The Senate

Income Tax (International Agreements) Bill 1995

Second Reading Speech

by the Minister for Industry, Science and Technology Senator the Hon Peter Cook

I move that the Bill be now read a second time.

The Bill will provide legislative authority for the entry into force of the renegotiated comprehensive double taxation agreement between Australia and New Zealand.

The Bill will insert the text of the agreement into the Income Tax (International Agreements) Act 1953. The Bill will also make consequential amendments to that Act and to a number of other Acts.

These consequential amendments flow from the fact that the double tax agreement replaces the existing agreement with New Zealand and covers fringe benefits taxed under the Fringe Benefits Assessment Act 1986.

The agreement was signed on 27 January 1995 and replaces the double tax agreement which was signed on 8 November 1972. As with the earlier agreement this agreement allocates taxing rights over all substantial forms of trans-Tasman income flows.

In terms of comparison with the existing agreement, the renegotiated agreement includes provisions to deal with:

the taxation of income from real property and from the alienation of property generally;
the taxation of other income, being a sweep-up article;
the possible double taxation of trans-Tasman fringe benefits; and
a general strengthening of anti-avoidance measures.

the force of attraction principle in relation to permanent establishments;
and the special rule on the taxation of interest payments to associates.

the withholding tax rate on royalties from a maximum of 15% to a maximum of 10% of the gross royalty payment, and

an agreed approach to the taxation of branches of Australian insurers operating in New Zealand.

Details of the new agreement were announced and copies made publicly available at the time of signature.

The agreement has met with a generally favourable reaction from the business communities of both countries and from other sections of the community with trans-Tasman income flow.

The Government believes that the agreement will contribute positively to the strengthening of trade, investment and the wider relationship that exists with New Zealand under the Closer Economic Relations Agreement.

The agreement will enter into force on the date on which the two countries exchange diplomatic notes advising each other that all domestic requirements to give the agreement the force of law in the respective countries have been completed.

In Australia, these requirements include the enactment of enabling legislation by Parliament. It is not possible to accurately predict the eventual effect of the agreement on the revenue, but it is not expected to be significant.

I present the explanatory memorandum and commend the Bill to the Senate.