Reform to the Foreign Source Income (FSI) attribution rules
Background:
The Australian Government announced a package of reforms to the FSI attribution rules in the 2009-10 Budget. These reforms were undertaken to give effect to the recommendations made by the Board of Taxation in their “Review of the Foreign Source Income Anti-Tax-Deferral Regimes”.
The reforms include the modernisation of the controlled foreign company (CFC) rules, the repeal of the foreign investment fund (FIF) rules and deemed present entitlement (DPE) rules, as well as the introduction of the proposed foreign accumulation fund (FAF) rule.
- Australia’s FSI attribution rules are designed to prevent resident taxpayers from accumulating income in offshore entities in order to defer or avoid Australian tax as well as to prevent profits from being artificially shifted offshore.
- The rules tax Australian residents on an accruals basis on their share of such income accumulating offshore.
- The CFC rules are currently being re-written in consultation with industry and the ATO.
- Amending law repealing the FIF and DPE rules received Royal Assent on 14 July 2010.
- In place of the FIF rules, the Government announced that it would introduce a specific anti‑roll‑up rule to target investments in foreign accumulation funds. This rule (the FAF rule) is currently being developed in consultation with industry and the ATO.
Development:
| 10/10/2006 | The former Treasurer announces the Government’s request that the Board of Taxation undertake a review of the FSI attribution rules |
| September 2008 | The Board completes its review and provides its report to the former Assistant Treasurer and Minister for Competition Policy and Consumer Affairs. In preparing its report, the Board engaged in extensive consultation with stakeholders. Further information in relation to the Board’s review may be accessed through the Board of Taxation website. |
| 12/05/2009 | The former Assistant Treasurer and Minister for Competition Policy announces the Government’s reform to Australia’s FSI income attribution rules in response to the Board of Taxation’s review. |
| 12/05/2009 | Treasury releases a discussion paper outlining the framework for the redesign of the FSI attribution rules.
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The modernisation of the CFC rules:
| 05/01/2010 | The former Assistant Treasurer announces the release of the consultation paper, “Reform of the Controlled Foreign Company Rules”. This paper sets out high-level design features of the proposed rules. 01/03/2010 – Submissions in relation to the consultation paper close. |
| 16/07/2010 | The former Assistant Treasurer announces the release of a second consultation paper, “Reform of the Controlled Foreign Company Rules”. This paper provides details of the legislative design of the proposed reforms. 31/08/2010 – Submissions in relation to the second consultation paper close. |
| 17/02/2011 | The Assistant Treasurer and Minister for Financial Services and Superannuation announces the release of exposure draft legislation in relation to the CFC rules for public consultation. 18/03/2011 – Submissions in relation to the exposure draft legislation close. |
Introduction of the proposed FAF rule:
| 28/04/2010 | The former Assistant Treasurer announces the release of exposure draft legislation and accompanying draft explanatory material in relation to the proposed anti-roll-up rule (the FAF rule). 26/05/2010 – Submissions in relation to the exposure draft legislation close. |
| 17/02/2011 | The Assistant Treasurer and Minister for Financial Services and Superannuation announces the release of exposure draft legislation in relation to the proposed FAF rule for public consultation. 18/03/2011 – Submissions in relation to the exposure draft legislation close. |
| 29/06/2011 | The Assistant Treasurer and Minister for Financial Services and Superannuation announces the proposed FAF rule will operate on a prospective basis only. |
Repeal of the FIF & DPE rules:
| 18/12/2009 | The former Assistant Treasurer announces the release of exposure draft legislation in relation to the repeal of the FIF and DPE rules for public consultation. 05/02/2010 – Submissions in relation to the exposure draft legislation close. |
| 13/05/2010 | Amending law (Tax Laws Amendment (Foreign Source Income Deferral) Bill (No. 1) 2010) repealing the FIF and DPE rules is introduced to Parliament. 14/07/2010 – The Bill receives Royal Assent. |
