House of Representatives

Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon J. B. Hockey MP)

General outline and financial impact

FATCA

Schedule 1 to this Bill amends Schedule 1 to the Taxation Administration Act 1953 to require Australian financial institutions to collect information about their customers that are likely to be taxpayers in the United States of America (US) and to provide that information to the Commissioner of Taxation (Commissioner) who will, in turn, provide that information to the US Internal Revenue Service.

These amendments give effect to the Australian Government's commitments as set out in the Agreement between the Government of Australia and the Government of the United States of America to Improve International Tax Compliance and to Implement FATCA, which was signed in Canberra on 28 April 2014.

Date of effect: 1 July 2014

Proposal announced: On 6 November 2013, the Government announced its intention to work towards signing and enacting a treaty-status intergovernmental agreement with the US to enable the financial sector to comply with Foreign Account Tax Compliance Act (FATCA) reporting rules (Treasurer's Media Release No. 17 of 6 November 2013).

This followed an earlier announcement on 7 November 2012 by the then Treasurer that Australia had commenced formal discussions with the US for an intergovernmental agreement on FATCA (Treasurer's Media Release No. 110 of 7 November 2012).

Financial impact: Nil

Human rights implications: This Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 2, paragraphs 2.1 to 2.54.

Compliance cost impact: High. Australian financial institutions will need to collect information about their customers that are likely to be taxpayers in the US and to provide that information to the Commissioner.

Summary of regulation impact statement

Regulation impact on business

Impact: These amendments will affect Australian financial institutions that have customers that may be taxpayers in the US.

Main points:

FATCA will commence on 1 July 2014, irrespective of any action taken by Australia.
There are three options for responding to FATCA:

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option one - conclude a Model 1 Intergovernmental Agreement with the US;
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option two - conclude a Model 2 Intergovernmental Agreement with the US; or
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option 3 - maintain the status quo (that is, no Government intervention).

All three options impose compliance costs on the Australian financial sector. Each option is estimated to impose the following compliance costs over ten years:

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option one - $482.68 million;
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option two - $565.44 million; or
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option three - $1,065.92 million.

Option one enables Australian financial institutions to comply with FATCA with the lowest level of compliance costs. This option is also consistent with the Government's long standing support for international cooperation to prevent tax evasion.


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