Australian Treasury released a consultation paper detailing proposed changes to the current foreign resident CGT regime which were raised in the last Federal Budget. Central to the proposed changes is:

• expanding the types of assets on which foreign residents are subject to CGT
• amending the principal asset test
• requiring foreign residents to notify the Australian Taxation Office (ATO) of certain disposals of shares and other membership interests

The changes will take effect from 1 July 2025. Owners of Australian renewable assets or land rich entities need to take immediate action to understand the impact of the changes to determine their exit cash flows.

The Current Regime

Currently, foreign residents can disregard capital gains or losses from a CGT asset unless the asset is “taxable Australian property” (TAP). Assets which are TAP include:

• taxable Australian real property (TARP)
• indirect Australian real property interests (IARPI) (e.g. shares or units in entities where the majority of the entity’s market value is from TARP)

A foreign resident will be taken to hold an IARPI where they hold a membership interest in an entity which passes both the:

• non-portfolio interest test (10% interest in the entity)
• principal asset test (PAT) where the market value of the entity’s property that is TARP exceeds the market value of its property that is not TARP

Purchasers of TAP from foreign resident vendors currently must withhold and remit 12.5% of the transaction proceeds to the ATO. Purchasers do not need to withhold this amount where the foreign resident has provided a declaration that the membership interests being disposed is not an IARPI.

The proposed changes in this alert are in addition to the Bill before Parliament to:

• increase the rate of foreign resident capital gains withholding from 12.5% to 15%
• remove the threshold of foreign resident capital gains withholding from 750,000 to nil

Proposed Changes

The consultation identifies 3 main proposed changes which would apply to CGT events occurring on or after 1 July 2025. The key changes are:

• clarification, and a broadening of the type of assets on which foreign residents are subject to CGT
• an amendment to the PAT to a 365-day testing period
• the additional requirement that foreign residents notify the ATO before disposing of shares and other membership interests exceeding $20 million

Broadening the types of assets

The change expands the CGT base for foreign residents to capture assets which have a “close economic connection to Australian land and/or natural resources”.

The proposed amendments would expand the following assets as TAP assets:

• leases or licences to use land in Australia
• water entitlements in relation to Australian land
• infrastructure or machinery installed on Australian land (e.g. solar panels, wind farms, batteries, rail networks or heavy machinery installed for use in mining operations etc.)

The proposed changes will significantly expand the CGT net for assets held by foreign residents and in particular tax non residents on renewable energy projects. Non residents are currently not subject to tax on these assets.

Amendment of the Principal Asset Test

The changes would extend the PAT to ensure that the market value of an entity’s property that is TARP does not exceed the market value of its property which is not TARP during the 365 days before the CGT event.

This amendment may prevent foreign residents from avoiding CGT by planning the sale of their membership interests once the underlying entity no longer meets the TAP. By extending the PAT to the preceding 365-days, the ability of taxpayers to manipulate the asset composition of the entity (e.g. through a corporate restructure immediately prior to the sale of membership interests) will diminish.

Some opportunities may arise from the expanded PAT such as non residents using capital losses previously foregone.

Foreign resident vendor ATO notification requirement

All foreign resident vendors must notify the ATO of a sale of shares exceeding $20m under the proposals – even where the shares are not an interest in Australian real property.

The ATO would need to be notified by the vendor prior to a set review period before the sooner of the relevant CGT event or settlement.

This change aims to prevent foreign residents from incorrectly declaring that their membership interest sale is not subject to CGT by giving the ATO visibility over such transactions. This is a compliance measure and would carry administrative penalties for false or misleading declarations.

Where the ATO disagrees with vendor’s declaration, the ATO can make a recommendation to the vendor and the purchaser to withdraw the declaration, such that withholding would apply to the transaction.

How SW can help

The proposals will take effect from 1 July 2025. Owners of Australian renewable assets need to take immediate action to understand the impact of the changes, determine the impact on their returns and reevaluate the timing of any exit strategy. 

SW will continue to monitor the developments. Reach out to your SW contact to discuss how the proposed changes may affect your investment of transaction.

Contributors

Ned Galloway

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Invest Today, Lead Tomorrow

Date: Tuesday 31 October – Thursday 2 November 

Location: International Convention Centre (ICC) Sydney, 14 Darling Dr, Sydney NSW 2000 

Time: 8.30am – 5pm daily  

SW is proud to be part of the conversation at IMARC for the sixth time, taking the lead on sustainable and equitable futures by sponsoring the Investment Theatre.

Join us as we hear from industry experts on all things Mining and Investments, including company updates and announcements from over 100 Junior Mining Corporates. 

Rick Hemphill, John Dorazio and Blayney Morgan will be introducing critical minerals and mining companies to the stage in the SW Investment Theatre. In addition, the team will facilitate several panel discussions and interviews as outlined below. 

Panel discussions

Investing experience in the Energy and Resource sector in Australia

4.10pm Tues 31 October | Mines & Money Investment Theatre sponsored by SW

Interviewer:

Bessie Zhang, Partner, Assurance & Advisory, SW Accountants & Advisors

Interviewees:

Louis Chien, Director, ASF Group

Capital raising and attracting investment for junior exploration

1.45pm Thurs 2 November | Mines & Money Investment Theatre sponsored by SW

Interviewer:

Blayney Morgan, Partner, Assurance & Advisory, SW Accountants & Advisors

Panellists:

John Forwood, Director, Lowell Resources Funds Management 

Lucy McClean, Director, New South Wales, Victoria & Tasmania, AMEC  

Campbell Olsen, Founder and Chief Executive Officer, Arete Capital Partners 

Sarah Dulhunty, Capital Markets and Corporate Adviser, MinterEllison. 

Connect with the SW Accountants & Advisors team on the IMARC Connect app or in person next week to see how we can #opendoors for your business.

The post International Mining and Resources Conference 2023 appeared first on SW Accountants & Advisors.

SW is proud to be part of the conversation at IMARC for the fifth time, taking the lead on sustainable and equitable futures by sponsoring the Investment Theatre.

With a global focus on the energy transition, key themes at the conference will look at how mining and resources are accelerating the energy transition, the different decarbonisation solutions and strategies available to market, the role of renewables and hydrogen, and the ever growing investment and support for critical and future facing minerals.

Rick Hemphill, John Dorazio and Blayney Morgan will be introducing critical minerals and mining companies to the stage in the Mines & Money Investment Theatre, and the team will facilitate several panels as detailed below.

Panel discussions

Global and Domestic Trends Impacting the Mining Investor and Finance Market

11.55am Wed 2 November | Mines & Money Investment Theatre

Interviewer: Bessie Zhang, Partner, Assurance & Advisory, SW Accountants & Advisors

Interviewees: Owen Hegarty, Executive Chairman, EMR Capital

Jacqueline Murray, Partner, Investment Team Leader, Resource Capital Funds

David Sun, Managing Director, Sinosteel Australia

Top ESG Considerations when Investing and Financing Mining Projects

2.55pm Wed 2 November | Mines & Money Investment Theatre

Interviewer: Matthew Schofield, Director, Head of Corporate Finance, SW Accountants & Advisors

Interviewees: Scot Sobey, Investment Director, Pacific Road Capital

Jamie Strauss, Chief Executive Officer, Digbee

Andrew Irvine, Legal and Corporate Engagement Director, EITI

Predicting Trends in Project Financing and Investing within Mining and Resources

12.05pm Fri 4 November | Mines & Money Investment Theatre

Interviewer: Blayney Morgan, Partner, Assurance & Advisory, SW Accountants & Advisors

Interviewees: Loic Mackosso, Founder and Managing Partner, ARIES Investissements

James Morrison, Managing Director, Regal Resources Royalties Fund

Christofer Catania, Chief Executive Officer, MEC Mining

Connect with the SW Accountants & Advisors team on the IMARC Connect app or in person next week to see how we can #opendoors for your business.

The post International Mining and Resources Conference 2022 appeared first on SW Accountants & Advisors.

As businesses adapt to changes in global commodities markets, technological transformation and the stablishment of alternative energy sources, companies are seeking out advisors with solid industry experience who can provide cutting-edge business advice and solutions to meet their ever-changing needs. 

International demand for coal, iron ore and natural gas, coupled with major renewables and hydrogen operators across the country ensures Australia is well placed to maintain its coveted global position. However investor pressure and international reporting requirements on ESG and sustainability has and will continue to expand, putting pressure on mining and energy companies to adjust infrastructure and reporting capabilities.

Working closely with clients and investors across a broad range of energy and resources sectors, the SW team is highly experienced and regarded across the sector, providing integrated accounting, audit, advisory and tax services for both domestic and international companies.

Our team has deep experience and connections across the industry, remaining at the forefront of changes and consistently work to provide you with value-add opportunities to improve efficiencies, financial visibility, attract project finance and much more. 

Industry Associations & Sponsorships

SW Energy & Resources services

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