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12 May 09 Anti-tax-deferral (attribution) rules

The Government will reform Australia’s anti tax deferral (attribution) regimes which ensure that residents can not accumulate income offshore and thereby defer, or even avoid, Australian tax, with effect for income years on or after Royal Assent to the legislation.

These changes implement most of the recommendations of the Board of Taxation review of the attribution regimes. To implement the Board’s recommendations, the Government will:

- modernise the controlled foreign company (CFC) provisions and rewrite them into the Income Tax Assessment Act 1997;
- repeal and replace the foreign investment fund (FIF) provisions with a specific narrowly defined anti avoidance rule;
- repeal the deemed present entitlement rules; and
- amend the transferor trust rules to enhance their effectiveness and improve their integrity.

The Assistant Treasurer, Chris Bowen, said that the abolition of the FIF rules - in conjunction with rewriting the CFC rules (which together comprise almost 25% of the ITAA 1936) into the ITAA 1997 - will bring the consolidation of the two income tax acts much closer.

Given that the revenue implications of the proposed reforms must be balanced against other pressing needs within the Australian budget, the listed public company exemption (recommendation 2 of the Board) will not proceed. However this is not fundamental to proceeding with the framework reforms to the attribution rules recommended by the Board.

The Government will consult on the implementation of these reforms.

For more information, see the Assistant Treasurer's media release, No 2009/49, 12 May 2009

For a copy of the Board's report, go here

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