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In media release No 2011/032, issued 17 February 2011, the Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, announced the release for public comment of exposure draft legislation relating to Controlled Foreign Company (CFC) and Foreign Accumulation Fund (FAF) rules.

The rewrite and modernisation of the CFC rules, together with the proposed FAF rule, form part of a package of reforms to Australia's foreign-source income attribution rules that were announced in the 2009-10 Budget.

Key changes to the current law include:

  • Incorporating an active business income exemption that reflects modern business practices and increasing globalisation

  • Better targeting the CFC rules by: 
  1. Focusing the rules on single Australian controllers
  2. Providing relief for intra-group transactions
  3. Treating rent in respect of real property as being active income
  4. Allowing royalty income to be treated as active where it has not originated from Australia
  5. Removing the base company income rules
  6. Retaining the existing listed country, active income de minimis, and AFI subsidiary exemptions. 
  • Rewriting the CFC laws using coherent principles, resulting in more streamlined and simpler legislation. (The proposed rules reduce the number of pages of CFC law from 181 to around 35 operative pages.)

  • Providing more access to dividend exemptions as well as methods to prevent the double taxation of previously attributed income.

  • Improving the integrity of the Australian revenue base by:
    1.  Denying eligibility to dividend exemptions where they are paid in respect of debt interests
    2. Introducing a FAF rule.

Submissions close on 18 March 2011.


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