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Australia

Key takeaways from the 2024 Australian Federal Budget for Business:

1 July 2025

The date from which a broader range of assets sold by foreign residents will be subject to CGT.

$20M 

Foreign residents disposing of shares and other membership interests exceeding this value will need to notify the ATO before the transaction is executed.

This Budget saw key business-related measures focussed on the international areas, ranging from changes to foreign resident CGT measures through to an expansion of the general anti-avoidance rule. While these are examined further below, the following two measures largely impact Australian businesses:

  • The marketing component of the agricultural levy and charge on sweet potatoes will reduce from 1 July 2024. This change will decrease the overall levy rate on sweet potatoes from 1.5 per cent to 0.5 per cent.
  • The Government have announced that they will provide income tax exemptions to World Rugby and related entities for income derived in relation to the 2027 Men’s and 2029 Women’s Rugby World Cup (RWC) events.  The exemptions will apply to income derived in relation to RWC events for the 2023–24 to 2030–31 income years (inclusive). The Government will also provide an exemption from interest, dividend and royalty withholding tax liabilities arising from payments relating to RWC events.

Foreign resident capital gains tax

A foreign resident for tax purposes, or temporary resident for tax purposes, can disregard any capital gains or losses when calculating their Australian tax position unless the gain or loss was made from a direct or indirect interest in Australian real property.

An ‘indirect Australian real property interest’ includes a significant interest (an interest of 10 per cent or more) in an entity whose underlying value is principally derived from Australian real property. This means, for example, that a foreign resident disposing of shares in an Australian company may be subject to CGT in Australia, where the Australian company holds Australian real property. Australian real property currently includes real property, the lease of land and Australian mining rights.

The Government has announced that amendments will apply to CGT events happening on or after 1 July 2025 to:

  • Clarify and broaden the types of assets that foreign residents are subject to CGT on.
  • Amend the point-in-time principal asset test to a 365-day testing period.
  • Require foreign residents disposing of shares and other membership interests exceeding $20 million in value to notify the ATO, prior to the transaction being executed

These amendments are proposed to align the Australian laws with OECD standards.

We expect that the laws may be clarified and broadened to include anything fixed to the land regardless of the common law position (consistent with the position taken in respect of landholder duties). The Government will be consulting on these proposed new measures.

Denial of deduction for intangible related payments to low tax jurisdictions 

In the 2023-24 Federal Budget, the Government announced its intention to introduce new rules that would limit the deductibility of payments made offshore in respect of intangibles, where these payments were subject to low (less than 15%) or no tax in the foreign jurisdiction of the recipient.

Subsequent to the announcement of these proposed rules, the Government has committed to implementation of the OECD’s global minimum tax rules (referred to as the Pillar Two rules), which are intended to ensure that large groups have an effective tax rate of at least 15% on a global basis.

On 21 March 2024, Treasury released the Global and Domestic Minimum Tax exposure draft, which implement key aspects of the OECD Pillar Two rules.

On the basis that the Pillar Two rules will address tax arbitrage obtained from the placement of intangibles in low tax jurisdictions by multinational groups, the Government have announced as part of the 2024-25 Budget that the proposed rules announced in the 2023-24 Budget has been discontinued.

Expanding the general anti-avoidance rule

In the 2023-24 Federal Budget, the Government announced that it would enhance the integrity of the tax system by broadening the general anti-avoidance rule for income tax (Part IVA of the Income Tax Assessment Act 1936). The expanded rule will cover schemes that reduce tax paid in Australia by exploiting a lower withholding tax rate on income paid to foreign residents.

The rule will also be extended to apply to schemes that achieve an Australian income tax benefit, even if their primary intention was to decrease foreign income tax.

While this measure was intended to be effective from income years starting on or after 1 July 2024, it was announced in the 2024-25 Federal Budget that this measure will now become effective on the day that the amending law receives Royal Assent. There is no grandfathering provision proposed, meaning these rules would apply to all schemes in existence at the time of Royal Assent.

Penalty for mischaracterisation of royalty payments 

The ATO has significantly increased its activities related to the misclassification of payments made in respect of intangibles. This has included recently released ATO guidance on intangibles migration arrangements; payments related to software distribution arrangements, as well as recent case law.

The Government have announced as part of the 2024-25 Federal Budget that a new penalty measure impacting on large multinational groups (Significant Global Entities (SGE) or Country-by-Country reporting entities (CBCRE)) will be introduced from 1 July 2026 where there has been a mischaracterisation or undervaluation of a royalty payment (resulting in no or less withholding tax payable).

Currently, Australian subsidiaries of large multinational groups are subject to significantly increased failure to lodge penalties and shortfall penalties. However, the penalty for a failure to withhold is capped to the amount of the withholding. The increased penalty regime will now be extended to apply to SGEs and CBCREs in respect of their withholding tax obligations.

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