the TAA 1953 to fully satisfy Australia's obligations under exchange of information Articles in Australia's tax treaties, including the Taxation Code to the Timor Sea Treaty. Due to the structure of the TAA 1953, two sets of amendments are required. One specifically for GST and the other more generally for the other taxes covered by the Taxation Code.

Goods and Services Tax

107. Section 68 of the TAA 1953 (Protection of Confidentiality of Information) currently prevents the disclosure of GST taxpayer information, except in specified circumstances.

108. Exchange of information provisions of the Organisation for Economic Cooperation and Development's Model Tax Convention already provide for exchange of information relating to all taxes, including indirect taxes. It is therefore anticipated that the exchange of information provisions in Australia's future international agreements will apply to indirect tax information.

Income Tax, Fringe Benefits Tax and Superannuation Guarantee Charge

109. Australia has an obligation under exchange of information Articles to provide information collected under Schedule 1 of the TAA 1953 relating to the collection and recovery of income tax and other liabilities. Section 3C of the TAA 1953 (Secrecy) currently prevents the disclosure of this information, except in specified circumstances.

Summary of new law

110. The amendments to the TAA 1953 ensure that information in relation to income tax, FBT, SGC and GST can be exchanged between Australia and East Timor. The amendments also ensure that Australia is able to meet its international obligation under an agreement with another country to exchange information.

Detailed explanation of new law

Income Tax, Fringe Benefits Tax and Superannuation Guarantee Charge

Item 78 - Subsection 3C(2A)

111. New subsection 3C(2A) is inserted into the TAA 1953. Paragraph 3C(2A)(c) allows the Commissioner of Taxation to provide income tax, FBT and SGC information to East Timor for purposes of exchange of information under the Timor Sea Treaty.

112. The new paragraph 3C(2A)(c) also provides a general power to exchange information regarding these taxes with other countries in accordance with obligations arising under international agreements. [Schedule 1, Item 7,8 Subsection 3C(2A)(c)]

Goods and Services Tax

Item 79 - After paragraph 68(3)(b)

113. New paragraph 68(3)(ba) is inserted into the TAA 1953. This paragraph allows the Commissioner of Taxation to provide GST information to East Timor for purposes of exchange of information under the Timor Sea Treaty.

114. The new paragraph 68(3)(ba) also provides a general power to exchange information regarding indirect taxes (GST, luxury car tax and wine equalisation tax) with other countries in accordance with obligations arising under international agreements. [Schedule 1, Item 79, paragraph 68(3)(b)]

Application and transitional provisions

115. The amendments made by this Schedule apply, from 20 May 2002, the date of signature to the Timor Sea Treaty.

WORKPLACE RELATIONS ACT 1996

Item 80 - Section 5A

116. Repeals the existing section.

Part 2 - Application, savings and transitional provisions

Item 81 - Application - items 34 to 52

117. The amendments made by this Schedule apply from 20 May 2002, the date of signature of the Timor Sea Treaty. [Schedule 1, item 80A]

Item 82 - Continued operation of certain provisions in the Petroleum (Timor Gap Zone of Cooperation) Act 1990 - item 70

118. Even though the Petroleum (Timor Gap Zone of Cooperation) Act 1990 (the ZOCA Act) is repealed by item 70 of the Schedule to this Act, this clause provides that from the period 20 May 2002 until the date that the Petroleum (Timor Sea Treaty) Act 2003 receives Royal Assent, certain sections of the ZOCA Act are taken to have remained in effect as though they had not been repealed. These sections relate to the application of the International Organisations (Privileges and Immunities) Act 1963 to the Joint Authority administering Area A of the Zone of Cooperation until entry into force of the Treaty, and to offences.

Item 83 - Application - items 75 and 76

119. This clause provides that the amendments made by items 75 and 76 of the Schedule to this Act apply in relation to superannuation guarantee shortfalls for the year starting 1 July 2003 and all later years.


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