Explanatory Memorandum
(Circulated by authority of the Minister for Housing and Assistant Treasurer, the Hon Michael Sukkar MP)Chapter 4 - Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Capital gains tax changes for foreign residents
4.1 Schedule 1 to the Primary Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
4.2 This Schedule amends the ITAA 1997 to:
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- remove the entitlement to the CGT main residence exemption for foreign residents; and
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- modify the foreign resident CGT regime to clarify that, for the purpose of determining whether an entity's underlying value is principally derived from TARP, the principal asset test is applied on an associate inclusive basis.
Human rights implications
4.3 This Schedule does not engage any of the applicable rights or freedoms.
Conclusion
4.4 This Schedule is compatible with human rights as it does not raise any human rights issues.
Additional capital gains discount for affordable housing
4.5 Schedule 2 to the Primary Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
4.6 Schedule 2 to the Primary Bill amends the ITAA 1997 to provide an additional affordable housing capital gains discount of up to 10 per cent at the time a CGT event occurs to an ownership interest in residential premises that has been used to provide affordable housing.
Human rights implications
4.7 This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in the definition of human rights in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
4.8 Of the human rights and freedoms recognised or declared in the international instruments listed in the definition of human rights at section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011, this Schedule engages the right to an adequate standard of living, including housing, as referred to in Article 11.1 of the International Covenant on Economic, Social and Cultural Rights.
4.9 Article 11.1 of the International Covenant on Economic, Social and Cultural Rights states that everyone has the right to 'an adequate standard of living for himself and his family, including adequate food, clothing and housing, and to the continuous improvement of living conditions' and that 'appropriate steps' be taken to 'ensure the realization of this right'.
4.10 Under the additional capital gains discount for affordable housing measure, an additional incentive is introduced for taxpayers who hold and maintain affordable rental housing assets in Australia which are managed by registered Community Housing Providers. This will incentivise these investors by allowing them to retain an increased amount of the capital gains they realise from their investments that are leased to members of the community earning low to moderate incomes, at rental rates set according to state and territory housing policies. As such, this Schedule is designed to increase the volume of affordable housing that is available in the market, reducing the likelihood that community members on lower incomes will experience homelessness and housing hardship.
4.11 This Schedule introduce a framework for empowering individual and institutional investors to increase their level of private investment in affordable rental accommodation by adjusting the existing concessional taxation treatment of capital gains. These measures are therefore compatible with and enhance the right to an adequate standard of living including housing.
4.12 Article 27 of the Convention on the Rights of the Child also recognises 'the right of every child to a standard of living adequate for the child's physical, mental, spiritual, moral and social development'. The Article also states that 'States Parties, in accordance with national conditions and within their means, shall take appropriate measures to assist parents and others responsible for the child to implement this right and shall in case of need provide material assistance and support programmes, particularly with regard to nutrition, clothing and housing'.
4.13 By incentivising greater investment in affordable housing for prospective tenants on low to moderate incomes, the Primary Bill is compatible with children's rights to an adequate standard of living. The Primary Bill will help ensure children within households at risk of homelessness are at lower risk of being without a home.
4.14 Tax concessions of this kind are in line with the guidance issued by the UN Committee on Economic Social and Cultural Rights regarding the right to an adequate standard of living, with respect to housing.
Conclusion
4.15 This Schedule is compatible with human rights as it does not raise any human rights issues.
Near-new dwelling exemption certificates
4.16 Schedule 3 to the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019 and the Foreign Acquisitions and Takeovers Fees Imposition Amendment (Near-new Dwelling Interests) Bill 2019 are compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
4.17 Schedule 3 to the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019 and the Foreign Acquisitions and Takeovers Fees Imposition Amendment (Near-new Dwelling Interests) Bill 2019 establish a reconciliation payment mechanism for developers who sell residential property to foreign persons under the Foreign Acquisitions and Takeovers Act 1975.
4.18 A sale of a near-new dwelling under a near-new dwelling exemption certificate will give rise to an obligation on a developer to make a payment to the Treasurer (or his or her delegate) of the amount of the fee that would have been payable by the foreign person under the Foreign Acquisitions and Takeovers Act 1975, the Foreign Acquisitions and Takeovers Fees Imposition Act 2015 and the Foreign Acquisitions and Takeovers Fees Imposition Amendment (Fee Streamlining) Regulations 2017 had the foreign person obtained a foreign investment approval themselves.
4.19 The Schedule does not impose any additional fees on foreign persons and creates greater flexibility for a foreign person to purchase a near-new dwelling from a developer.
Human rights implications
4.20 Schedule 3 to the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019 and the Foreign Acquisitions and Takeovers Fees Imposition Amendment (Near-new Dwelling Interests) Bill 2019 engage the right to freedom from discrimination.
4.21 Article 26 of the ICCPR recognises that all persons are equal before the law and are entitled without discrimination to the equal protection of the law. Article 26 further provides that 'the law shall prohibit any discrimination and guarantee to all persons equal and effective protection against discrimination on any ground such as national origin.
4.22 However, the Human Rights Committee has recognised that 'not every differentiation of treatment will constitute discrimination, if the criteria for such differentiation are reasonable and objective and if the aim is to achieve a purpose which is legitimate under the Covenant'. [2]
4.23 The Schedule also generally engages the rights protected by the International Convention on the Elimination of All Forms of Racial Discrimination. Paragraph 1 of Article 1 of International Convention on the Elimination of All Forms of Racial Discrimination defines the term 'racial discrimination' to mean 'any distinction, exclusion, restriction or preference based on race, colour descent, or national or ethnic origin which has the purpose or effect of nullifying or impairing the recognition, enjoyment or exercise, on an equal footing, of human rights and fundamental freedoms in the political, economic, social, cultural, or any other field of public life'.
4.24 Under Article 2(a)(a) of the International Convention on the Elimination of All Forms of Racial Discrimination, [E]ach State Party undertakes to engage in no act or practice of racial discrimination against persons, groups of persons or institutions and to ensure that all public authorities and public institutions, national and local shall act in conformity with this obligation'. Under Article 5 of International Convention on the Elimination of All Forms of Racial Discrimination States Parties 'undertake to prohibit and eliminate racial discrimination in all its forms and to guarantee the right of everyone, without distinction as to ...national ...origin, to equality before the law' in the enjoyment of civil, political, economic, social and cultural rights, including the 'right to own property alone as well as in association with others'.
4.25 Schedule 3 to the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019 and the Foreign Acquisitions and Takeovers Fees Imposition Amendment (Near-new Dwelling Interests) Bill 2019 engage these human rights as they apply based on the citizenship of the investor. The Schedule interacts with provisions in the Foreign Acquisitions and Takeovers Act 1975 to determine whether or not an investor is subject to Australia's foreign investment framework.
4.26 The underlying principle of Australia's foreign investment framework is that foreign investment in Australia is welcome where it is in the national interest. The objective of the framework is to provide a predictable and welcoming environment for foreign investors while giving the Treasurer the power to review certain investments to ensure that investment is not contrary to the national interest.
4.27 While Schedule 3 to the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019 and the Foreign Acquisitions and Takeovers Fees Imposition Amendment (Near-new Dwelling Interests) Bill 2019 only affect individuals who are citizens of countries other than Australia, in the context of Australia's foreign investment framework there is no less restrictive way of achieving the framework's objectives. Accordingly those limitations are reasonable, necessary and proportionate.
Conclusion
4.28 Schedule 3 to the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019 and the Foreign Acquisitions and Takeovers Fees Imposition Amendment (Near-new Dwelling Interests) Bill 2019 are compatible with human rights because to the extent that they may limit human rights, those limitations are reasonable, necessary and proportionate.