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House of Representatives

Tax Laws Amendment (2006 Measures No. 4) Bill 2006

Tax Laws Amendment (2006 Measures No. 4) Act 2006

Supplementary Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello MP)

General outline and financial impact

Amendments 1 and 2 to Schedule 4 - Capital gains tax and foreign residents

Amendment 1 resets the cost base of indirect Australian real property interests that are interests that were not previously taxable for foreign residents, to the market value of such interests on 10 May 2005, the date the Treasurer announced the measure in Press Release No. 44.

Amendment 2 is a consequential amendment that removes a requirement for providing demerger relief to ensure that resident taxpayers are not adversely affected by the legislation as introduced.

Date of effect: The amendments will apply to capital gains tax events occurring on or after Royal Assent.

Proposal announced: These amendments have not previously been announced.

Financial impact: Amendment 1 will have these revenue implications:

2006-07 2007-08 2008-09 2009-10
Nil -$20m -$15m -$10m

Amendment 2 has no cost to revenue.

Compliance cost impact: These amendments reduce compliance costs for affected taxpayers.

Chapter 1 - Amendments 1 and 2 to Schedule 4 - Capital gains tax and foreign residents

Explanation of amendments 1 and 2

1.1 Amendment 1 resets the cost base of indirect Australian real property interests that are interests that were not previously taxable for foreign residents, to the market value of such interests on 10 May 2005, the date the Treasurer announced the measure in Press Release No. 44. This will ensure that unrealised accumulated capital gains or capital losses from interests in land-rich foreign interposed entities that were not previously within Australia's tax regime will not be subject to capital gains tax (CGT). [Amendment 1]

1.2 Amendment 2 is a consequential amendment that removes one of the requirements for providing demerger relief to ensure that resident taxpayers are not adversely affected by the legislation as introduced. Unless an amendment is made, demerger relief would only be available where a company is majority Australian owned, or the company is land-rich. The amendment ensures that the narrowing of the CGT tax base for foreign residents does not adversely affect the availability of demerger relief for resident taxpayers. [Amendment 2]


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