Preferential treatment for Offshore Banking Units removed

12 May 2021

The Government has announced the removal of concessional tax treatment currently available to Offshore Banking Units (OBU), including the interest and gold fees withholding tax exemption and the concessional tax rate on eligible offshore banking activities.

In addition, the Government will close the OBU regime to new entrants, effective from 26 October 2018.

Existing OBUs will continue to have access to the concessional tax rate until the end of the 2022-23 income year, while the withholding tax exemption for interest and gold fees paid on certain offshore borrowings will be removed from 1 January 2024.

These changes propose to address the concerns raised in October 2018 by the Organisation for Economic Cooperation and Development (OECD) regarding the Australian OBU regime.

The legislation giving effect to this measure was introduced into Parliament on 17 March 2021.

Additional countries added to Exchange of Information countries

Currently, residents of jurisdictions which Australia has an effective exchange of information (EOI) agreement are eligible to access a reduced Managed Investment Trust (MIT) withholding tax rate of 15 percent on certain distributions, rather than the default rate of 30 percent.

The list of effective EOI agreement countries will be updated effective from 1 January 2022 and will include the following additional countries:

  • Armenia.
  • Cabo Verde.
  • Kenya.
  • Mongolia.
  • Montenegro.
  • Oman.

Technical amendments to the Taxation of Financial Arrangements

The Government has indicated it will make technical amendments to the Taxation of Financial Arrangements (TOFA) legislation, which will include facilitating access to hedging rules on a portfolio hedging basis.

The amendments are intended to reduce compliance costs and correct certain unintended outcomes, such that taxpayers are not subject to the taxation of unrealised foreign exchange gains and losses, unless it is elected.

The changes will take effect for relevant transactions entered into on or after 1 July 2022.

Revised start date for Corporate Collective Investment Vehicle Framework

The Government’s Corporate Collective Investment Vehicle (CCIV) tax and regulatory framework has been given a revised start date of 1 July 2022.

The CCIV is broadly a corporate investment vehicle structure providing flow-through tax treatment and is intended to improve the competitiveness of the Australian managed funds industry.

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