Recognising that Australia is an attractive place to live and to do business, the Government has put together a package of Federal Budget measures to attract global business and talent to Australia. This includes reforms to Australia’s individual tax residency rules, employee share scheme measures and new measures to attract foreign investors.
As part of the Government’s plan to attract global business and talent, the Government has announced that it will replace and modernise the tax rules for determining individual tax residency.
This announcement follows the recent work that the Board of Taxation has undertaken following its self-initiated review of the current individual tax residency rules which started in May 2016 and which culminated in its final report Reforming Individual Tax Residency Rules – A Model For Modernisation (March 2019).
Based on the recommendations made by the Board of Taxation, the Government proposes a new primary ‘bright line’ test. An individual would become an Australian tax resident if they are physically present in Australia for 183 days or more in any tax year (i.e. between 1 July to 30 June of the following year). Where an individual does not meet this primary test, secondary tests may apply. These secondary tests would set out objective criteria, e.g. whether an individual has the right to reside permanently in Australia, whether they have Australian accommodation, family located in Australia or Australian economic connections.
It is clear that the existing rules for determining the tax residency of an individual no longer reflects global work practices in the context of a progressively increasingly globally mobile workforce and more recently, in the context of the COVID-19 pandemic which has left many individuals stranded due to international travel restrictions. This not only has imposed an inappropriate compliance burden on many individual taxpayers, but also on their employers who have to consider the resulting Superannuation Guarantee and Pay-As-You-Go (PAYG) withholding obligations.
The Government’s decision to make legislative change in order to provide certainty and lower compliance costs when it comes to determining the Australian tax residency status of individuals is welcome. The new rules will no doubt go a long way to remove the often subjective and inconsistent outcomes, particularly for outbound individuals, but will also support and simplify matters when it comes to Australia’s need to attract global talent in the pursuit of economic growth.
The new individual tax residency rules will apply from 1 July following the enactment of the enabling legislation which is not yet available. If legislation can be enacted before 30 June 2021, the new Australian individual tax residency rules will apply as early as the 2021-22 tax year. It is however worth noting that the Board of Taxation recognised that a period of transition should be considered during the implementation process.
The 2021-22 Budget announces a number of changes to the existing employee share schemes (ESS) rules and regulatory requirements which are intended to remove unnecessary impediments and compliance burdens.
Employee share schemes provide an opportunity for employees to share in the productivity and growth of businesses - aligning employee and shareholder interests. In light of the current skills shortage, where the need to attract, retain and incentivise employees is critical for business (especially for small business and start-ups), the Government’s focus on ESS is a positive move. However, the reforms whilst welcomed, could have gone further to drive a much higher take-up in the use of ESS.
Specifically the Government has announced:
This change will apply to ESS interests issued on or after 1 July following Royal Assent of the enabling legislation, which is not yet available.
These regulatory changes are intended to apply three months after enactment of the enabling legislation.
The Government has committed to finalising the tax and regulatory arrangements for a new flow-through Corporate Collective Investment Vehicle (CCIV) with a commencement date of 1 July 2022. These measures were originally announced in the 2016-17 Federal Budget.
The CCIV regime will provide flow-through tax treatment to a corporate structure and is intended to enhance the international competitiveness of the Australian funds management industry by allowing fund managers to offer a vehicle familiar to foreign investors.
The Government also indicated that the Australian Taxation Office (ATO) will introduce a new early engagement process to provide inbound investors with certainty for new investments in Australia. The new process is intended to be tailored to the particular needs of each investor and offer support in relation to all federal tax obligations.
The new early engagement process will incorporate access to expedited private rulings and advance pricing agreements. It will integrate with the tax aspects of the Foreign Investment Review Board approval process and timeframes (if applicable) so that an investor is only required to provide information once.
The ATO will consult with business and other stakeholders during May and June 2021 so that the service will be available from 1 July 2021.
Share this page:
Australia and Asia Pacific People & Organisation Tax Leader, PwC Australia
Tel: +61 2 8266 5864
Partner, PwC Australia
Tel: +61 (3) 8603 5676
Partner, PwC Australia
Tel: +61 (3) 8603 6097
Partner, PwC Australia
Tel: +61 2 8266 2948