Commonwealth of Australia Explanatory Memoranda

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TAX LAWS AMENDMENT (2006 MEASURES NO. 4) BILL 2006

                      2004-2005-2006



THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA




             HOUSE OF REPRESENTATIVES




 TAX LAWS AMENDMENT (2006 MEASURES No. 4) BILL 2006




    SUPPLEMENTARY EXPLANATORY MEMORANDUM




       Amendments moved on behalf of the Government




                (Circulated by authority of the
            Treasurer, the Hon Peter Costello MP)
Table of contents
General outline and financial impact ....................................................... 1

Chapter 1           Amendments 1 and 2 to Schedule 4 -- Capital
                    gains tax and foreign residents ...................................... 3
General outline and financial impact
Amendments 1 and 2 to Schedule 4 -- Capital gains tax and
foreign residents
        Amendment 1 resets the cost base of indirect Australian real property
        interests that are interests that were not previously taxable for foreign
        residents, to the market value of such interests on 10 May 2005, the date
        the Treasurer announced the measure in Press Release No. 44.

        Amendment 2 is a consequential amendment that removes a requirement
        for providing demerger relief to ensure that resident taxpayers are not
        adversely affected by the legislation as introduced.

        Date of effect: The amendments will apply to capital gains tax events
        occurring on or after Royal Assent.

        Proposal announced: These amendments have not previously been
        announced.

        Financial impact: Amendment 1 will have these revenue implications:

           2006-07        2007-08       2008-09        2009-10
             Nil          -$20m          -$15m         -$10m

        Amendment 2 has no cost to revenue.

        Compliance cost impact: These amendments reduce compliance costs for
        affected taxpayers.




                                                                                    1
Chapter 1
Amendments 1 and 2 to Schedule 4 --
Capital gains tax and foreign residents

Explanation of amendments 1 and 2
        1.1       Amendment 1 resets the cost base of indirect Australian real
        property interests that are interests that were not previously taxable for
        foreign residents, to the market value of such interests on 10 May 2005,
        the date the Treasurer announced the measure in Press Release No. 44.
        This will ensure that unrealised accumulated capital gains or capital losses
        from interests in land-rich foreign interposed entities that were not
        previously within Australia's tax regime will not be subject to capital
        gains tax (CGT). [Amendment 1]

        1.2       Amendment 2 is a consequential amendment that removes one
        of the requirements for providing demerger relief to ensure that resident
        taxpayers are not adversely affected by the legislation as introduced.
        Unless an amendment is made, demerger relief would only be available
        where a company is majority Australian owned, or the company is
        land-rich. The amendment ensures that the narrowing of the CGT tax
        base for foreign residents does not adversely affect the availability of
        demerger relief for resident taxpayers. [Amendment 2]




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