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14 May 14 Improving the integrity of the foreign residents CGT regime

On 13 May 2014 the Commonwealth Treasury released an exposure draft of proposed legislation, entitled the Tax and Superannuation Laws Amendment (2014 Measures No 3) Bill 2014: foreign resident CGT integrity measures, to amend the foreign resident CGT principal asset test. Comments on the exposure draft are invited. The closing date for submission is Monday, 9 June 2014.

The proposed amendments implement proposals announced by the previous government on 14 May 2013. Those amendments would:

  • value mining, quarrying or prospecting information and goodwill together with the mining rights to which they relate, and
  • remove the ability to use transactions between members of the same consolidated group to create and duplicate assets.

The proposed amendments in the exposure draft legislation also include a change that has been made to the scope of the asset duplication measure. In particular, its scope is not restricted to entities that are members of the same consolidated group or MEC group.

The exposure draft explanatory memorandum notes the government’s decision to defer proceeding with the valuation measure pending the outcome of ongoing litigation of the issue.

The previous government’s announcement of the valuation amendment appears to be a response to issues arising from the decision of the Federal Court in Resource Capital Fund III LP v FCT [2013] FCA 363, which was handed down on 26 April 2013. There are still matters before the courts in relation to this issue (see in particular the decision of the Full Federal Court in FCT v Resource Capital Fund III LP [2014] FCAFC 37 (3 April 2014)). The government has therefore decided to defer the enactment of the amendment and to assess whether it is required once the present litigation is finalised.

The proposed amendments would amend the law to prevent the double counting of certain non-TARP assets that can distort the application of the principal asset test.

Where the assets of two or more entities are included in the principal asset test, the market value of new non-TARP assets arising from transactions between those entities would be disregarded for the purposes of the principal asset test.

These amendments are broader than those announced by the previous government. In particular, the scope of the amendments is not restricted to entities that are members of the same consolidated group or MEC group.

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