House of Representatives

Explanatory Memorandum

(Circulated by authority of the Assistant Minister for Competition, Charities and Treasury, the Hon Dr Andrew Leigh MP)

Chapter 6: Miscellaneous and technical amendments

Outline of chapter

6.1 Schedule 6 to the Bill makes miscellaneous and technical amendments to Treasury portfolio legislation. The amendments demonstrate the Government's ongoing commitment to the care and maintenance of Treasury portfolio legislation.

6.2 The amendments update legislative references, simplify provisions and reduce red tape.

Context of amendments

6.3 Miscellaneous and technical amendments are periodically made to Treasury portfolio legislation to correct errors and unintended outcomes, make technical changes and improve the quality of Treasury portfolio legislation. The process was first supported by a recommendation of the 2008 Tax Design Review Panel, which considered ways to improve the quality of tax legislation. It has since been expanded to all Treasury legislation.

Summary of new law

6.4 Divisions 1 and 2 of Part 1 of Schedule 6 to the Bill amend the corporations legislation, Division 3 of Part 1 amends the FATA, Division 4 of Part 1 amends the PRRTA Act; Part 2 amends the taxation laws; and Part 3 amends the corporations legislation. The miscellaneous and technical amendments maintain and improve the quality of Treasury legislation by:

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enhancing readability and administrative efficiency;

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reducing unnecessary red tape; and

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making other technical changes.

Detailed explanation of new law

Part 1 - Amendments commencing day after Royal Assent

Division 1 - Australian Securities and Investments Commission Act 2001

6.5 Division 1 of Part 1 of Schedule 6 to the Bill repeals provisions in the ASIC Act which require the Minister to consent to certain proceedings. The amendments are intended to reduce red tape.

6.6 Subsections 12AC(2) to 12AC(4) of the ASIC Act provide that a proceeding involving conduct outside of Australia may only proceed with the consent of the Minister. The repeal of these provisions mirrors the repeal of former subsections 5(3), (4) and (5) in the CCA.

6.7 The analogous provisions in the CCA were repealed in 2017 following recommendations made by the Harper Review, which found the requirement for Ministerial consent represented unnecessary red tape to private litigants.

6.8 The amendments repeal subsections 12AC(2) to 12AC(4), aligning the ASIC Act with the CCA to reduce the burden on litigants seeking redress under the ASIC Act.

[Schedule 6, items 1 and 2, subsection 12AC(1) and subsections 12AC(2) to (4) of the ASIC Act]

Division 2 - Contents of annual financial reports

6.9 Division 2 of Part 1 of Schedule 6 to the Bill amends reporting requirements for public companies in the Corporations Act.

6.10 Subsection 295(3A) of the Corporations Act improves tax transparency by ensuring public companies disclose the tax residency of their subsidiaries in their consolidated entity disclosure statement as part of their annual financial reports. This statement is provided by public companies in relation to a consolidated entity and includes information such as the entity's status as a body corporate, partnership or trust, and Australian or foreign residency. Hence, the provisions align these disclosures with income tax return disclosures, to improve multinational tax transparency.

6.11 The amendments clarify the tax residency disclosures required under subsection 295(3A) for subsidiaries in the annual financial report. A reporting entity must disclose whether each of its subsidiaries were an Australian tax resident and each foreign jurisdiction of which each of its subsidiaries were a tax resident (if any).

[Schedule 6, item 3, subparagraphs 295(3A)(a)(vi) and (vii) of the Corporations Act]

6.12 For a subsidiary that was a tax resident of both Australia and of one or more foreign jurisdictions, reporting entities are required to disclose that the subsidiaries were both an Australian resident under Australian tax law and a foreign resident under the law relating to foreign income tax of each relevant foreign jurisdiction.

6.13 Further, the amendments clarify the conditions for when an entity is an Australian resident for the purposes of subsection 295(3A) of the Corporations Act. The term 'Australian resident', as defined in subsection 995-1(1) of the ITAA 1997, means a person who is a resident of Australia for the purposes of the ITAA 1936. The definition of 'resident' or 'resident of Australia' in subsection 6(1) of the ITAA 1936 applies to individuals and companies but does not extend to partnerships and trusts.

6.14 Accordingly, paragraphs 295(3B)(b) and (c) of the Corporations Act clarify that subsidiary partnerships and trusts are covered by the disclosure requirements. They do this by confirming that a partnership and a trust will be an 'Australian resident' for the purposes of subsection 295(3A) of the Corporations Act in the following circumstances:

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For a partnership: at least one member of the partnership is an Australian resident (within the meaning of the ITAA 1997) at that time; and

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For a trust: the trust is a resident trust estate (within the meaning of Division 6 of Part III of the ITAA 1936) in relation to the year of income that corresponds to the financial year.

[Schedule 6, item 4, subsection 295(3B) of the Corporations Act]

6.15 The definitions in paragraphs 295(3B)(b) and (c) of the Corporations Act refer to tax residency definitions in the ITAA 1997 and the ITAA 1936, allowing reporting entities to rely on their existing income tax reporting obligations to complete these disclosures.

6.16 Corporate Limited Partnerships, as defined in section 94D of the ITAA 1936, should be reported as Australian residents under paragraph 295(3B)(a) where they are a resident of Australia under section 94T of the ITAA 1936, consistent with income tax return disclosures. Corporate Limited Partnerships are generally referred to as 'companies' in the income tax law under section 94J of the ITAA 1936, and are not included in the definition in paragraph 295(3B)(b) of the Corporations Act. The residency status of other partnerships is to be determined under paragraph 295(3B)(b) of the Corporations Act.

6.17 In some circumstances, the concept of tax residency may not apply to a reporting entity's subsidiary - for example, where the subsidiary is not an Australian resident and there is no corporate tax system in the foreign jurisdiction in which the subsidiary is established and operates. An example is where the subsidiary is not an Australian resident, and is established and operated in the Cayman Islands. In these circumstances, the reporting entity should state that the subsidiary is not an Australian resident under subsection 295(3B) of the Corporations Act, and also not list the relevant foreign jurisdiction for the purposes of subparagraphs 295(3A)(a)(vi) and (vii) of the Corporations Act.

6.18 The amendments apply in relation to annual financial reports for financial years commencing on or after 1 July 2024. This ensures that this amendment will have no retrospective impact, as the first annual report affected will be after 30 June 2025.

[Schedule 6, item 5, section 1709 of the Corporations Act]

6.19 These amendments clarify the technical operation of the existing law, which supports the policy intention of increased scrutiny on Australian public companies and how they structure their subsidiaries in different jurisdictions (including for tax purposes). This amendment aligns with the Government's multinational tax integrity commitments.

Division 3 - Foreign Acquisitions and Takeovers Act 1975

6.20 Division 3 of Part 1 of Schedule 6 to the Bill amends the FATA to clarify the calculation of penalties for contraventions of subsection 95(4) of the FATA.

6.21 Subsection 95(1) of the FATA prohibits temporary residents from holding interests in more than one established dwelling at a time. Subsection 95(4) prohibits foreign residents from acquiring interests in established dwellings. Subsection 95(6) provides that a person who contravenes either of these prohibitions is liable to a civil penalty.

6.22 Subsection 95(7) of the FATA provides that the maximum civil penalty is the greatest of:

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double the amount of the capital gain that was made or would be made on the disposal of an interest selected by subsection 95(8);

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50% of the consideration for the acquisition of that interest; or

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50% of the market value of that interest.

6.23 Subsection 95(8) of the FATA selects the interest to be used as reference when calculating the maximum civil penalty applicable for a breach of subsections 95(1) and 95(4) of the FATA.

6.24 The amendments clarify the selection of the relevant interest with respect to the calculation of civil penalties, to give effect to the intended policy and better align with the contravention provision, being the prohibition of foreign residents from acquiring interests in established dwellings in subsection 95(4) of the FATA. As the contravention is based on the acquisition of an interest, the civil penalty will be calculated by reference to the interest which was acquired in that contravention.

[Schedule 6, item 8, subsection 95(9) of the FATA]

6.25 The penalties for contraventions of subsection 95(4) of the FATA are appropriate given the potential benefits and profits that may be derived from non-compliance with the foreign investment framework and the need to create a sufficient deterrent to protect the national interest. The penalty amounts in the existing section are unchanged and appropriate to deter engaging in such behaviour to effectively diminish the commercial incentives for misconduct.

6.26 To avoid doubt, there are no substantive changes to the selection of the interest with respect to breaches of subsection 95(1) of the FATA.

6.27 The amendments to subsections 95(7) and 95(8) of the FATA are consequential amendments which clarify that subsection 95(8) applies with respect to breaches of subsection 95(1) of the FATA.

[Schedule 6, items 6 and 7, subsections 95(7) and 95(8) of the FATA]

6.28 The amendments apply with respect to contraventions of subsection 95(4) of the FATA that occur on or after the day after Royal Assent.

[Schedule 6, item 9]

Division 4 - Assessable petroleum receipts worked out according to regulations

6.29 Division 4 of Part 1 of Schedule 6 to the Bill amends section 26 of the PRRTA Act to remove the reference to paragraph 24(1)(e) of the PRRTA Act.

[Schedule 6, item 10, section 26 of the PRRTA Act]

6.30 Paragraph 24(1)(e) of the PRRTA Act provides that the amount of assessable petroleum receipts derived by a person is worked out in accordance with the regulations in relation to a petroleum project where:

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the regulations apply to any sales gas produced from the project petroleum; and

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that sales gas becomes an excluded commodity otherwise than by virtue of being sold, or certain other things.

6.31 Section 24 of the PRRTA Regulations then sets out how that person works out the amount of assessable receipts they derived in relation to a petroleum project.

6.32 Broadly, section 26 of the PRRTA Act provides an apportionment mechanism for cases where an amount is notionally derived and that amount is taken to be derived by two or more persons. The apportionment mechanism provides how much of that amount is taken to be derived by each person. Prior to the amendment, section 26 did this where paragraph 24(1)(c), 24(1)(e) or 25(c) of the PRRTA Act applied. As paragraph 24(1)(e) of the PRRTA Act provides the amount of assessable petroleum receipts derived by a person in relation to a petroleum project in certain cases, the amendment is made to clarify that no apportionment of that amount is required under section 26 of the PRRTA Act. Accordingly, the reference to paragraph 24(1)(e) in section 26 of the PRRTA Act is removed.

6.33 Section 26 of the PRRTA Act continues to apply in relation to paragraphs 24(1)(c) and 25(c) of the PRRTA Act, as those paragraphs continue to rely on the apportionment mechanism provided by section 26.

6.34 The amendments apply in relation to a year of tax beginning on or after 1 July 2024.

[Schedule 6, item 11]

Part 2 - Amendments commencing first day of the next quarter

Division 1 - General class investors

6.35 Division 1 of Part 2 of Schedule 6 to the Bill amends the ITAA 1997 to ensure the thin capitalisation rules in Division 820 of that Act operate as intended.

6.36 Schedule 2 to the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share-Integrity and Transparency) Act 2024 made several reforms to the thin capitalisation rules in Division 820 of the ITAA 1997. The amendments in Schedule 2 to that Act generally apply in relation to assessments for income years starting on or after 1 July 2023.

6.37 As part of the reforms, changes were made to how some entities are categorised under the thin capitalisation rules. However, certain consequential amendments to ensure these entities are correctly categorised were not made. These amendments make these consequential amendments.

6.38 The amendments ensure that associate entities of general class investors are correctly categorised for thin capitalisation purposes. Depending on the case, the amendments ensure that such entities are correctly categorised as either:

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a general class investor;

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an outward investing financial entity (non-ADI); or

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an outward investing entity (ADI).

[Schedule 6, items 12, 13 and 14, subsection 820-85(2BA), subparagraph 820-300(2)(c)(ii) of the ITAA 1997]

6.39 Correctly categorising entities ensures they are subject to the appropriate and intended thin capitalisation rules for their category.

6.40 The amendments apply in relation to income years starting on or after 1 July 2023. Retrospective application of the amendments is consistent with the application of the relevant reforms and ensures that the thin capitalisation rules operate as intended.

[Schedule 6, item 15]

6.41 For completeness, the intended re-categorisation of entities under the recent reforms is set out in the below table.

Table 5.1 Comparison of categorisations

Division 2 - Deductible gift recipients

6.42 Division 2 of Part 2 of Schedule 6 to the Bill updates outdated names of organisations listed on the DGR register.

6.43 The income tax law allows taxpayers who make gifts of $2 or more to DGRs to claim a deduction. To be a DGR, an organisation must fall within one of the general categories set out in Division 30 of the ITAA 1997 or be listed by name in that Division.

6.44 Three organisations are currently listed as DGRs under outdated names. The amendments make the following changes to address this issue:

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'The Royal Society for the Prevention of Cruelty to Animals (South Australia) Incorporated', updated to 'Royal Society for the Prevention of Cruelty to Animals (South Australia) Limited';

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'Alcohol Education and Rehabilitation Foundation Limited', updated to 'Foundation for Alcohol Research and Education Limited'; and

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'The Prince's Trust Australia Limited', updated to 'The King's Trust Australia Limited'.

[Schedule 6, items 16, 17 and 18, table items 4.2.9 and 4.2.26 of the table under subsection 30-45(2), and table item 13.2.20 of the table under subsection 30-105(2) of the ITAA 1997]

6.45 Consequential editorial amendments are also made to the index in Division 30 of the ITAA 1997 for these DGRs.

[Schedule 6, items 19, 20 and 21, items 49E and 64B of the table under section 30-315 of the ITAA 1997]

Part 3 - Amendments with other commencements

Division 1 - Declaration of relevant relationships

6.46 Division 1 of Part 1 of Schedule 6 to the Bill amends the Corporations Act to align the requirements placed on the liquidator of a CCIV under the Corporations Act with those of liquidators of companies.

6.47 Under subsection 60(2) of the Corporations Act, liquidators must make a declaration of relevant relationships. However, the effect of the translation rules (in Chapter 8B of the Corporations Act) relating to CCIVs mean that a liquidator appointed to a sub-fund of a CCIV is not required to make such a declaration if they have previously been appointed to another sub-fund of the same CCIV, despite these relationships carrying the same risk of a conflict of interest.

6.48 To correct this, the amendments insert section 1237KA which provides that, for liquidators appointed to sub-funds of CCIVs, the declaration of relevant relationships extends to relationships with other sub-funds of the same CCIV, and relevant entities with relationships with other sub-funds of the same CCIV.

[Schedule 6, item 22, section 1237KA of the Corporations Act]

6.49 This requirement applies to declarations of relevant relationships made on or after the commencement of section 1710 of the Corporations Act (which is 14 days after Royal Assent). Further, a liquidator of a sub-fund of a CCIV will be required to amend their declaration of relevant relationships upon commencement of section 1710 of the Corporations Act. The delay in commencement provides for a transitional period for liquidators of sub-funds and gives sufficient notice of the date that their declarations need to be updated.

[Schedule 6, item 23 of Division 1 of Part 3, section 1710 of the Corporations Act]

Commencement, application, and transitional provisions

6.50 Part 1 of Schedule 6 to the Bill commences on the day after Royal Assent.

6.51 Part 2 of Schedule 6 to the Bill commences on the first day of the next quarter after Royal Assent.

6.52 Part 3 of Schedule 6 to the Bill commences on the day after the end of the period of 14 days beginning on the day after Royal Assent.