Gilbert + tobin - Gilbert and Tobin

9. Taxation
The Australian tax system is complex and ever-changing. The
considerable breadth of legislation, case law, determinations and
rulings means that any investment strategy needs to be given
careful consideration and constant review in light of the
amendments that are regularly occurring. We have set out a basic
description of the more significant taxes that may affect your
business. These are not detailed accounts of each tax law and you
should seek professional advice taking account of your specific
circumstances.
9.1 Income tax
Income tax is imposed on the taxable income of entities including
individuals, companies, trusts and partnerships (although, subject
to certain exceptions, trusts and partnerships are generally
look-through entities for Australian income tax purposes). The tax
period coincides with the financial year – 1 July to 30 June (although
where certain conditions are satisfied, alternate tax periods may
be adopted with the approval of the Commissioner of Taxation).
The current rate of income tax for companies is 30%. Groups of
qualifying entities may, in certain circumstances, choose to
consolidate (i.e. to be grouped) for income tax purposes. Careful
consideration needs to be given to the pros and cons of any
consolidation decision, as it will usually result in a resetting of the
tax cost bases in the underlying assets of the group, and can in
certain circumstances result in taxable gains arising. Among other
consequences, in the absence of consolidation, groups of
Australian entities are not able to transfer losses to one another.
While a detailed account of the income tax regime is beyond the
scope of this publication, some of the key features of the income
tax system are described below.
(a) Capital gains tax
A capital gains tax (CGT) was introduced on 20 September 1985.
It is a discrete statutory regime in the income tax law which
includes in an entity’s assessable income (i.e. to be taxed under the
income tax regime) the gains from specified “CGT events”. An
example of this is a sale of an asset of a capital nature (subject to
certain exceptions). Discounted CGT treatment (i.e. effectively a
reduction in the level of income tax on capital gains) may be
available in certain circumstances for certain categories of
taxpayer (note that companies cannot benefit from discount CGT
concessions). Non-residents are generally not subject to CGT
except where the gain relates to land, interests in land or shares or
rights in land-rich entities (non-resident CGT concession).
As a result of recent changes announced in the 2012-13 federal
budget, the ability of non-residents to access the 50% discount
CGT concession (in circumstances where the non-resident CGT
concession does not operate) has been removed (except, for gains
which accrued prior to 7:30pm (AEST) on 8 May 2012. In
circumstances where the non-resident is of a category which
would otherwise qualify for the 50% discount CGT concession,
where a market valuation has been obtained for relevant assets
held at that date). In the face of falling tax revenues, it is the view of
the Authors that the Federal Government may seek to reduce or
remove the CGT discount concessions for all classes of taxpayers.
We note that the non-resident CGT concession only applies to
gains on capital account and is not available where the gains are on
income or revenue account. The Australian Taxation Office
(ATO) has recently issued a final tax determination which
effectively states that gains derived from the sale of corporate
groups acquired in a leveraged buyout or by a private equity entity
will typically be on income account. This means that the nonresident
CGT concession will not apply to exempt the gain from
Australian income tax unless a valid basis exists for the nonresident
to claim relief under an applicable double tax agreement
(DTA) (see comments below under section (b)).
(b) DTAs
Generally, resident entities are assessed on their worldwide
income, while non-resident entities are only taxed on income
derived from Australian sources. Australia has a highly developed
network of DTAs, the main function of which is to avoid the
double taxation of income for enterprises. These are regularly
renegotiated with major trading partners to reflect modern treaty
practices. These agreements generally prevail over the domestic
tax legislation, to the extent they are inconsistent. However, the
ATO has recently signalled in a final tax determination that it will
apply Australia’s domestic anti-avoidance provisions to perceived
abuses of Australia’s DTA network (e.g. in cases where the
operation of a DTA, but for the operation of the anti-avoidance
provisions, would result in the income account gain on the disposal
of shares in an Australian company being exempt from Australian
income tax). In addition, recently enacted amendments to
Australia’s transfer pricing rules “clarify” the ATO’s long standing
position that DTAs confer a separate taxing power on the ATO to
make transfer pricing determinations. While taxpayers reside in
countries with which Australia has a DTA would normally expect
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