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2019-2020
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
TREASURY LAWS AMENDMENT (2020 MEASURES NO. 1) BILL 2020
EXPLANATORY MEMORANDUM
(Circulated by authority of the Minister for Housing and Assistant Treasurer
the Hon Michael Sukkar MP)
Table of contents
Glossary................................................................................................. 1
General outline and financial impact ...................................................... 3
Chapter 1 Significant global entities ............................................. 5
Chapter 2 Permanent tax relief for merging
superannuation funds ................................................ 23
Chapter 3 Statement of Compatibility with Human Rights .......... 27
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation Definition
Bill Treasury Laws Amendment (2020 Measures
No. 1) Bill 2020
CGT capital gains tax
Commissioner Commissioner of Taxation
ITAA 1997 Income Tax Assessment Act 1997
SLAA 2012 Superannuation Laws Amendment (Capital
Gains Tax Relief and Other Efficiency
Measures) Act 2012
TAA 1953 Taxation Administration Act 1953
TLAA 2010 Tax Laws Amendment (2009 Measures No. 6)
Act 2010
1
General outline and financial impact
Significant global entities
Schedule 1 to the Bill broadens the definition of significant global entity
in the tax law so that it:
• applies to groups of entities headed by an entity other than a
listed company in the same way as it applies to groups
headed by a listed company; and
• applies despite exceptions to when a group of entities must
prepare consolidated accounts, including materiality rules, in
the applicable accounting rules.
The amendments also modify the rules that identify which entities must
undertake country by country reporting under the tax law to ensure these
rules are aligned with Australia's international commitments.
Date of effect: The amendments made by Schedule 1 apply in relation to
income years or periods commencing on or after 1 July 2019. However,
penalties that arise from the measure do not apply until 1 July 2020 for
entities that were not previously significant global entities.
Proposal announced: This Schedule fully implements the measure
'Company Tax -- significant global entity definition amendment' from
the 2018-19 Budget.
Financial impact: This is a revenue protection measure -- the revenue
impact is estimated to be nil.
Human rights implications: This Schedule does not raise any human
rights issue. See Statement of Compatibility with Human Rights --
Chapter 3.
Compliance cost impact: Minimal. This measure ensures that the law
operates consistent with the OECD model for country by country
reporting. The entities to which the amendments apply may have initial
transitional compliance costs to determine if relevant integrity and penalty
provisions will apply to them. It is not expected that the amendments will
result in entities having significant ongoing additional reporting
requirements.
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Treasury Laws Amendment (2020 Measures No. 1) Bill 2020
Permanent relief for merging superannuation funds
Schedule 2 to the Bill removes impediments to mergers between
complying superannuation funds by permitting the roll-over of both
revenue gains or losses and capital gains or losses.
Date of effect: The Schedule commences on the first 1 January, 1 April,
1 July or 1 October to occur after the day the Bill receives the
Royal Assent, making tax relief for merging superannuation funds
permanent from 1 July 2020.
Proposal announced: The Schedule implements the measure 'Permanent
tax relief for merging superannuation funds' from the 2019-20 Budget.
Financial impact: This measure is estimated to have an unquantifiable
reduction in revenue over the forward estimates period.
Human rights implications: This Schedule does not raise any human
rights issues. See Statement of Compatibility with Human Rights --
Chapter 3.
Compliance cost impact: This proposal is expected to result in a low
overall compliance cost impact, comprising a low implementation impact
and a low decrease in ongoing compliance costs.
4
Chapter 1
Significant global entities
Outline of chapter
1.1 Schedule 1 to this Bill expands the definition of significant
global entity in the ITAA 1997 so that it:
• applies to groups of entities headed by an entity other than a
listed company in the same way as it applies to groups
headed by a listed company; and
• applies despite exceptions to when a group of entities must
prepare consolidated accounts, including materiality rules, in
the applicable accounting rules.
1.2 The amendments also modify the rules that identify which
entities must undertake country by country reporting under the tax law to
ensure these rules are aligned with Australia's international commitments.
1.3 All legislative references in this Chapter refer to the ITAA 1997
unless the contrary is indicated. All references to dollars are to Australian
dollars.
Context of amendments
Significant global entity
1.4 The concept of significant global entity was included in the
income tax law by the Tax Laws Amendment (Combating Multinational
Tax Avoidance) Act 2015.
1.5 Broadly, under the definition in section 960-555, an entity is a
'significant global entity' if either:
• it is a global parent entity with annual global income of
$1 billion or more; or
• it is a member of a group of entities where;
- the group is consolidated for accounting purposes as a
single group; and
- the global parent entity of that group has annual global
income of $1 billion or more.
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Treasury Laws Amendment (2020 Measures No. 1) Bill 2020
1.6 The Commissioner may also make a determination under
subsection 960-555(3) that results in an entity being a significant global
entity for a period if:
• the entity is a global parent entity that has not prepared
global financial statements for a period; and
• the Commissioner reasonably believes that, if global
financial statements had been prepared, the entity's annual
global income for the period would have been $1 billion or
more.
1.7 A 'global parent entity' is broadly an entity that is not controlled
by another entity according to accounting principles, or if these principles
do not apply, commercially accepted principles relating to accounting (see
section 960-560).
1.8 Section 960-565 provides that an entity's 'annual global income'
for a period is either:
• if it is a member of a group of entities consolidated for
accounting purposes--the total annual income of that global
parent entity of that group as shown in its latest global
financial statements for that period; or
• otherwise -- the total annual income of that entity shown in
its latest global financial statements for that period.
1.9 An entity that is a significant global entity may, if it also
satisfies other requirements, be subject to Australia's country by country
reporting rules, the multinational anti-avoidance law and the diverted
profits tax. Significant global entities may also face increased
administrative penalties under the taxation law and face additional
reporting requirements.
Country by country reporting and significant global entities
1.10 Australia's country by country reporting rules implement in
domestic law the recommendations in Action 13 of the G20 and OECD's
Action Plan on Base Erosion and Profit Shifting - the BEPS Action Plan.
Action 13 developed new standards for transfer pricing documentation
and country by country reporting.
1.11 Currently, Australia's definition of a significant global entity
means that the country by country reporting rules in Subdivision 815-E
may not give the same outcome as would arise under the model legislation
in Action 13 of the BEPS Action Plan.
1.12 Specifically, the Australian concept of significant global entity
only treats an entity as being part of a group of entities if the head entity
of the global group prepares consolidated accounts covering that entity
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Significant global entities
under the applicable accounting principles. In contrast, the OECD model
legislation also requires reporting by entities that would have had to
prepare consolidated accounts had the parent entity in the relevant
structure been a listed company.
1.13 The OECD model legislation also requires reporting to cover
entities that are not included in consolidated accounts due to materiality
rules. This OECD requirement is not reflected in the existing Australian
law.
Summary of new law
1.14 Schedule 1 to this Bill expands the scope of the concept of a
significant global entity in the ITAA 1997 so that it also applies to groups
of entities headed by an entity other than a listed company in the same
way as it applies to groups headed by a listed company. Under the
amendments the criteria for determining if an entity is a significant global
entity applies despite exceptions to the rules setting out when a group of
entities must consolidate for accounting purposes, including materiality
rules, in the applicable accounting rules.
1.15 The scope of significant global entity is expanded by introducing
the concept of a notional listed company group - a group of entities that
would be required to consolidate for accounting purposes as a single
group under the applicable accounting rules if:
• the parent entity of the group was a listed company; and
• exceptions to requirements about when a group of entities
would be required to consolidate, including materiality rules,
were disregarded.
1.16 The amendments also extend the definition of:
• significant global entity so that an entity will be a significant
global entity if it is part of a notional listed company group
that includes a global parent entity that is a significant global
entity; and
• annual global income so that a global parent entity's annual
global income is the total annual income of all members of
any notional listed company group of which it is a member,
as shown in global financial statements prepared on a
consolidated basis for the group.
1.17 The amendments also provide that if an entity does not have
adequate global financial statements for a period, its annual global income
for that period is the amount that would have been its annual global
income if such global financial statements had been prepared.
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Treasury Laws Amendment (2020 Measures No. 1) Bill 2020
1.18 Finally, Schedule 1 also amends the reporting rules in
Subdivision 815-E so that these rules now apply to entities that are
country by country reporting entities (also referred to as CBC reporting
entities) rather than all significant global entities to ensure these rules are
aligned with Australia's international commitments. Schedule 1 also
amends the requirement in section 3CA of the TAA 1953 for certain
corporate tax entities to provide general purpose financial statements to
the Commissioner so that these too now apply to CBC reporting entities
rather than all significant global entities.
1.19 An entity is a country by country reporting entity if, broadly, it
would be a significant global entity if the notional listed company group
rules took into account exceptions to consolidation other than the
materiality rule and did not include individuals.
Comparison of key features of new law and current law
New law Current law
Significant global entities
An entity is a significant global entity An entity is a significant global
for a period if: entity for a period if:
• it is either a member of: • it is a member of a group of
- a group of entities that are entities that are consolidated for
consolidated as a single group accounting purposes; and
for accounting purposes; or • another member of the group is a
- a notional listed company global parent entity that is a
group; and significant global entity.
• another member of the group is a A global parent entity is also a
global parent entity that is a significant global entity if its annual
significant global entity. global income is $1 billion or more
A global parent entity is also a or if it is subject to a determination
significant global entity if its annual by the Commissioner under
global income is $1 billion or more or subsection 960-555(3).
if it is subject to a determination by
the Commissioner under
subsection 960-555(3).
A notional listed company group is a
group of entities that would be
required to be consolidated as a single
group for accounting purposes if a
member of that group was a listed
company and exceptions to
requirements to consolidate were
disregarded.
8
Significant global entities
New law Current law
Annual global income of global parent entities
If a global parent entity is a member If a global parent entity is a member
of: of a group of entities consolidated
• a group of entities consolidated for for accounting purposes as a single
accounting purposes as a single group, the entity's annual global
group; or income is the total annual income of
• a notional listed company group; all members of the group as reported
in their most recent global financial
then the entity's annual global income
statements.
is the total annual income of all
members of the group as reported in
the most recent global financial
statements.
If an entity does not have adequate
global financial statements (ie. it
either has no such statements or does
not have statements that show the
annual global income of the group), its
annual global income is the amount
that would be its annual global income
had appropriate global financial
statements been prepared.
Country by country reporting
An entity must undertake country by An entity must undertake country by
country reporting under Subdivision country reporting under Subdivision
815-E and may be required to provide 815-E and may be required to
general purpose financial statements provide general purpose financial
to the Commissioner if, among other statements to the Commissioner if,
things, it is a country by country among other things, it is a significant
reporting entity. global entity.
An entity is a country by country
reporting entity if, broadly, it would
be a significant global entity if the
notional listed company group rules
did not disregard exceptions to
consolidation other than the
materiality rule and did not include
individuals.
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Treasury Laws Amendment (2020 Measures No. 1) Bill 2020
Detailed explanation of new law
1.20 Schedule 1:
• extends the circumstances in which an entity is a significant
global entity; and
• amends the country by country reporting requirements in
Subdivision 815-E of the ITAA 1997 and the requirement to
provide general purpose financial statements in section 3CA
of the TAA 1953 to apply to a subset of significant global
entities referred to as country by country reporting entities.
1.21 The amendments to the definition of significant global entity
ensure that the definition applies consistently to all types of entities, rather
than potentially excluding members of large multinational groups headed
by individuals, partnerships, private companies, trusts, investment entities
and other entities.
1.22 The amendments to the country by country reporting rules in
Subdivision 815-E ensure Australian law is aligned with international
practice and the OECD model legislation.
1.23 Overall, the effect of the amendments is to ensure members of
all groups of an appropriate size, including those headed by:
• individuals, partnerships, trusts, private companies and
investment companies, are SGEs and potentially subject to
the multinational anti-avoidance law, diverted profits tax and
significant global entity penalty provisions; and
• partnerships, trusts, private companies and subsidiaries of
investment companies, subject to applicable accounting
standards or principles excluding rules relating to materiality,
are:
- country-by-country reporting entities; and
- may, if other requirements are met, be subject to
obligations to provide country-by-country reporting and
general purpose financial statements.
Extending the definition of significant global entity
Significant global entities and annual global income
1.24 The amendments to the definition of significant global entity
extend the circumstances in which an entity is a significant global entity to
include cases where an entity is a member of a notional listed company
group that includes a global parent entity that either:
10
Significant global entities
• has annual global income equal to or in excess of $1 billion;
or
• is the subject of a determination by the Commissioner under
subsection 960-555(3).
[Schedule 1, item 7, subsection 960-555(2A)]
1.25 If a global parent entity is a member of a notional listed
company group its annual global income is the total annual income of all
of the members of the group, determined on a consolidated basis, as
shown in the latest global financial statements of the entity for the relevant
period - if such statements exist. If no such statements exist that set out
the income of the group on this basis, then the annual global income of the
entity is determined using the rules explained in paragraphs 1.28 to 1.33.
[Schedule 1, item 10, paragraph 960-565(1)(aa)]
1.26 Effectively entities that are part of a notional listed company
group are treated in the same way as entities that are members of a group
of entities that are required to be consolidated for accounting purposes as
a single entity when determining the annual global income of the group.
1.27 If an entity is a member of both types of groups, it is the annual
income of the notional listed company group (which will be the larger
group) that is used in determining the income of the entity. [Schedule 1,
item 11, paragraph 960-565(a)]
Global financial statements and annual global income
1.28 Schedule 1 also makes amendments to the interaction between
global financial statements and global annual income.
1.29 Prior to these amendments, if an entity did not have global
financial statements, it could not have annual global income and would
not have been a significant global entity unless it was the subject of a
determination by the Commissioner under subsection 960-555(3).
1.30 As a result of the amendments made by Schedule 1 the annual
global income of an entity that:
• does not have global financial statements; or
• does not have adequate global financial statements (ie.
statements that accurately represent the annual global income
of the entity and the group of entities consolidated for
accounting purposes or notional listed company group of
which the entity is a member);
is the amount that would be the annual global income were such global
financial statements prepared for the period. [Schedule 1, items 8 to 13,
subsection 960-565(1), paragraph 960-565(1)(aa), subsections 960-565(2) and (3) and
section 960-570]
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Treasury Laws Amendment (2020 Measures No. 1) Bill 2020
1.31 This is an objective test based on what would be expected to be
the amount of such income if adequate statements were prepared.
1.32 This amendment ensures that the absence of adequate global
financial statements does not prevent the total annual income of all of the
members of the group from being taken into account in determining if
members are significant global entities. This is particularly important for
notional listed company groups, as there is no requirement for the
preparation of consolidated accounts for the entirety of such groups. It
also avoids any need for such groups to prepare consolidated accounts or
seek a determination by the Commissioner to provide clarity about its
status as a significant global entity.
1.33 These amendments do not affect the power of the Commissioner
to make a determination under subsection 960-555(3) in relation to an
entity if global financial statements have not been prepared for the entity
for the period.
Notional listed company groups
1.34 A notional listed company group is a group of entities that
would be required to be consolidated as a single group for accounting
purposes under the applicable accounting principles or commercially
accepted principles relating to accounting, if an entity (the global parent
entity) was a listed company (broadly, had its shares been listed for
quotation on any public exchange - see section 26BC of the Income Tax
Assessment Act 1936). [Schedule 1, item 14, subsection 960-575(1)]
1.35 Each entity in the group is a member of that notional listed
company group. [Schedule 1, item 14, subsection 960-575(2)]
1.36 Whether entities would be required to be consolidated for
accounting purposes as a single group were the global parent entity a
listed company is to be determined based on relevant accounting
principles or commercially accepted principles relating to accounting (if
accounting principles do not apply in relation to those entities). [Schedule 1,
item 14, subsection 960-575(3)]
1.37 However, any exceptions in the relevant principles that may
permit an entity not to consolidate with other entities are disregarded. This
means, for example, that an investment entity that controls other entities
but is not required to consolidate with those entities under relevant
accounting principles would still be part of a notional listed company
group with those entities. [Schedule 1, item 14, paragraph 960-575(4)(a)]
1.38 Similarly, any rules that permit an entity not to consolidate with
another entity or entities because the effect of consolidating would be
immaterial because of the size of the entities or for other reasons are also
disregarded and hence the entity must consolidate with the entity or
entities. [Schedule 1, item 14, paragraph 960-575(4)(b)]
12
Significant global entities
1.39 These rules ensure that the definition of significant global entity
applies consistently to all types of entities. It removes potential gaps in the
application of the rules for certain types of entities and the particular
requirements applying for accounting purposes.
Example 1.1: notional listed company group
Entity A, is an investment entity and global parent entity that controls
Entity B which in turn controls Entity C and Entity D. Only Entities B
and C are consolidated for accounting purposes as a single group.
As Entity A is an investment entity, it is not required to consolidate
with Entities B, C and D for accounting purposes. Entity B is also not
required to consolidate with Entity D as Entity D is so small that its
activities are not material to Entity B's overall accounts.
However, under the relevant accounting standards Entity A would be
required to consolidate with all of the other entities if the exception for
investment entities and the materiality rule both did not apply. As a
result, Entities A, B, C and D are a notional listed company group.
Example 1.2: notional listed company group - individuals and trusts
Jesse, an individual, wholly owns and controls Pyramid Co, a company
that itself wholly owns and controls a number of subsidiaries with
which it is consolidated for accounting purposes as a single group.
Jesse is also the trustee and primary beneficiary of AUMi Trust, and
hence Jesse has effective control of the trust.
Were Jesse a listed company, under the relevant accounting standards,
Jesse, Pyramid Co and its subsidiaries and AUMi Trust would be
required to consolidate for accounting purposes as a single entity. In
the case of AUMi Trust, this involves applying the rules in the relevant
accounting standard to determine if Jesse, were she a listed company,
would be required to consolidate with AUMi Trust. This may involve
an assessment of the circumstances of the trust, including the
provisions in the trust deed, in light of the rules in the relevant
accounting standards. Depending on the applicable accounting
standards, relevant circumstances may include:
• the provisions of the trust deed;
• the purposes and structure of AUMi Trust;
• Jesse's involvement in the creation and structuring of AUMi Trust;
and
• Jesse's role in and influence over decisions made by AUMi Trust.
As a result, these entities form a notional listed company group, of
which Jesse is the global parent entity.
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Treasury Laws Amendment (2020 Measures No. 1) Bill 2020
Example 1.3: notional listed company group - partnerships
Zac, an individual, is the general partner of a limited partnership, Buzz
Partners. The partnership owns and controls Service Co, a company.
Were Zac a listed company, he may (depending on the circumstances
of the case and the relevant accounting standards) have been required
to consolidate for accounting purposes with Buzz Partners and Service
Co as a single entity.
If Zac would be required to consolidate with Buzz Partners and Service
Co were he a listed company, the three entities would form a notional
listed company group, of which Zac would be the global parent entity.
If Zac would not have been required to consolidate with Buzz Partners
and Service Co were he a listed company, but, under the relevant
accounting standards, Buzz Partners, would have been required to
consolidate with Service Co were it a listed company, Buzz Partners
and Service Co would form a notional listed company group. The
group would not include Zac and Buzz Partners would be the global
parent entity, as no entity within the notional listed company group
controls Buzz Partners.
Country by country reporting
Country by country reporting entities
1.40 Schedule 1 also amends the country by country reporting regime
in Subdivision 815-E. Prior to the amendments, one of the conditions an
entity was required to meet before it was required to report under that
regime was that the entity was a significant global entity.
1.41 As a result of the changes to the definition of significant global
entity, its scope differs from the scope of the entities required to undertake
country by country reporting under Action 13 of the BEPS Action Plan.
1.42 To better align with international standards, the amendments
change the scope of Subdivision 815-E so that it requires reporting by
country by country reporting entities rather than all significant global
entities. [Schedule 1, items 2 and 3, section 815-350 and paragraph 815-355(1)(a)]
1.43 An entity is a country by country reporting entity (also
referred to as a CBC reporting entity) for a period if either of the
following apply:
• it is a country by country reporting parent for the period; or
• it is a member of a country by country reporting group and
another member of that group is a country by country
reporting parent.
[Schedule 1, item 5, section 815-370]
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Significant global entities
1.44 A entity is a country by country reporting parent for a period
if:
• it is not an individual;
• it is either not a member of a country by country reporting
group or is not controlled by any other entity in the same
country by country reporting group; and
• either:
- if it is a member of a country by country reporting
group--the annual global income of the group is
$1 billion or more; or
- otherwise--the annual global income of the entity alone is
$1 billion or more.
[Schedule 1, item 5, section 815-375]
1.45 Effectively, a country by country reporting parent (also referred
to as a CBC reporting parent) is an entity that would be a global parent
entity and a significant global entity assuming all entities outside of the
country by country reporting group of which it is a part were disregarded.
In this context, it does not matter if that entity is controlled by another
entity outside the group. The country by country reporting parent concept
allows an alternative controlling entity to be identified in circumstances
where an entity is controlled by another entity that does not form part of
the country by country reporting group. This is illustrated in example 1.4
below.
1.46 A country by country reporting group (also referred to as a
CBC reporting group) includes a group of entities that are consolidated for
accounting purposes as a single group. It also includes a group of entities
that would be a notional listed company group if the definition of notional
listed company group:
• took into account exceptions to consolidation (other than an
exception for immateriality) in the relevant accounting
principles or commercially accepted accounting principles (if
accounting principles do not apply to the entity); and
• excluded individuals.
[Schedule 1, item 5, subsections 815-380(1) and (6)]
1.47 However, a group of entities is not a country by country
reporting group if all of its members are members of another larger
country by country reporting group. [Schedule 1, item 5, subsections 815-380(3),
(4) and (5)]
1.48 This rule ensures that entities that are members of more than one
potential country by country reporting group are only subject to reporting
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Treasury Laws Amendment (2020 Measures No. 1) Bill 2020
and other obligations in relation to the largest such group (ie. the group
with the most members). It prevents duplication that would otherwise
occur from separate reporting requirements applying for sub-groups
within a larger country by country reporting group.
1.49 Most significant global entity groups that are a notional listed
company group will also be country by country reporting entities.
However, some exceptions apply. Although an individual can be a
significant global entity, an individual cannot be a member of a country
by country reporting group. Similarly, investment entities can form part of
a group of significant global entities but, subject to the relevant
accounting principles, may not be included in a country by country
reporting group. [Schedule 1, item 5, subsection 815-380]
1.50 For example, a non-investment entity owned by an investment
entity is a significant global entity because it is a member of a notional
listed company group headed by the investment entity. It would not be
part of a country by country reporting group headed by the investment
entity as an exception to consolidation applies in the relevant accounting
principles. However, the entity that is owned by the investment entity may
form part of a country by country reporting group with other entities with
which it would be required to consolidate for accounting purposes if the
company was a listed company. In these circumstances the entity that is
owned by the investment entity may be a country by country reporting
parent (see paragraph 1.44 and example 1.4).
1.51 Each entity in a country by country reporting group is a member
of that country by country reporting group. The term member clarifies the
status of entities within country by country reporting groups. [Schedule 1,
item 5, subsection 815-380(2)]
1.52 While the concept of country by country reporting entity is
narrower than the concept of significant global entity, the other changes
made by these amendments mean that country by country reporting
obligations will apply more widely than before these amendments,
consistent with Action 13 of the BEPS Action Plan. Specifically, the
changes outlined in paragraphs 1.24 to 1.39 mean that groups of entities
headed by an entity other than a listed company are more likely to be
subject to country by country reporting obligations.
Example 1.4: identifying country by country reporting groups in
groups headed by an investment entity
Assuming the same facts as in Example 1.1 above, Entity A does not
form part of a country by country reporting group with Entity B, Entity
C and Entity D. This is because the exception to the requirement to
consolidate for investment entities is taken into account when working
out the entities that form part of a country by country reporting group.
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Significant global entities
Entity A is not a member of any country by country reporting group,
but it can still be a country by country reporting parent. It will be a
country by country reporting parent and a country by country reporting
entity if its own total annual global income is $1 billion or more.
Entity B controls Entity C and Entity D and, under applicable
accounting standards would be required to be consolidated for
accounting purposes as a single group were Entity B a listed company,
disregarding the materiality rule. As a result Entities B, C and D are a
country by country reporting group.
Entity B is not controlled by any other entity in the group so it too may
be a country by country reporting parent. It will be a country by
country reporting parent and a country by country reporting entity if,
broadly, the annual global income of the group (the total annual
income of Entities B, C and D worked out on a consolidated basis) is
$1 billion or more. If Entity B is a country by country reporting parent,
Entities C and D will also be country by country reporting entities.
Note that Entity B and Entity C do not form a separate country by
country reporting group, even though they are a group of entities that
are consolidated as a single entity for accounting purposes. This is
because a group of entities is not a country by country reporting group
if all of the members of the group are members of another country by
country reporting group - both Entity B and Entity C are members of
the larger consolidated group with Entity D.
Example 1.5: identifying country by country reporting groups in
groups headed by individuals
Assuming the same facts as in Example 1.2 above, this group (the
notional listed company group) is not a country by country reporting
group. Jesse is an individual and therefore cannot be part of a country
by country reporting group.
As an individual, Jesse also cannot be a country by country reporting
parent and so Jesse cannot ever be a country by country reporting
entity.
Pyramid Co is consolidated for accounting purposes as a single group
with its subsidiaries. As the result, these entities form a country by
country reporting group. As Pyramid Co is not controlled by any other
entity in the country by country reporting group it may be a country by
country reporting parent. It will be a country by country reporting
parent if the annual global income of the country by country reporting
group is $1 billion or more. If Pyramid Co is a country by country
reporting parent, it and all of its subsidiaries will also be country by
country reporting entities.
AUMi Trust is not a member of any country by country reporting
group. It will be a country by country reporting parent and a country by
country reporting entity if its own total annual global income is
$1 billion or more.
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Treasury Laws Amendment (2020 Measures No. 1) Bill 2020
Even though Pyramid Co and AUMi Trusts are members of the same
notional listed company group and are controlled by Jesse, their status
for country by country reporting purposes is determined independently,
as their controller, Jesse, is an individual who cannot form part of a
country by country reporting group.
Country by country reporting obligations
1.53 The amendments also make changes to information that is
required in the statements that must be provided by country by country
reporting entities to be consistent with the changes to the scope of the
affected entities.
1.54 Specifically, the statements provided by country by country
reporting entities now need to include information on the other members
of a country by country reporting group of which it was a member.
[Schedule 1, item 4, subparagraph 815-355(3)(a)(ii)]
1.55 As a result, consistent with the treatment of members of groups
of entities that are consolidated for accounting purposes, such entities
must provide statements dealing with the global operations and activities
and the allocation between countries of the tax paid by the group members
of any country by country reporting group of which they are a member.
1.56 This ensures that the statements that must be provided are
consistent with international practice and the OECD model legislation.
Example 1.6: Entities in a group subject to country by country
reporting obligations
Assuming the same facts as in examples 1.1 and 1.4, it is determined
that Entity B is a country by country reporting parent and therefore, a
country by country reporting entity for the 2025-26 income year. This
also means that Entity C and Entity D, as members of the same country
by country reporting group, are country by country reporting entities
for that year.
As country by country reporting entities for 2025-26, Entities B, C and
D may be required to provide statements for the 2026-27 income year
that, among other things, relate to the global operations and activities
and pricing policies relevant to transfer pricing of each of the entities
(a Master File) as well as statements about the allocation between
countries of the income, activities and tax paid by each of the entities
(a country by country report).
Entities B and D satisfy the requirements set out in
subsection 815-355(1) and so must provide statements. Entity C does
not satisfy these requirements (as it is a non-resident company without
an Australian permanent establishment) and so is not required to
provide statements under section 815-355. In practice, the obligations
of Entities B and D will be satisfied if one of the entities provides
country by country reporting statements (including a country by
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Significant global entities
country report and Master file) consistent with the relevant OECD
reporting standards that covers all three entities.
Both the country by country report and Master File must cover all three
entities in the country by country reporting group, including Entities C
and D. This obligation applies despite Entity D not being consolidated
with the other two entities as a single group for accounting purposes
due to materiality rules and despite Entity C not itself being subject to
reporting obligations under section 815-355.
Country by country reporting statements that only cover Entity B and
Entity C or Entity B and Entity D would not satisfy the country by
country reporting requirements as they would not cover all of the
members of the relevant country by country reporting group. Similarly,
the statements do not need to and should not include Entity A as it does
not form part of the country by country reporting group (even though
Entity A does form part of a notional listed company group with the
other entities).
General purpose financial statements
1.57 Schedule 1 also amends the requirement for certain corporate tax
entities to provide the Commissioner with a general purpose financial
statement for a financial year.
1.58 Previously, this obligation applied to entities that were, among
other things, significant global entities. Following the amendments, the
obligation instead applies to entities that are, among other things, country
by country reporting entities. [Schedule 1, item 19, paragraph 3CA(1)(a) of the
TAA 1953]
1.59 This ensures that the obligation to provide general purpose
financial statements remains aligned with the relevant accounting
standards and avoids unnecessary compliance burdens for investment
entities.
1.60 While the requirement to provide general purpose financial
statements remains limited to corporate tax entities, as noted in paragraph
1.52 above these amendments will result in a wider range of entities being
country by country reporting entities. This means that more entities are
likely to be subject to the requirement to provide general purpose financial
statements to the Commissioner. The types of entities that are most likely
to be affected are entities that are members of notional listed company
groups that are not actually consolidated as a single entity with some or all
of the members of that notional listed company group.
1.61 While these amendments require relevant accounting standards
to be applied subject to assumptions and modifications when determining
whether an entity is a country by country reporting entity, these
assumptions and modifications do not have wider relevance and do not
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Treasury Laws Amendment (2020 Measures No. 1) Bill 2020
affect what must be included in general purpose financial statements
provided to the Commissioner.
1.62 This means that, for example, an entity that is part of a notional
listed company group may not be consolidated for accounting purposes as
a single group with any other entities in that group for the purposes of
subsection 3CA(5) of the TAA 1953 and would reflect this in the
statements provided to the Commissioner. Similarly, when preparing
general purpose financial statements as required under the relevant
accounting standards or commercially accepted principles relating to
accounting for the purposes of subsection 3CA(5) of the TAA 1953, an
entity may have regard to the materiality rule in determining what is
required by the relevant standards or principles.
1.63 Because the requirement will cover a wider range of entities,
there is an increased chance that it may apply to government entities that
are subject to alternative disclosure or accountability regimes through
government budget processes. The amendments provide the
Commissioner with a power to exempt government related entities from
this requirement. This ensures that the Commissioner has flexibility to
ensure that the wider application of this rule does not inappropriately
affect these entities. [Schedule 1, item 20, subsections 3CA(1A) and (1B) of the TAA
1953]
Consequential amendments
1.64 Schedule 1 makes consequential amendments to renumber
provisions, add headings and inserts definitions in the dictionary in
subsection 995-1(1). It also makes consequential amendments to existing
provisions and terms related to significant global entities to ensure that
these provisions apply as intended given the changes made by these
amendments. [Schedule 1, items 1, 6, 8, 9, 13 and 15 to 18, the heading to Subdivision
815-E, subsection 960-50(7A), sections 960-565 and 960-570 and the definitions of
'CBC reporting entity', CBC reporting parent', CBC reporting group', 'country by
country reporting entity', 'country by country reporting group', 'country by country
reporting parent', 'member' and 'notional listed company group' in subsection 995-1(1)
of the ITAA 1997 and the heading to section 3CA of the TAA 1953]
Application and transitional provisions
1.65 The amendments made by Schedule 1 to this Bill commence
from the first day of the first quarterly period that occurs after the day the
Bill receives Royal Assent. [Clause 2]
1.66 The amendments apply to income years or periods starting on or
after 1 July 2019. [Schedule 1, item 21]
20
Significant global entities
1.67 When determining if an entity has country by country reporting
obligations for a period, it is necessary to determine if the entity was a
country by country reporting entity for the previous period. For the
avoidance of doubt, the amendments specify that if the amendments apply
to a period, they also apply for the purpose of determining if an entity was
a country by country entity for a previous period when this is relevant to
the country by country reporting obligations of the entity in a period after
1 July 2018, even if the previous period began before 1 July 2019.
1.68 The measure generally applies retrospectively from 1 July 2019.
When this measure was announced in the Budget on 8 May 2018, it
applied from 1 July 2018. While the application of the measure has
subsequently been deferred by one year recognising the delays in the
implementation of the measure, the retrospective application of the
measure is consistent with the Government's intention to broaden the
scope of the significant global entity definition to ensure that Australia's
multinational tax integrity rules apply as intended. Retrospectivity is
necessary to minimise, to the extent that is reasonable in the
circumstances, the period between the announcement of the measure and
the application of the improved integrity rules. [Schedule 1, subitems 21(2) and
(3)]
1.69 However, to ensure that penalty obligations imposed under the
law do not apply retrospectively, the amendments include a transitional
provision to ensure the penalties that arise from the measure do not apply
until 1 July 2020 for entities that were not previously significant global
entities. [Schedule 1, subitems 21(2) and (3)]
1.70 If an entity is a significant global entity due to the amendments
made by this Schedule for the period on or after 1 July 2019 and before
1 July 2020 the entity is not treated as a significant global entity for the
transitional period for the purpose of penalty provisions in Divisions 284
and 286 in Schedule 1 to the TAA 1953. [Schedule 1, subitem 21(4)]
21
Chapter 2
Permanent tax relief for merging
superannuation funds
Outline of chapter
2.1 Schedule 2 to this Bill amends the ITAA 1997, the SLAA 2012
and the TLAA 2010 to make permanent tax relief for merging
superannuation funds.
Context of amendments
2.2 The CGT regime is the primary code for calculating gains or
losses of complying superannuation funds. There are certain gains and
losses that are treated on revenue account, such as those from a debenture
stock or bond (see section 295-85 ITAA 1997).
2.3 The transfer of assets from one superannuation fund to another,
under a merger between the two funds, will typically trigger a CGT event.
Therefore, the asset transfer will lead to the realisation of capital gains
and/or capital losses for the transferring fund. Following this asset transfer
and the transfer of members' accounts to the receiving fund, the
transferring fund will typically be wound up.
2.4 Capital losses are extinguished on the ending of an entity. As
capital losses can be used to offset present and future capital gains, they
carry some value -- at most the value of the tax liability that would
otherwise be payable on the reduced capital gains. This value is
extinguished on the winding up of the transferring superannuation fund.
2.5 Similarly, revenue losses, such as foreign exchange losses, are
also extinguished on the ending of an entity. Revenue losses also have a
value as they can be offset against current year income, or carried forward
where the entity continues to exist. However, where there is a merger and
the transferring entity ceases to exist, the value of the revenue losses is
also extinguished.
2.6 Valuations of members' superannuation interests may include
the tax benefits of unrealised net capital losses or revenue losses. In the
absence of optional loss relief and asset roll-over a merger may lead to a
reduction in the value of members' superannuation interests. This can act
as an obstacle to the superannuation fund merging with another fund
because the trustee has to take this reduction into account when
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Treasury Laws Amendment (2020 Measures No. 1) Bill 2020
considering such a merger. The trustee may decide to abandon any merger
plans where there is a significant negative impact on members' benefits.
The optional loss relief and asset roll-over removes the impediment to
eligible funds merging that would otherwise arise from the
extinguishment of the losses.
2.7 This loss relief includes transfers to and from pooled
superannuation trusts and life insurance companies as well as
superannuation funds and approved deposit funds. Providing loss relief to
superannuation fund mergers involving these kinds of entities recognises
the commercial reality that a significant amount of superannuation is
invested indirectly through pooled superannuation trusts and life insurance
companies.
2.8 The loss relief and asset roll-over in Division 310 of the
ITAA 1997 was introduced as a temporary concession to assist the
superannuation industry to cope with the severe economic and financial
market conditions in late 2008. The temporary loss relief and asset
roll-over was granted for transfer events happening on or after
24 December 2008 and before 1 July 2011.
2.9 The tax relief was first extended to 30 September 2011 to further
encourage consolidation in the superannuation industry. The relief was
further extended to apply to mergers from 1 October 2011 to 1 July 2017
to facilitate the implementation of the MySuper reforms. The extension of
the relief was designed to ensure there were no barriers for the
superannuation industry to respond to the MySuper changes. Following
the 2017-18 Budget, the Government then further extended the temporary
taxation relief to 1 July 2020.
2.10 The Productivity Commission Inquiry Report--Superannuation:
Assessing Efficiency and Competitiveness--was publicly released on
10 January 2019. Recommendation 21 of the Report provides:
The Australian Government should legislate to make permanent the
temporary loss relief and asset rollover provisions that provide relief from
capital gains tax liabilities to superannuation funds in the event of fund
mergers and transfer events.
2.11 Following the Productivity Commission Inquiry Report, the
Government announced in the 2019-20 Budget that it would make
permanent the current temporary arrangements that are due to expire on
1 July 2020.
Summary of new law
2.12 The tax system currently contains temporary arrangements for
loss relief and asset rollover that provide relief from CGT liabilities to
24
Permanent tax relief for merging superannuation funds
superannuation funds in the event of fund mergers and transfer events.
These temporary arrangements are due to expire on 1 July 2020.
Schedule 2 makes the arrangements permanent.
Comparison of key features of new law and current law
New law Current law
A merging superannuation fund may A merging superannuation fund may
choose loss relief and have access to choose loss relief and have access to
asset roll-over where the transferring asset roll-over where the transferring
entity transfers assets to the receiving entity transfers assets to the receiving
entity on or after 1 October 2011. entity on or after 1 October 2011 and
before 2 July 2020.
The tax relief available under The temporary tax relief available
Division 310 for merging under Division 310 for merging
superannuation funds is permanent superannuation funds will be
and is not automatically repealed on automatically repealed on
1 July 2022. 1 July 2022.
Detailed explanation of new law
2.13 To make permanent the operation of Division 310 of the
ITAA 1997 concerning tax relief for merging superannuation funds, the
application provisions for the loss relief and asset roll-over in the
SLAA 2012 and the TLAA 2010 are amended to make the provisions
apply on or after 1 October 2011. [Schedule 2, items 2, 4 and 5, item 19 to
Schedule 1 to the SLAA 2012, and subitem 11(1) of Schedule 2 to the TLAA 2010]
2.14 The note in section 310-1 of the ITAA 1997 explains the periods
in which mergers must occur for the loss relief provisions in Division 310
to apply. The note is amended to make clear that the provisions are
permanent, and apply to mergers happening on or after 1 October 2011.
[Schedule 2, item 1, section 310-1 ITAA 1997]
Consequential amendments
2.15 Parts 4 and 5 of the TLAA 2010 were intended to repeal the
temporary loss relief provisions on 1 July 2022 and to provide for
application arrangements following the repeal. Because the arrangements
are being made permanent, these repeal and application provisions are no
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Treasury Laws Amendment (2020 Measures No. 1) Bill 2020
longer required and they are therefore repealed. [Schedule 2, items 3 and 6,
table item 4 of subsection 2(1) and Parts 4 and 5 of Schedule 2 to the TLAA 2010]
Application and transitional provisions
2.16 The amendments apply in relation to transfer events that happen
on or after 1 October 2011. All of the members of the original fund
(the transferring entity) need to become members of a continuing fund
(the receiving entity) on or after 1 October 2011 and the transferring entity
needs to cease to hold all relevant assets on or after 1 October 2011.
[Schedule 2, item 7]
2.17 While the application of the amendments is retrospective, the
amendments operate only to make permanent the concessional taxation
treatment that has been afforded to merging entities in the period
1 October 2011 to 1 July 2020. In this way, the retrospectivity is not
disadvantageous to affected entities.
26
Chapter 3
Statement of Compatibility with Human
Rights
Prepared in accordance with Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011
Significant global entities
3.1 Schedule 1 to this Bill is compatible with the human rights and
freedoms recognised or declared in the international instruments listed in
section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
3.2 Schedule 1 to this Bill expands the definition of significant
global entity in the ITAA 1997 so that it:
• applies to groups of entities headed by an entity other than a
listed company in the same way as it applies to groups
headed by a listed company; and
• applies despite exceptions to when a group of entities must
prepare consolidated accounts, including materiality rules, in
the applicable accounting rules.
3.3 The amendments also modify the rules that identify which
entities must undertake country by country reporting under the tax law to
ensure these rules are aligned with Australia's international commitments.
Human rights implications
3.4 This Schedule does not engage any of the applicable rights or
freedoms.
Conclusion
3.5 This Schedule is compatible with human rights as it does not
raise any human rights issues.
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Treasury Laws Amendment (2020 Measures No. 1) Bill 2020
Permanent relief for merging superannuation funds
3.6 Schedule 2 to this Bill is compatible with the human rights and
freedoms recognised or declared in the international instruments listed in
section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
3.7 Schedule 2 to this Bill amends the ITAA 1997, the SLAA 2012
and the TLAA 2010 to make permanent the current temporary
arrangements for taxation relief for merging superannuation funds, which
includes the provision of loss relief and an asset roll-over.
Human rights implications
3.8 This schedule does not engage any of the applicable rights or
freedoms.
Conclusion
3.9 This schedule is compatible with human rights as it does not
raise any human rights issues.
28