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Wednesday, 10 February 2010
Page: 1044

Ms LEY (5:59 PM) —I am pleased to contribute to the debate on the International Tax Agreements Amendment Bill (No. 2) 2009. The bill amends the International Tax Agreements Act 1953 and the Income Tax Assessment Act 1997 to give domestic legal effect to three treaties—known variously as conventions, agreements and protocols—which were entered into during 2009 by Australia with New Zealand, Belgium and Jersey. Each of the three treaties is intended to avoid a situation where a taxpayer who resides in Australia or the other contracting state—New Zealand, Belgium or Jersey—is taxed on the same income both in Australia and in the other state. These agreements are commonly called double tax agreements. The tax treaties also prevent income tax evasion by encouraging cooperation and the sharing of information between contracting states and ensure that the laws of Australia and the other state are enforced.

It may interest you to know, Mr Deputy Speaker, that the treaty with Jersey is a completely new agreement, made between the two states in June last year. The treaty with New Zealand was made on 26 June last year and it replaces earlier tax treaties made between our two nations. In the case of Belgium, the bill gives effect to a protocol which was signed on 24 June 2009 which amends an agreement between the two states that was originally entered into as far back as 1977. As I said, the bill deals with these three treaties. I will just look briefly at each of them.

The Australia-New Zealand convention is Australia’s fourth comprehensive tax treaty with New Zealand. It will modernise the tax relationship between the two countries and will serve to facilitate trade and investment between Australia and New Zealand. The convention will replace the agreement between the government of Australia and the government of New Zealand for the avoidance of double taxation and the prevention of fiscal evasion of taxes on income that was signed in Melbourne in 1995 and the protocol amending the agreement which was signed in Melbourne on 15 November 2005. The treaty updates and modernises the bilateral tax arrangements between Australia and New Zealand. The International Tax Agreements Act 1953 is amended to insert the text of the convention as a schedule to that act. Australia’s tax treaties appear as schedules to the above act, which gives them the force of law in this country.

There are six outcomes from the treaty. It reduces withholding taxes on certain intercorporate dividends and completely removes them from others. It removes withholding tax on interest payments made to unrelated financial institutions or to the Australian or New Zealand governments. It lowers royalty withholding tax. It brings Australian managed investment trusts within the scope of treaty benefits. It provides the cross-recognition of the tax-exempt status of pensions both in Australia and in New Zealand. And it contains a short-term secondment provision which will preclude individuals from being caught up in the other country’s tax system when they are seconded to that other country for less than 90 days. People who are affected by this bill are residents of Australia and/or New Zealand and people who derive income, profit, gains or fringe benefits from Australia or New Zealand. The treaty will enter into force following the last notification that both countries have completed their domestic requirements, which in our case includes enactment of this bill.

In the second agreement with Belgium the bill amends various acts. That includes the second protocol, which was signed in Paris on 24 June 2009. This protocol is an element in combating cross-border tax evasion. It upgrades the exchange of information provisions in the tax treaty between Australia and Belgium by enhancing the ability of the Australian and Belgian tax authorities to exchange taxpayer information and to exchange on a wider range of taxes. In particular, the new provisions provide that neither tax administration can refuse to provide information solely because they do not require the information for their own domestic purposes or because the information is held by a bank or similar institution. The date of effect is 1 January 2010.

The third agreement with which this bill deals is the Australia-Jersey agreement. The bill amends various acts and protocols. This agreement contains articles that are based on corresponding articles contained in Australia’s bilateral tax treaties. The Jersey agreement is the third agreement of its type signed between Australia and a low-tax jurisdiction and was signed in conjunction with the agreement between the government of Australia and the government of Jersey for the exchange of information with respect to taxes which was signed in London on 10 June 2009. The International Tax Agreements Act 1953 is amended to insert the text of the Jersey agreement as a schedule to that act, which will give it the force of law. The Jersey agreement will promote a closer bilateral relationship between Australia and Jersey by eliminating double taxation of certain income derived by individuals, specifically pension recipients, government employees, students and business apprentices.

The Jersey agreement will provide greater cooperation between tax authorities to prevent tax avoidance and evasion. It will also provide an administrative mechanism to help resolve transfer pricing disputes that may arise between taxpayers and the revenue authorities of Australia or Jersey. The amendments made by this bill will impact individuals who are residents of Australia and/or Jersey who derive income from pensions or retirement annuities or the provision of government services or receive payments in their capacity as visiting students or business apprentices and residents of Australia or Jersey who wish to contest a transfer pricing adjustment made by the Australian or Jersey tax authorities. The amendment will take effect from the date of royal assent. Once it enters into force it will apply in Australia with respect to any income year beginning on or after 1 July in the calendar year next following the date on which the agreement enters into force. In Jersey it will apply with respect to any income year beginning on or after 1 January in the calendar year next following the date on which the agreement enters into force.

We understand that the impact of the first round effects on the forward estimates has been estimated as unquantifiable. Identifiable costs to revenue associated with reductions in the rate of withholding tax and the change in taxing rights for pensions have been estimated as $142 million over the forward estimates. However, reductions in New Zealand withholding taxes can be expected to result in an increase in the amount of Australian tax revenue through reduced foreign income tax offsets claimed and increases therefore in Australian taxable income. Given the bilateral flows between Australia and New Zealand, the current features of the Australian and New Zealand tax systems and the impact of the changes in the arrangements under the convention, the revenue costs are expected to be broadly offset by revenue gains. The important thing to note about this bill is that it has been approved by the Joint Standing Committee on Treaties, which of course considers all treaties and makes appropriate recommendations. In this case, it has recommended that binding treaty action be taken in relation to all three treaties. The opposition supports the bill.