MAJOR DEVELOPMENTSThe federal government has moved to counter tax planning involving international transactions:
q The art IVA?general anti-avoidance provisions have been extended and now apply to schemes designed to minimize interest, dividend, and royalty withholding tax. New anti-avoidance rules specific to withholding tax have also been enacted.
q The Australian Taxation Office has announced that it will apply royalty withholding tax to rental payments made to nonresidents under certain arrangements involving cross-border leasing (typically hire purchase or similar arrangements involving the use of tax havens and circular?financial arrangements).
q Effective July 1, 1997, new rules deny dual-resident?companies various tax benefits (e.g., the ability to transfer losses with a group company) available to resident companies.
q New rules apply to restrict tax arbitrage opportunities involving imputation credits (see item 28).Other major developments include:
q The announcement of a major review of Australia tax system, with proposals likely to be put to voters at the next federal election due early 1999;
q A government review of the taxation of trusts, in particular the appropriateness of the existing tax regime and possible alternative models for the taxation of trusts;
q A major rewrite of the income tax law, mainly aimed at making the existing law easier to understand but including a number of minor policy changes. The new law is being gradually introduced effective 1997?998.
INCOME TAXES ON CORPORATIONS
1. Rates
The rate of tax applicable to the taxable income of corporations for 1997?998 is 36%.
The taxable income of a resident corporation includes
foreign-source income (however, see item 5) and net capital gains (see item 3).
2. Local Income Taxes
None.
3. Capital Gains Taxes
A general capital gains system applies to assets acquired on or after September 20, 1985. Under the system, capital gains and losses are recognized when assets are disposed or deemed to be disposed (whether by sale, gift, grant of an interest, etc.). Corporations ceasing to be esidents of Australia are deemed to dispose of certain assets at that time. (Individuals may defer the time of disposal by making an election.) Capital gains are calculated after allowing for inflation (i.e., the cost base of the asset is increased by reference to increases in the consumer rice index), but capital losses are calculated without any such indexing.
Any net capital gain for the year (theaggregate of capital gains less allowable capital losses) is included in the taxpayer income for income tax purposes and, in the case of corporations, is taxed at regular rates. ny net capital loss for the year is carried forward to offset future capital gains or may be transferred by a resident corporation to another
resident corporation within the same wholly owned corporate group (but subject to certain restrictions).
Assets acquired pre-September 20, 1985, that are held in companies or unit trusts may be exposed to capital gains tax if changes have occurred in the composition of shareholders or unitholders. Special rules apply to public companies (see item 6) to calculate such changes.
Similarly, the disposal of pre-September 20, 1985, shares or units in such ntities may be taxed if a substantial proportion of the entity underlying worth is, at the time of disposal, reflected in assets acquired on or after September 20, 1985.
4. Branch Profits Taxes
A nonresident corporation taxable income is subject to the same rate of income tax as a resident corporation. However, see items 15, 17, 18, 19, and 28.
5. Foreign Tax Reliefs
Except for certain salary and wage income and certain dividend and branch income (see below), foreign-source income derived by resident corporations and individuals is included in taxable income and is liable to Australian income tax.
Generally, foreign-source income is aggregated on a worldwide basis into four separate classes, namely: certain foreign interest income, passive income (dividends, rent), offshore banking income, and other foreign-source income. Where expenses and other deductions relating to a class of foreign-source income from activities carried on by the taxpayer
exceed the amount of income, the excess (i.e., the loss) cannot offset foreign-source income of another class but is guarantined.?
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