Government acts quickly to prevent fall out from RCF decision and closes other loopholes
Deloitte Federal Budget media releaseDOWNLOAD
Wednesday 15 May 2013: Under current law, non-residents of Australia are taxed on capital gains derived from the disposal of non-portfolio interests in Australian land-rich companies. The measures announced in the Federal Budget seek to address two perceived deficiencies in these rules.
Peter Madden, Partner, Deloitte International Tax comments: “It is not a surprise that the Government has introduced these measures. Without them the ability of Australia to tax gains on sale of interests in mining companies and other real property owning companies, would have been significantly restricted.
“In this current fiscally challenged environment, we expect the Government will continue to address any perceived loopholes that could erode the tax base. None more so than those that impact Australia’s taxing rights over natural resources.”
The first proposal, in response to the Resource Capital Fund III LP v Commissioner of Taxation  FCA 363, is to treat mining, quarrying or prospecting information and goodwill as part of the mining rights to which they relate. This increases the likelihood of Australian mining companies qualifying as land-rich companies, meaning that foreign shareholders will be subject to Australian tax on capital gains derived on the disposal of non-portfolio interests in such companies.
The second proposal is to prevent corporate groups artificially recognising ‘non-land’ assets (such as inter-company receivables) in order to bolster their proportion of non-land assets. If the value of non-land assets is greater than the value of Australian land assets, the company will not be Australian land-rich and any capital gain derived by a non-resident on disposal of interests in such companies will not be subject to Australian tax.
The Government has announced that it will consult on the reforms which will be effective immediately. Also, with effect from 1 July 2016, a 10% non-final withholding tax will apply to the disposal by foreign residents of certain taxable Australian property.
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