Draft laws confirm ATO's 'longstanding views' on foreign resident CGT, says Tax Office

The government’s draft laws to strengthen the foreign capital gains tax regime confirm, with retrospective effect, the ATO’s long-standing views and compliance approach on CGT with the disposal of real property by foreign investors, the Tax Office has said.

The Treasurer released draft legislation for consultation this month, which he said confirmed that the CGT applies to foreign investors selling assets with a close economic connection to Australian land and its natural resources.

In a recent update, the ATO said its long-standing view has been that the term ’real property’ is not limited to its narrow, technical legal meaning.

”This aligns with how we have administered the law. If the law is enacted, we would not expect to change our existing administrative approach,” the Tax Office said.

The ATO said that, in practice, it would continue its current compliance approach for disposals currently under review and occurring in the past four years.

”Generally, we do not conduct reviews on disposals older than 4 years, even if the period of review is still theoretically open,” it said.

”However, if an older case came to our notice for other reasons, we may review it. For example, if a taxpayer applied for a ruling that involved the amended law, we would consider any retrospective effects.”

The ATO said it won’t seek to reopen settlements that parties intended to be final, except in very rare cases.

”Therefore, we don’t expect the retrospective changes to the law, if they’re enacted, to affect many taxpayers,” it said.

”The changes will mainly clarify the law for those taxpayers already subject to review or who would normally be subject to review.”

The draft legislation has faced some criticism from the accounting industry, with CPA Australia saying that the draft reforms represented a policy change rather than a clarification, as the Treasurer said.

CPA Australia expressed concern about the draft, which undermines tax certainty by reopening transactions from nearly 20 years ago.

The body’s tax lead, Jenny Wong, said that this retrospective tax reform also alters the tax treatment of transactions entered into in line with legislation at the time, which will reduce investor confidence and make Australia a less attractive place to invest.

The accounting body has also been critical of the short two-week consultation period for the reforms, which it said was ”completely insufficient” for the magnitude of the proposed changes.

The Treasurer said the legislation would bring Australia’s tax laws closer into alignment with the OECD Model Rules for the taxation of foreign residents and also bring the tax treatment of foreign investors closer into alignment with the treatment of Australian residents.

”This reflects the government’s commitment to improve tax fairness and make the budget more sustainable,” he said.