08 May 2018

Australian Federal Budget 2018-19: International

This article was written by Calum Sargeant and Tom Wu.

Over several years the Government has introduced a significant suite of integrity measures targeted at multinational taxpayers, including the multinational anti-avoidance law (MAAL) and the diverted profits tax (DPT). This year’s Budget broadens the scope of entities to which the MAAL and DPT will apply. The Budget will also remove the ability of taxpayers to value assets for thin capitalisation purposes in a way that does not align with the valuation of those assets on the taxpayer’s financial statements.

Significant global entity definition

The Government has announced its intention to broaden the definition of “significant global entity” (SGE) under the tax rules. This definition is used for a range of tax purposes to identify entities:

  • which are required to prepare Country by Country reports
  • to which the MAAL applies;
  • to which the DPT applies; and
  • which may be subject to increased scheme shortfall penalties.

The current definition applies to an entity which is a member of a group that is consolidated for accounting purposes and which is headed by a public company or a private company required to provide consolidated financial statements, with annual global revenue of at least $1 billion. The definition will be broadened to include members of large multinational groups headed by private companies, trusts and partnerships. It will also include members of groups headed by investment entities.

The changes to the definition will also make amendments to the Commissioner’s power to determine that an entity is a global parent entity of an SGE, to ensure that power operates as intended.

The measure will apply to income years commencing on or after 1 July 2018.

Thin capitalisation assets valuations to be aligned with financial statements

The Government will restrict the ability of entities to make “thin capitalisation only revaluations” by requiring entities to align the value of their assets for thin capitalisation purposes with the value included in their financial statements.

Under the current thin capitalisation rules, taxpayers may in certain circumstances revalue assets for thin capitalisation purposes only, without also revaluing the assets for accounting purposes. Additionally, taxpayers may rely on concessions in the thin capitalisation rules, which allow for the recognition and revaluation of certain intangible assets not otherwise recognisable according to accounting standards. The ATO has previously expressed concerns about taxpayers using the existing rules to increase their maximum allowable debt.

Applying to income years commencing on or after 1 July 2019, all entities must rely on the asset values contained in their financial statements for thin capitalisation purposes. Valuations that were made prior to 7.30PM (AEST) on 8 May 2018 may be relied on until the beginning of an entity’s first income year commencing on or after 1 July 2019.

Thin capitalisation treatment of entities that are both outward and inward investing entities

The Government will ensure that foreign controlled Australian consolidated entities and multiple entry consolidated groups that control a foreign entity are treated as both outward and inward investment vehicles for thin capitalisation purposes. This will apply for income years commencing on or after 1 July 2019. This change will ensure that inbound investors cannot access tests that were only intended for outward investors.

Film industry location incentive

The Government has confirmed that it will provide a location incentive of $140 million to attract foreign investment in the Australian film industry. Specifically, the Government will provide $140 million over four years from 2019-20 to attract international investment to sustain Australian jobs in the film production and related industries through a competitive incentive program. This funding will complement the Government’s existing ‘Location Offset’ component of the Australian Screen Production Incentive tax rebate.

This additional funding was announced earlier this month by the Minister for Foreign Affairs. The proposed incentive effectively increases the existing Location Offset rebate from 16.5% to 30% for eligible large budget international productions that film in Australia.

For a full analysis of this year's Budget measures, please see Australian Federal Budget 2018-19.

Key contacts

Data Central

Have you checked out our new Data Hub? Data Central contains a range of resources to help our clients minimise the legal, regulatory and commercial risks this data-driven environment presents and ensure that its full value is being realised.

A Guide to Investing in Australian Real Estate

Investing Down Under offers a quick overview of the legal, taxation, FIRB and structuring issues you may encounter when investing in Australian real estate.

Download our analysis as a PDF

Our full Australian Federal Budget analysis is also available in a PDF format.

Share on LinkedIn Share on Facebook Share on Twitter
    You might also be interested in

    On Friday 25 September 2020 the Treasurer Mr Josh Frydenberg announced significant reforms to the responsible lending obligations in the National Consumer Credit Protection Act 2009.

    25 September 2020

    In a year like no other, KWM’s Directions team took corporate Australia’s pulse through a COVID-19 focussed survey of directors and senior leaders.

    23 September 2020

    The New Rules giving effect to the extension of the JobKeeper program were registered today. This is to give effect to the Federal Government’s announcement of the extension on 21 July 2020.

    15 September 2020

    On 10 September 2020 the ACT Government announced the extension of the Leases (Commercial and Retail) COVID-19 Declaration 2020 to assist commercial tenants affected by the pandemic and experiencing...

    15 September 2020

    You may also be interested in...

    Legal services for your business

    This site uses cookies to enhance your experience and to help us improve the site. Please see our Privacy Policy for further information. If you continue without changing your settings, we will assume that you are happy to receive these cookies. You can change your cookie settings at any time.

    For more information on which cookies we use then please refer to our Cookie Policy.