Queensland introduced the Additional Foreign Acquirer Duty (AFAD) in 2016 and the Foreign Land Tax Surcharge (FLTS) in 2019 to curb speculative foreign acquisitions. While these measures were designed to protect local buyers, they inadvertently captured Australian developers using international funding, creating a prohibitive tax environment that delayed projects and discouraged investment.

Since 2016, twelve new or increased property taxes have been introduced, impacting Queensland’s competitiveness. The latest reforms aim to address these issues by reducing compliance barriers, clarifying eligibility criteria, and introducing faster approval processes, signalling a shift towards a more investment-friendly framework.

Key changes announced

Dwelling threshold reduced

One of the most significant changes is the reduction of the dwelling threshold for relief eligibility from 50 dwellings to 20 dwellings. Previously, only large-scale residential projects could access AFAD and FLTS relief, leaving mid-sized developments exposed to additional costs.

By lowering the threshold, the government has opened the door for smaller projects, such as townhouse complexes and boutique apartment developments, to qualify for relief. This change is expected to stimulate housing supply and encourage more diverse development across Queensland.

Pre-approval process

The introduction of a pre-approval process marks a major improvement in how relief is administered. Under the old system, developers could only apply for relief after acquiring land, creating uncertainty and financial risk. The new process allows developers to secure approval before acquisition, giving them confidence to proceed with transactions and improving access to finance. This proactive approach reduces risk and supports better project planning.

Published service standards

To complement the pre-approval process, the Queensland Revenue Office (QRO) has introduced published service standards for processing applications. Frequent applicants and renewals will be processed within 30 working days, while new applicants will receive decisions within 60 working days. These timelines provide transparency and predictability, addressing long-standing concerns about delays and improving investor confidence.

Broader recognition of group entities

The reforms also broaden eligibility by recognising the activity of the relevant corporate group of which the entity is a group entity in determining if the entity has made a significant contribution or is a significant contributor. Many projects involve joint ventures or complex corporate arrangements, and under the new rules, these structures will be considered when determining if the exemption criteria is satisfied.

Five year averaged significant contributor test

For landholders seeking relief from the FLTS, a new five-year averaged significant contributor test has been introduced. This test ensures that entities demonstrating sustained economic contribution to Queensland can access relief, rewarding long-term investment rather than short-term activity. It encourages stability and ongoing engagement with the state’s economy.

Under this administrative arrangement, a significant contribution means that an entity (or relevant corporate group) has:

• Current commercial activities, or committed future commercial activities over a 12-month period from the liability date, at the requisite contribution level or
• Commercial activities approved by the Commissioner.

In this context, requisite contribution level means employing 75 or more full-time equivalent employees in Queensland (excluding labour hire or contractors) or incurring expenditure in Queensland of more than $20 million annually (comprising Queensland payroll tax and land tax liabilities, Queensland goods and services and wages paid to Queensland residents).

In relation to commercial activities approved by the Commissioner, the Commissioner will have regard to:

• the commercial activity in the context of population size, demographics, and industry maturity in the area
• the nature of the area and/or industry
• the contribution the activity makes to the area and/or industry (for example, whether the entity is a major employer in the area or whether the industry would exist without the presence of the entity) and
• any other relevant factors.

Clearer criteria and transitional arrangements

Finally, the reforms provide clearer eligibility criteria and transitional arrangements for entities already receiving relief. This removes ambiguity and ensures continuity for ongoing projects, reducing compliance risk and supporting developers during the transition to the new framework.

Rulings

To implement these reforms, the QRO has issued the following updated rulings:

• Public Ruling GEN012.1 Administrative arrangement—exemption from AFAD and land tax foreign surcharge for residential land developers
• Public Ruling LTA000.6.1 Administrative arrangement—exemption from land tax foreign surcharge for landholders undertaking commercial activities that make a significant contribution
• Public Ruling DA000.15.5 Additional foreign acquirer duty—ex gratia for significant development for liabilities arising before 15 December 2025
• Public Ruling LTA000.4.4 Guidelines for ex gratia relief from the land tax foreign surcharge for liabilities arising before 30 June 2026

How SW can help

Navigating these new rules can be complex, especially with multiple rulings and transitional arrangements.

We assist developers and investors by:

• Providing tailored advice on eligibility under the new AFAD and FLTS relief framework.
• Preparing and lodging pre-approval applications with QRO to secure relief before acquisition.
• Structuring projects and ownership arrangements to maximise compliance and minimise tax exposure.

Contributors

Robert Parker – Consulting Director, Tax

Blake Trad – Consultant, Tax

The post QLD Foreign Tax Reforms: Merry Xmas for Queensland Developers appeared first on SW Accountants & Advisors.

The legislation has passed both houses of parliament and will apply to eligible BTR developments to:

• increase the depreciation rate from 2.5% to 4% for capital works that commenced after 7:30pm 9 May 2023
• reduce the MIT WHT tax rate from 30% to 15% from 1 July 2024 for amounts referable to rental income or capital gains. This will align the MIT WHT rate with commercial property (i.e. office, retail and industrial). 

The higher 30% MIT WHT rate was a major impediment to foreign investment in the BTR sector. This legislation should help boost foreign investment in the BTR sector with the PCA announcing that it could deliver 80,000 new homes over the next 10 years.

Key impact of recent amendments

The key points from the recent amendments to the Bill that have been incorporated into the final legislation are:

• It will apply for all eligible BTR developments even if they existed prior to 9 May 2023. This was an important change and ensures that those businesses pioneering BTR have not been left high and dry
• A minimum lease period of 5 years must be offered to tenants (tenants can request shorter periods)
• BTR misuse tax will apply to the entity that owns the BTR development immediately before that development ceased to be an active BTR development ensuring the appropriate owner bears the liability
• The lease terms are to be determined by the Minister by legislative instrument
• The definition of an affordable dwelling will be determined by the Minister by legislative instrument

Key features of legislation

The key features of the BTR MIT legislation are:

Dwelling features

For our original release on the BTR legislation and more details on the various State BTR regimes please click here.

How SW can help

We are specialists in property funds and property development and can provide valuable advice on your projects.

The post Build-to-Rent Managed Investment Trust legislation passed appeared first on SW Accountants & Advisors.

On Sunday 10 December, the government announced property tax changes to penalise overseas investors buying homes which are left vacant as well as cutting tax for Build-to-Rent investors. The reform is a bid to increase housing supply, however the effectiveness of these measures to address the broader housing crisis remains open to debate.

Increased costs for foreign buyers

From 2024, foreign investors purchasing established Australian homes will face tripled application fees.

Currently, the application fee charged to foreign investors for buying established homes in Australia is calculated on the property’s value. For instance, properties priced between $1m and $2 m incur an application fee of $28,200. This rises to  a maximum of $1,119,100 for residential acquisitions of more than $40 million.

Additionally, if these properties are left vacant, the investors will incur an equivalent amount as a vacancy fee. 

The tripling of application fee effectively is a six-fold increase in total fees (application plus vacancy fees) for properties bought since 9 May 2017. A vacant property costing between $1m to $2m will have an application fee of $84,600 and an annual vacancy fee of $84,600.

The new measures specifically target established dwellings, encouraging foreign investors to focus on new housing developments. This shift is intended to stimulate the construction sector, creating jobs and contributing to economic growth.

Incentivising ‘Build-to-Rent’ projects

To promote investment in new housing stock, the government is reducing application fees for Build-to-Rent projects. From 14 December 2023, the application fees for Build-to-Rent projects will be set at the lowest commercial rate – irrespective of the nature of the land involved. This initiative aims to make Australia’s foreign investment framework more consistent and attractive for long-term rental housing developments.

However, it’s important to note that this is in contrast with the proposed Federal thin capitalisation changes. Thin capitalisation involves tax reforms to ensure multinational companies pay their fair share, focusing on entities funded by high levels of debt over equity. For the latest update on the proposed changes, we have recapped the Thin Capitalisation rules.

Enhanced compliance measures

To strengthen the enforcement of its new property investment rules, the government is significantly increasing funding for the ATO. This aims to ensure strict adherence to the new regulations by foreign investors. A key regulation is the requirement for foreign nationals to sell their Australian properties upon leaving the country unless they have secured permanent residency.

This commitment to enhanced enforcement goes beyond merely introducing new rules; it reflects a concerted effort to effectively monitor and enforce compliance. Foreign nationals are typically barred from purchasing existing properties. This approach underscores the government’s dedication to addressing the complexities of the housing market and ensuring the integrity of its foreign investment framework.

The new foreign investment rules primarily impacts foreign investors, with increased fees and stricter compliance requirements. The construction industry may see growth from incentivised new housing projects. Australian residents, particularly those seeking affordable housing, could benefit from these changes. Real estate developers involved in Build-to-Rent projects are likely to gain from lower fees, encouraging investment in this sector. The repercussions of these changes are thus widespread, affecting various stakeholders in the property market.

Get in touch with SW

Get in touch with our property experts to learn more about how these new regulations affect you.

In light of these proposed changes, we encourage all stakeholders in the Australian property market to stay informed and actively engage with the evolving landscape. For further updates, insights, and guidance on navigating these new regulations, be sure to follow us on LinkedIn.

Contributors

Rahul Sanghani

The post New foreign property investment rules to combat housing crisis appeared first on SW Accountants & Advisors.

Introduced into Parliament on 22 June 2023, the Bill is in line with the Government’s commitment to address tax avoidance practices of multinational enterprises and streamline with (OECD) best practice guidelines. There are some important distinctions from the Exposure Draft legislation, which SW detailed here in March.

From 1 July 2023, the new proposed thin cap provisions will replace the existing rules and limit the amount of interest deductions for certain entities. The Bill has been referred to the Senate Economics Legislation Committee for review, which will complete on 31 August 2023. This means that final legislation may not be released before September 2023.

Who do the new thin cap rules apply to?

The new regime applies to:

• foreign controlled taxpayers and taxpayers with foreign operations. These remain broadly unchanged from the existing rules
• only applies to general investors and, in part, to financial entities
• certain exemptions will continue to apply – including the $2 million (debt deduction) de minimis exemption.

What are the new tests?

The new regime’s safe harbour will be broadly based on the taxpayer’s current year taxable income – instead of the current safe harbour which is based on a taxpayer’s balance sheet.

The new safe harbour will be known as the Fixed Ratio Test (FRT). The FRT will limit interest deductions to 30% of a taxpayers Tax EBITDA. The Tax EBITDA will broadly be calculated as a taxpayer’s taxable income adjusted for interest deductions, tax depreciation and certain distributions received. Any non-deductible interest can be carried forward for 15 years.

Two other tests will be available:

• The Group Ratio Test (broadly replacing the worldwide gearing test)
• The Third Party Debt Test (broadly replacing the arm’s length debt test).

The Group Ratio Test will apply to disallow interest deductions by applying a group ratio to the taxpayer’s tax EBITDA – instead of the 30% FRT. The group ratio is calculated by applying a complex formula broadly equal to the net third party interest expense of the global group divided by the Group EBITDA.

As the name suggests, the Third Party debt test will only apply to debt issued to external third parties – meaning taxpayers may no longer be able to deduct interest issued to related parties even where third parties would have loaned funds on the same terms.   There are exceptions in relation to the use of Australian conduit financing entities.

Notable changes from the Exposure Draft legislation

Some notable changes in the Bill that has been added, or else removed from the Exposure Draft legislation, include:

• Changes to the calculation of tax EBITDA, particularly in relation to:
  • excluding dividends and franking credits
  • excluding trust distributions and partnership distributions from associate entities
  • adding back all amounts under Division 40 and Division 43 except to the extent that the amounts are immediately deductible and
  • removing the add back for prior year tax losses that was in the original Exposure Draft.
• Removal from the proposed legislation of changes to section 25-90 of the ITAA 1997 (about deductions for debt deductions incurred to derive foreign non-assessable non-exempt income from non-portfolio investments) At this stage, no announcement has been made as to the future of this controversial proposed change.
• The choice to apply one of the two new alternative tests is revocable, although a taxpayer will need to apply to the Commissioner to have a choice revoked.
• Removal of limitation to apply the third-party debt test where all associate entities had not made the choice. This has been replaced with a deemed choice for members of an obligor group.
• Addition of new Subdivision 820-EAA to disallow debt deductions to the extent they are created under debt creation schemes without commercial justification.

What is the detail of the rules?

A more detailed analysis of the Bill is contained in our Technical Briefing, linked below.  We encourage you to talk to the SW team to understand these changes further.

Application Date

The new legislation is set to apply to income years beginning on or after 1 July 2023.  

How should taxpayers prepare?

We recommend that taxpayers subject to the thin capitalisation regime review their existing arrangements having regard to the new Bill as a high priority, noting that the proposed date of effect is  1 July 2023. Whilst we hope that common sense will prevail and technical amendments will be made to ensure that the 3^rd party debt test can be used by business, the Bill is predominantly based on the OECD guidance.

How can SW help?

Our SW team can assist with:

• modelling the potential impact of the new rules on your debt deductions
• assessing the feasibility of restructuring any existing financing arrangements for your group
• considering whether one of the alternative tests would be applicable and beneficial to your circumstances.

Reach out to your SW advisor for support from our specialist tax team.

Contributors

Ned Galloway

Ian Kearney

The post Bill for new thin capitalisation regime introduced appeared first on SW Accountants & Advisors.

UPDATE – 29/05/23

On 29 May, Revenue NSW released an update on the foreign owner surcharge, following their announcement on 21 February. Revenue NSW identified four furthe countries as additional nations that have international tax treaties with the Federal Government: India, Japan, Norway, and Switzerland.

Citizens from these countries will no longer be required to pay surcharged purchaser duty or surcharge land tax. The refund period has been extended for purchasers/transferees and landowners from these countries who paid surcharge duty or surcharge land tax on or after 1 January 2021 (previously 1 July 2021).

SW previously noted that other states may follow the NSW lead. At this time, the Victorian State Revenue Office has advised that it will continue to apply the surcharge to all foreign purchasers and absentee owners, and Queensland has taken no action.

ORIGINAL – 24/02/23

Revenue NSW has identified that the surcharge purchaser duty and foreign owner surcharge land tax provisions are inconsistent with international tax treaties entered into by the Federal Government with New Zealand, Finland, Germany and South Africa.

Effective immediately, citizens of these countries purchasing residential-related property (in their own capacity) will no longer be required to pay NSW foreign owner surcharge duty or foreign owner land tax surcharges on those properties. Foreign owner surcharges are significant – currently the stamp duty surcharge is 8% of dutiable value and the land tax surcharge is 4% from the 2023 land tax year onwards.

Surcharge tax liabilities for non-individuals, such as corporations, trusts or partnerships that arise because of an entity’s affiliation with these nations may also be affected by the international tax treaties.

Refunds may be available where surcharge taxes have been paid by investors from these countries from 1 July 2021 onwards. 

Surcharge taxes and International Tax treaties

Certain international tax treaties entered into between Australia and other relevant countries contain a non-discrimination provision. Broadly, the intent of these provisions is to ensure that a resident of the other treaty country is not subjected in Australia to any tax which is more burdensome than that imposed on an Australian resident. This is typically limited to federal taxes, such as income tax and fringe benefits tax.

However, the treaties entered into between Australia and the now exempted countries (New Zealand, Finland, Germany and South Africa) provide a more encompassing non-discrimination provision which broadly applies to taxes of every kind imposed by Australia – which would include state taxes such as land tax and duty.

In this regard, Revenue NSW have conceded that the current NSW surcharge provisions are contradictory to the tax treaty applying to these countries.

Implications for other nations

It is not yet known how the recent changes will impact on residents from other countries. There may be other international treaties with non-discrimination provisions which may also need to now be considered in light of these changes.

Application for refunds

Revenue NSW have stated that they will proactively identify customers and transactions that may be eligible for the removal of surcharge purchaser duty and surcharge land tax. Where a transaction has been identified for the removal of surcharge taxes, a Revenue NSW representative will contact the relevant person to make arrangements for the payments to be refunded.

To ensure you are eligible for the refund, Revenue NSW will require a certified copy of your current passport or citizenship certificate. Once this information has been received, refunds will be processed within 28 days. 

If Revenue NSW does not contact you and you believe that you may be eligible for a refund, you can contact Revenue NSW directly in relation to the matter. If you require assistance with the application for a refund, please reach out to us at SW.  

Action from other states

The Victorian State Revenue Office has stated that it has taken note of the changes in NSW and is currently considering the implications of this in relation to surcharge taxes in Victoria.

At the time of writing no other revenue office has commented on this matter, however, the relevant DTAs would potentially apply to surcharges imposed by all Australia States, and further announcements may follow.  

How SW can help 

In some cases, property owned by a Trust or company may be considered for the refund where the foreign citizen of these countries has a substantial interest in the entity.

If you need any assistance determining whether you are eligible for a refund or how the surcharge taxes will apply to you going forward, please reach out to us.

Contributors

Robert Parker

Carmelin De Francesco

The post NSW removes foreign owner property taxes for certain countries appeared first on SW Accountants & Advisors.

The Exposure Draft, released on 16 March 2023, is in line with the Government’s commitment to address tax avoidance practices of multinational enterprises and streamline with (OECD) best practice guidelines. To learn more about the previous announcements, see our article about the Proposed changes to Australia’s thin capitalisation rules. 

From 1 July 2023, the new proposed thin cap provisions will replace the existing rules and limit the amount of interest deductions for certain entities. With 3 months before its intended commencement, the Government has finally released a draft of the new rules. The Exposure Draft legislation is open for consultation until 13 April 2023 with submissions to the Australian Treasury.  

Who do the new thin cap rules apply to? 

The new regime applies to: 

• foreign controlled taxpayers and taxpayers with foreign operations. These remain broadly unchanged from the existing rules 
• only applies to general investors and, in part, to financial entities 
• certain exemptions will continue to apply – including the $2 million (debt deduction) de minimis exemption. 

What are the new tests? 

The new regime’s safe harbour will be broadly based on the taxpayer’s current year taxable income – instead of the current safe harbour which is based on a taxpayer’s balance sheet. 

The new safe harbour will be known as the Fixed Ratio Test (FRT). The FRT will limit interest deductions to 30% of a taxpayers Tax EBITDA. The Tax EBITDA will broadly be calculated as a taxpayer’s taxable income adjusted for interest deductions, losses and tax depreciation. Any non-deductible interest can be carried forward for 15 years. 

Two other tests will be available: 

• The Group Ratio Test (broadly replacing the worldwide gearing test) 
• The External Third Party Debt Test (broadly replacing the arms length debt test). 

The Group Ratio Test will apply to disallow interest deductions by applying a group ratio to the taxpayer’s tax EBITDA – instead of the 30% FRT. The group ratio is calculated by applying a complex formula broadly equal to the third party interest expense of the global group divided by the Group EBITDA. 

As the name suggests, the External Third Party debt test will only apply to debt issued to external parties – meaning taxpayers may no longer be able to deduct interest issued to related parties even where third parties would have loaned funds on the same terms.    

Other changes 

The Government also proposes to repeal current provisions that allow interest and debt deductions referrable to foreign investments. Under the exposure draft, interest would not be deductible where it was referable to the derivation of non-assessable non-exempt dividend income.  

What are the details of the rules? 

A more detailed analysis of the exposure draft proposals is contained in our Technical Briefing in the Download below.  We encourage you to talk to the SW team to understand these changes further. 

Application Date 

The new legislation is set to apply to income years commencing on or after 1 July 2023. Disappointingly, there is still uncertainty on the application date for entities that are early balancers (for example, the entity has a 31 December year-end). 

How should taxpayers prepare? 

We recommend that taxpayers start planning for the draft legislation to be implemented on 1 July 2023. Whilst we expect there to be minor technical amendments, the draft legislation is predominantly based on the OECD guidance. 

Therefore, restructuring debt arrangements may be necessary, and transaction documentation needs revisiting prior to 30 June 2023.  

Taxpayers should consider whether restructuring debt arrangements are necessary and the impact of doing so. 

How can SW help? 

Our experts can assist with: 

• modelling the potential impact of the new rules on your debt deductions 
• assessing the feasibility of restructuring the financing structure of the group 
• considering whether one of the alternative tests would be applicable and beneficial to your circumstances. 

Reach out to your SW advisor for support from our specialist tax team. Please also download the document below for a deeper dive into the technical details.

Contributors

Ned Galloway

The post New thin capitalisation regime details released appeared first on SW Accountants & Advisors.

财政部遵循政府对解决跨国企业避税行为的承诺，在其发布的咨询文件中提出了这些修改内容。资本弱化测试将更改为收益剥离法。根据拟议方法，净利息抵税的最高金额将根据既定的利润计算方法而定（见下文）。这对纳税人的影响，视乎其盈利状况而有所不同；而纳税人按照当前的安全港资产负债率水平衡量是否负债过度，则不在考虑之列。

哪些人受影响？

受影响的群体将包括：

• 受海外控制的澳大利亚实体与分支实体
• 拥有海外子实体和分支实体的澳大利亚实体
• 上述实体的某些关联企业。

资本弱化规则的背景

资本弱化规则设法限制受影响实体的利息抵税。历史上，这些规则旨在防范籍支付利息给关联方或支付关联方担保贷款利息而将利润转移到境外。然而，后来这些规则被扩大适用于对所有贷款人的利息支付，包括第三方融资机构，无论是否由母实体或另一个集团实体提供担保。 

目前的资本弱化条款规定了安全港债务金额。泛言之，这是根据实体的资产负债率水平计算出的最高债务额。一旦超过该金额，实体的利息支出将按比例被拒予抵税¹。值得注意的是，债资六比四的安全港债务金额是跨国集团使用最广泛的做法。

拟议规则将在什么时候适用？

这些规则最早可能从2023年7月1日起适用。然而，该咨询文件不是法律，也没有明确预定生效日期。

讨论拟议变更

政府最近发布了一份关于拟议跨国税务诚信方案的咨询文件。建议措施包括修订澳大利亚现有的资本弱化规则，以限制受影响实体的利息抵税，这是为了符合经合组织的建议做法。

经合组织建议的做法将净利息抵税额限制在税息折旧及摊销前利润（EBITDA）的30%。使用会计上的EBITDA可能存在问题，因为该指标没有考虑到重估和减值等项目。

政府已经强调要使用税务EBITDA。这意味着纳税人首先要计算/模拟其应税收入，以确定安全港债务金额。请注意，使用税务EBITDA可能意味着不评税非豁免海外收入，例如海外非投资组合股息、海外分支机构利润和参与豁免资本利得可能必须排除在外。根据“税务EBITDA”的定义，可能需要进行调整。

无论如何，希望$200万的豁免额将继续适用或增加。举范例而言，德国、法国、希腊和其他部分欧盟国家的资本弱化豁免利息水平是€300万。

政府还表示会保留独立交易债务措施。这是积极一面，因为特定行业（如房地产基金）可能会受到相关变化的负面影响。

审视国际上具可比性的司法管辖区的资本弱化规则

文件中强调，可以借鉴具可比性的国际司法管辖区（如英国、加拿大、法国、德国和美国）采取的做法。在英国，净利息支出抵税限于以下两项之较大者：

• 英国应税税息折旧及摊销前利润（EBITDA）的30%（固定比率规则）
• 按比例分摊全球集团的净利息支出，等于英国应税EBITDA乘以全球净利息支出与全球EBITDA的比率（集团比率规则）。

与德国类似，该咨询文件也考虑了集团比率规则。这将让高杠杆集团更具灵活性，按文件中的定义这些集团为第三方净利息/EBITDA比率超过30%基准固定比率的集团。

此外，在德国，任何未使用的潜在EBITDA均可结转一定年限，以支付未来的超额利息成本。

同时，在加拿大，这些变化是分阶段进行的，即从40%的比例开始，然后降低至30%。在某一年被拒予抵税的任何净利息支出，可以亏损补报和结转一定年限。纳入亏损补报和结转规则将让纳税人得到更公平的结果，并可容纳经济状况和其他干扰因素引起的利润波动。

在法国，纳税人将需要评估是否存在资本弱化（即关联方债资比超过1:5）。若如此，那么根据债务来自关联方还是外部方，将采用不同的比率。

示例

示例1

在20XX年，澳大利亚公司的EBITDA为$1亿。假设澳大利亚公司没有利息、折旧或摊销。  EBITDA包含$5,000万不可抵税的减值亏损。因此，税务EBITDA为$1.5亿。  若采用30%的固定比率，基于EBITDA和税务EBITDA的净利息支出容许上限（即所有借款和利息支出减去利息收入）分别为$3,000万（30% x $1亿）和$4,500万（30% x $1.5亿）。

示例2

在20XX年，澳大利亚公司的税前利润（PBT）为$1亿。EBITDA计算结果包含：

• $5,000万的会计折旧
• 利息支出$2,000万
• 税收折旧$8,000万。

根据税务EBITA的最终定义，我们计算EBITDA和税务EBITDA项下的净利息容许上限，具体如下：

纳税人应如何准备？

虽然法规尚未发布，但我们建议纳税人模拟使用收益剥离法对其利息抵税的影响。

信永中和澳大利亚使用40名纳税人的税务EBITDA来模拟收益剥离法。虽然我们不得不在法规未出台的情况下做出某些假设，但结果表明，25%的建模实体将受到相关变化的负面影响。结果显示对其中一名纳税人受到正面的影响。

持有投资型资产（如股票或房产）的纳税人受到的影响尤其大，因为这些资产的年度回报率/收益率低（但在未来最终处置时可能产生资本利得）。因此，像加拿大那种结转规则将有助于避免澳大利亚的基金管理发展受阻。受影响的还有尚未创收的实体，例如正在研究或将新产品/创新商业化的企业或处于勘探阶段的采矿企业。

请注意，咨询过程会邀请企业参与，以确保立法公平性（即对超额利息抵税主张结转和亏损补报规则以及主张类似于英国的全球集团比率）。此处让您了解如何回应。

信永中和澳大利亚能如何帮助您？

本事务所能协助以下事项：

• 在对利息抵税使用收益剥离法的情况下，就相关影响建立模型。
• 评估集团融资架构重组的可行性
• 考量能否换一种测试方法（即独立交易债务测试）。

请联系信永中和澳大利亚的顾问，获得专业的税务协助。

¹ 债务超过安全港债务金额的实体也可以考虑其他债务措施，即独立交易债务金额和全球资产负债率债务金额。 

The post 澳大利亚资本弱化规则的拟议变更 appeared first on SW Accountants & Advisors.

The Australian Treasury has released Exposure Draft legislation aimed at strengthening Australia’s thin capitalisation (thin cap) rules on 16 March 2023. Click here to read the article about this latest update.

These amendments are part of a consultation paper released by the Treasury in line with the Government’s commitment to address tax avoidance practices of multinational enterprises. The thin capitalisation test will be changed to an earnings stripping approach. Under the proposed approach, net interest deductions will be limited based on a defined measure of profit (see below). This will impact taxpayers differently based on their profit profile, regardless of whether or not they are currently excessively geared based on the current safe harbour gearing level.

Who is impacted?

Affected groups will include:

• foreign controlled Australian entities and branches
• Australian entities with foreign subsidiary entities and branches
• certain associates of the above.

Background of thin capitalisation rules

The thin capitalisation rules seek to restrict interest deductions of affected entities. Historically, the rules were intended to prevent the shifting of profits offshore via interest payments to related parties or on loans guaranteed by related parties. However, the rules have since been expanded to apply to interest payments to all lenders including third party financiers whether or not guaranteed by the parent entity or another group entity. 

The current thin capitalisation provisions provide for a safe harbour debt amount. This is broadly the maximum debt amount calculated based on the entity’s gearing level. Once exceeded, an entity interest expense is proportionately denied¹. It is noteworthy that the 60/40 debt to equity safe harbour debt amount is the measure most widely used by multinational groups.

When will the proposed rules apply?

The rules may apply from as early as 1 July 2023. However, the consultation paper is not law and does not specify an intended commencement date.

Discussion on proposed change

The Government recently released a consultation paper regarding the proposed multinational tax integrity package. One of the proposed measures is the amendment of Australia’s existing thin capitalisation rules to limit interest deductions of affected entities in line with OECD’s recommended approach.

The OECD’s recommended approach limits net interest deductions to 30% of Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA). The use of accounting EBITDA can be problematic as the measure does not account for items such as such as revaluations and impairments.

The Government has flagged the use of tax EBITDA. This means that the taxpayer will firstly need to calculate/model its taxable income to determine the safe harbour debt amount. Note that the use of tax EBITDA may mean that non-assessable non-exempt foreign income e.g. foreign non-portfolio dividends, foreign branch profits and participation exemption capital gains may have to be excluded. Adjustments could be required depending on the definition of “tax EBITDA”.

Regardless, it is hoped that the $2m de minimis exemption continues to apply or increased. As examples and broadly speaking, the “de minimis” interest level in Germany, France, Greece and some other EU countries is €3 million.

The Government has also indicated that the arm’s length debt measure will be retained. This is positive as particular industries (e.g. property funds) may be negatively impacted by the change.

Looking at thin capitalisation rules in comparable international jurisdictions

In the paper it was highlighted that approaches adopted by comparable international jurisdictions (for instance, the UK, Canada, France, Germany and the US) may be drawn upon. The deduction for net interest expense in the UK is restricted to the greater of:

• 30% of taxable earnings before interest, taxes, depreciation and amortization (EBITDA) in the UK (the Fixed Ratio Rule)
• a proportionate share of the worldwide group’s net interest expense, equal to UK taxable EBITDA multiplied by the ratio of worldwide net interest expense to worldwide EBITDA (the Group Ratio Rule).

Similar to Germany, the consultation paper also considers the Group ratio rule. This will provide greater flexibility of highly leveraged groups, which is defined in the Paper as those with a net third party interest/ EBITDA ratio above the 30% benchmark fixed ratio.

Additionally in Germany, any unused EBITDA potential may be carried forward for a certain number of years to cover future excess interest cost.

Meanwhile in Canada, the changes are phased in i.e. starting with a 40% ratio before reducing to 30%. Any net interest expense for a particular year that is denied in that year, could be carried backwards and forwards for a certain number of years. The incorporation of carry forward and carry back rules will provide a fairer outcome for taxpayers and allows for profit fluctuations arising from economic conditions and other disruptions.

In France, taxpayers will need to assess whether they are thinly capitalised (where related party debt-to-equity ratio exceeds 1:5). If so, then different ratios are applied depending on whether the debt is from a related or external party.

Examples

Example 1

In year 20XX, Ausco has EBITDA of $100m. Assume that AusCo has no interest, depreciation or amortisation.  Included in EBITDA is a non-deductible impairment loss of $50m. Therefore tax EBITDA is $150m.  Applying a fixed ratio of 30%, the maximum net interest expense (i.e. all borrowing & interest expenses minus interest income) allowed based on EBITDA and Tax EBITDA are $30m (30% x $100m) and 45 (30% x $150m) respectively.

Example 2

In year 20XX, AusCo derived a profit before tax (PBT) of $100m. Included in the EBITDA calculation are:

• accounting depreciation of $50m
• interest expense of 20m
• tax depreciation is $80m.

Subject to how tax EBITA is eventually defined, we calculate the maximum allowable net interest under EBITDA and tax EBITDA as follows:

How should taxpayers prepare?

Whilst legislation is yet to be released, taxpayers are advised to model the impact of the use of the earning stripping approach on their interest deductions.

SW modelled the earnings stripping approach using the Tax EBITDA of 40 taxpayers. While we had to make certain assumptions in the absence of legislation, the results show that 25% of the entities modelled will be negatively impacted by the change. The results show a positive impact for 1 of the taxpayers modelled.

Taxpayers holding investment type assets (e.g. equity or property) which generate a low annual return/yield on the investments (but may derive future capital gains on their eventual disposal) are particularly impacted. A carry forward rule such as that in Canada would therefore be helpful so as to not discourage the growth of funds management in Australia. Also impacted are entities which are not yet generating income for example companies in the process or research or commercialising a new product/innovation or mining companies in the exploration stage.

Note that businesses are invited to be a part of the consultation process to ensure that the legislation is fair (i.e. advocating for: carry forward and carry back rules for excess interest deductions and for a world-wide group ratio similar to the UK). Information about how to respond can be found here.

How can SW help?

Our SW team can assist with:

• Modelling the impact of the use of the earing stripping approach on your interest deductions
• assessing the feasibility of restructuring the financing structure of the group
• consider whether one of the alternative tests would be applicable (i.e. arm’s length debt test).

Reach out to your SW advisor for support from our specialist tax team.

¹ Entities with debts exceeding the safe harbour debt amount can also consider alternative debt measures being the arm’s-length debt amount and the worldwide gearing debt amount. 

The post Proposed changes to Australia’s thin capitalisation rules appeared first on SW Accountants & Advisors.

Tax Guidance Note GN 47 requires FIRB to consider the impact the investment proposal would have on Australian tax revenues and the integrity of the Australian tax system.

The ATO is now consulted on all foreign investment proposals and the ATO provides a risk rating to the Treasurer along with qualitative advice on the risk to tax revenues. The Treasurer takes into account the risk rating in determining whether to approve an investment. The risk rating scale is:

• Low: the ATO has not identified significant tax issues
• Medium: there may be a risk to tax revenue or the integrity of the tax system
• High: there is a clear risk to tax revenue or to the integrity of the tax system.

The ATO will take into account the tax compliance history of the applicant and its related parties in determining its rating. The ATO can also recommend to the Treasurer that tax conditions are applied to any FIRB approval to protect the Australian national interest. These conditions can take the form of ‘standard’ conditions or where a particular tax risk is identified the ATO can recommend ‘additional’ conditions are imposed on the applicant.

The effect of the standard conditions is generally to require compliance with Australia’s tax laws, co-operation with the ATO by producing information in a timely and complete manner, payment of outstanding tax debt and reporting on compliance with the conditions.

The additional conditions will generally be imposed were a particular tax risk is identified. The additional conditions can be onerous for an applicant. Examples of additional conditions include:

• Providing regular periodic reporting on specific information to the ATO including forecasts of tax payable
• Providing information on the acquisition structure
• To enter into good faith negotiations with the ATO for an advanced pricing arrangement
• To request a private binding ruling
• To take action to resolve outstanding tax issues.

Guidance Note 47 was updated on 21 September 2020 to:

• Provide clarity regarding the ability, and the process for investors to discuss imposed conditions with the ATO/Treasury; and
• Extend the ‘additional’ tax conditions that can be applied to an applicant.

The imposition of additional conditions on an applicant can significantly delay and complicate FIRB approval and can impede operations post FIRB approval. GN 47 now clarifies that where FIRB is seeking to impose additional conditions, the applicant will:

• Have the opportunity to put forward questions relating to the effect and operation of the tax condition
• Be entitled to submit comments to the particular decision maker
• Have the ability and opportunity to discuss complex or novel tax conditions, technical issues and errors with proposed conditions with the ATO or jointly with the ATO and Treasury.

GN 47 also expands the types of additional conditions that FIRB may impose on a potential foreign investor. Where a particular tax risk has been identified by the ATO, the applicant may now be asked to provide, amongst other things:

• Any aspects of the proposed investment / transaction that may be covered by an ATO Taxpayer Alert. Taxpayer Alerts generally cover what the ATO believe are new or emerging higher risk arrangements
• Confirmation of entities (if any) that would be members of a ‘Tax consolidated group’ in the applicant’s post-acquisition structure
• Confirmation of any intangible assets that are to be transferred to offshore entities following their acquisition under the proposed transaction.

Where requested, the applicant must provide the above to Treasury within 90 days of the transactions completion.

Who does it impact?

These changes, and the process itself, will impact on foreign purchasers requiring FIRB approval. The changes may also impact Australian vendors seeking foreign purchasers.

Important dates

The GN47 update is effective from 21 September 2020.

How our team can help

The ATO has a significant voice in determining whether particular foreign investments are contrary to the Australian national interest. FIRB applicants are being increasingly asked for more and more information on their proposed investment structures and intentions after a successful acquisition.

It is important that investors understand what investment structures will attract a higher risk rating from the ATO, and what structures may lead to a higher degree of scrutiny by the ATO. These structures will both increase the risk rating (and thus decrease the chance of FIRB approval) and will likely delay FIRB approval times.

It is equally important that investors consider how they will structure their Australian investments before seeking FIRB approval. The acquisition structure will be provided by FIRB to the ATO. The ATO may impose conditions that may complicate a post FIRB restructuring. In some circumstances an investor may be ‘stuck’ with a structure that has been approved by FIRB notwithstanding that it is not the most tax efficient structure.

Investors should have a tax investment strategy developed prior to the FIRB application and Investors should ensure that information provided to FIRB and the ATO will not prejudice future plans and proposals.
Get in touch with our experts for further assistance and advice.

Contact us

The post Foreign Investment Review Board updates to Guidance Note 47 on tax structures appeared first on SW Accountants & Advisors.

David Chu, Head of International Business, recently joined Thomas Sung (host) on the SBS Radio Cantonese Program to discuss the Foreign Investment Review Board’s plans to tighten approvals for foreign investment into Australia. Listen to the podcast episode in Cantonese or read the transcript of his interview in English below.

English transcript:

Host: David, the Foreign Investment Review Board (FIRB) recently said that it will make some important changes in 2021, which may cause pains to many companies that want to invest in Australia. What are the changes? How are they different from the past?

David: Actually, in the past, foreign businesses who wanted to invest in Australia did not need approval if their investment did not exceed a certain amount. For example, for certain commercial investments, or even for commercial real estate, if the consideration did not exceed $230 million, no approval was required. Approval was indeed required for transactions of more than $230 million. If farmland was purchased, no approval was required if the purchase did not exceed $50 million; however, if it did go beyond $50 million, approval was required. The regulations on what needs to be approved have been changed from time to time, but there is always a threshold for approval.

On 29 March, the Treasurer announced that no matter the amount of investment, even if it is $1, approval would be required. He said that due to the pandemic, many businesses or real estate sectors had had a price fall, leading to concerns that Australian properties or businesses will be acquired by foreign investors for an unreasonably low price. The Treasurer also indicated that this was not targeted against any country. That makes sense. Of course, you may have observed that there have been more buyers from China in the past ten years, but the United States and other countries have equally invested heavily in Australia. In March, the media reported that there was $10 billion of funds ready from the United States to buy cheap assets in Australia. It therefore makes sense that this proposed requirement might not necessarily target against China. When it comes to stock of foreign investment, the United States accounts for 20%, Japan and Canada 10% each, and China only 5%.

Host: Five percent, right?

David: Yes, that is why the Treasurer said that the policy change is not targeted against China. If even investments of $1 needs to be approved, there will certainly be a long waiting list. Therefore, the Treasurer  also said that the approval might take 6 months. From the perspective of foreign investors, many may not be prepared to wait for six months.

Host: Things change rapidly.

David: Yes, if the price rises in six months, sellers will be reluctant to sell, and if the price falls then buyers will be reluctant to buy. Many changes can occur while an investor is waiting, so foreign investment may be affected. On 5 June the Treasurer issued a new notice. Starting from January 2021, there will be a new regime of approval rules and regulations. The biggest change is that they will consider national security factors in the approval process. In the past, it was only national interests, but now national security is considered. That means, if certain projects involve national security, the Treasurer has the right not to approve them.

However, some projects might not have national security concerns when they were approved. For example, some high-tech and innovative projects may involve one to two million dollars or 20 to 30 million dollars when they make initial investment. Their initial plan was just to serve the general public with day-to-day technology. However, technology is technology. If one day, the same invention can be used in national defence, communications or media, then the Treasurer  has the right to review the investment, and consider whether additional information is needed. If the Treasurer finds it to be posing a threat to national security, they may even have the right to ask the investor to divest.

Host: This is harsh. For a foreign investor that has just arrived in Australia, they may have no clue whether their project will be used for defence purposes in the future. This will bring about more uncertainty, right?

David: Yes. Therefore, in this regard, experts, including accountants and investment banks, now hope that the Treasurer will give a clear definition of “national security” when the exposure draft is released. The Treasurer also said that the draft legislation will be published in July, and then there will be a six-week consultation period. If people in the industry and the general public have any comments on the proposed changes, they must submit their opinion to the Treasurer within six weeks. After the legislation is passed, it will be effective as of 1 January 2021. Therefore, many foreign investors who invest in real estate or businesses or other assets in Australia are advised to pay special attention to this upcoming legislation.

Host: Will this new legislation affect the business of some partners? For example, if I am a foreign investor, and I need to collaborate with an Australian company to operate a business, but only hold 20% stakes, will I be affected?

David: Yes. Some people in the investment community also expressed their view that this particular change will not have a large impact on foreign investment. Some investors hold a very small percentage in the business with no influence at all on the management of the business. There are even sovereign funds from other countries. They are willing to invest passively in some projects, and would like to see some relaxation to make things less complicated. However, we need to wait for the details, that is, to wait for the exposure draft to be released. Please stay tuned.

Host: So to speak… I heard that FIRB’s new regulations will affect some foreign investors who come to invest in properties in Australia, right?

David: One of the many proposed changes is quite special. You may have also noticed that if Australians or Australian residents buy residential property, there was no need for approval. For foreigners, such as international students or temporary visa holders who come to buy residential properties in Australia,  approval is required for existing properties. Usually FIRB will approve it, but with a condition that it shall be sold once the visa expires or once the international student has left Australia. This time there is a very special change – even if you are an Australian resident, but you buy the property with funds borrowed from a non-resident parent or a non-resident spouse, it may not be approved. So pay attention to this.

Usually the young Asian people or people who have just finished school and started to work, may not be able to afford a home, and they buy with money from their parents. Of course, parents may gift this money to their children or by granting loans. This change will affect the loan case. The Treasurer explained that he does not like seeing situations where only one person in the family is an Australian resident, and this person borrows money from his/her non-resident parent or spouse to buy more than a dozen houses, which leads to land banking. This is the reason given by the Treasurer. If viewed from another angle, if this person is not borrowing money from his spouse, will the purchase  be approved? If he/she borrows from a foreign bank, will that be approved? This is a bit of room for discussion. As for how the proposed changes would look, we need to wait for the details to understand further.

Host: Great, David. We may need to call it a day. It is now July. This draft is believed to be under heated discussed by all walks of life. In time we should have you here again to analyse the situation. Big thanks to David, Head of International Business of ShineWing Australia, for sharing with us the new developments of the FIRB regulations. Thank you!

David: Thank you Thomas! Thanks everybody.

Get in touch

David is attuned to the Asian listed company market, international taxation issues, corporate regulations and various stock exchange requirements and is highly regarded in the market place. Reach out below to discuss how we can support your business during this challenging time.

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