2015 Federal Budget: Foreign investment insights

The Government has announced it will change the tax residency rules for those on a working holiday from 1 July 2016.


Increased disclosure for multinationals – new transfer pricing documentation

In accordance with the Government’s approach to counter global tax avoidance, the Government has introduced new documentation standards for transfer pricing purposes commencing 1 January 2016. The ATO will be provided with $11.3 million to implement these new standards.

These measures include some world first initiatives. Under the new documentation protocol, the ATO will require additional information on large companies that operate in Australia.

The aim of these new initiatives is to counter treaty abuse, enforce anti-hybrid rules and prevent harmful tax practices by introducing the exchange of information on secret tax deals.

Overall these measures will work in line with Australia’s global effort to assist in identifying and eliminating multinational tax avoidance.


Research and Development

The Research and Development (R&D) Incentive has been revised to include a cap on the amount of eligible R&D expenditure for which companies can claim a tax offset at a concessional rate. R&D that meets certain requirements and exceeds the $100 million cap will be eligible for an offset equal to the company tax rate.

These changes will have retrospective effect and commence from income years beginning on or after 1 July 2014.

The existing R&D refundable tax offsets and non-refundable tax offsets will not change.


Multinational tax law changes

This measure deals with the multinational 'profit shifting' of 30 of Australia's largest multinational companies and involves tightening up Australia’s Part IVA anti-avoidance legislation.

New laws, targeted at multinationals who artificially avoid having a taxable presence in Australia, have been announced. These laws will attempt to force them to pay tax in Australia on profits from economic activities undertaken within the country.

It will attempt to capture foreign companies which generate over $1 billion in global revenue that supply goods and services to Australians.

The new measures, effective from 1 July 2015, will double the maximum administrative penalties that can be applied by the Commissioner of Taxation to large companies with global revenue of $1 billion or more.


Broadening the GST net

With the introduction of digital services firms and the growing trend of importing goods, the Government has broadened the GST net to cover cross-border supplies of digital products and services imported by consumers from 1 July 2017, with a view to generate GST revenue of $350 million. These supplies have not historically been caught by the GST net.

The announcement will likely result in a 10% increase to the price consumers pay for imported digital services.

These measures are consistent with the Organisation for Economic Co-operation and Development’s (OECD) developing guidelines for business-to-consumer supplies of imported digital products and services as part of the Base Erosion and Profiting Shifting Project.


Foreign residency rules

The Government has announced it will change the tax residency rules for those on a working holiday from 1 July 2016. This means that people who are temporarily in Australia for a working holiday as a non-resident for tax purposes, will be taxed at 32.5 per cent from the first dollar. Previously, those in Australia on a working holiday for more than 6 months were able to access the same tax rates as Australian residents.


Strengthening Australia’s foreign investment framework

A new framework has been introduced to strengthen Australia’s foreign investment regime through a range of new measures including; improved compliance and enforcement, stricter penalties, the introduction of application fees, and more scrutiny and greater transparency for agricultural investment.

There will be new application fees on all real estate, business and agricultural foreign investment proposals from 1 December 2015. Some of the new applications fees include:

  • $5,000 fee for property valued under $1 million.
  • $10,000 fee for property valued over $1 million, then a $10,000 incremental fee increase per additional $ 1 million in property value. 
  • $10,000 - $100,000 fee for acquisition of businesses.
  • $5,000 - $100,000 fee for acquisition of Agriculture.

Additionally, to provide greater transparency, a register will be established for foreign investment in agriculture.


Australia week events

The Government will continue to build Australia’s reputation as a tourism destination and as a trade and investment partner with China, India, ASEAN countries and the United States.

It will do so by expanding its current programme of Australia Week events through $18 million of funding to Austrade over four years.


Free Trade Agreement promotion

The Government will advertise and promote commercial understanding of its recently concluded Free Trade Agreements in North Asia.

It will also assist businesses to access and maximize their benefits under these agreements.

The Government will provide $24.6 million over two years from 2015-16 to achieve this.