BLO2206 - Taxation Law: Foreign Investment in Australia's Agriculture

This report examines the tax treatments and implications for foreigners investing in the agricultural sector in Australia. It begins by defining 'foreign resident' under Australian taxation law, outlining the residency tests and conditions. The report details the tax treatments applicable to foreign residents, including foreign tax credits, capital gains tax, GST obligations, and withholding tax. It further explains the implications of these treatments, such as the lack of a tax-free threshold and specific rules for temporary residents, and the tax implications of ceasing tax residency. Recommendations for relevant law forms are provided, emphasizing the need for progression in the tax system and transparency in tax-free thresholds. This document is available on Desklib, a platform offering a wealth of study resources for students.

BLO2206 AUSTRALIAN TAXATION
LAW AND PRACTICE
ASSIGNMENT
Trimester 3, 2018

Table of Contents
Tax treatments and implications for foreigners investing in the Agricultural Businesses in
Australia...........................................................................................................................................3
Description of foreigners in Australian taxation law...................................................................3
Description of tax treatments for foreign residents.....................................................................4
Implications of described treatment to foreigners.......................................................................6
Recommendations for relevant law forms...................................................................................7
References........................................................................................................................................9

TAX TREATMENTS AND IMPLICATIONS FOR FOREIGNERS
INVESTING IN THE AGRICULTURAL BUSINESSES IN
AUSTRALIA
Description of foreigners in Australian taxation law
The foreign resident is similar to a non-resident, which means they can be a resident of Australia
for the purpose of the tax even if they are not the citizen of Australia or permanent resident. They
might possess a visa for entering in Australia, but are not considered as the resident of Australia
for the purpose of the tax1. There are three ways by which a business might be assessed to be an
Australian resident for the purpose of tax which is where the business is incorporated in
Australia, where the business is not incorporated within Australia, and the business conducts
business within Australia and its power of voting is governed by shareholders who are Australian
residents. It is essential that all the tests which are Residency - the resides test, Residency - the
domicile test, Residency - the 183-day test, Residency - the superannuation test must be satisfied
to be called as a foreign resident for income tax purposes2. Apart from the individuals who do
not satisfy the conditions of the test, following individuals are also considered as foreigners for
the purpose of taxation:
 Individuals to visit Australia and for the majority of the time they are travelling and
operating in several locations
 Individuals holidaying within Australia or having visited for not more than six months
 Individuals to leave Australia on a permanent basis 3
Further, all the company considered as foreign resident company in Australia except in following
circumstances –
1 Lam, Dung, and Alex Whitney. "Taxation and property: Practical aspects of the new foreign resident CGT
witholding tax (2016) LSJ: Law Society of NSW Journal 21: 84.
2 Burns, Andrew. "Mid market focus: Tax considerations when doing business offshore. (2017) 51, no. 10Taxation
in Australia : 535.
3 Australia Broadens The Tax ‘Resident’ Test For Foreign Incorporated Companies (2019) RSM Australia
<https://www.rsm.global/australia/insights/tax-insights/australia-broadens-tax-resident-test-foreign-incorporated-
companies>

 If it is established in Australia or
 Even though it is not established in Australia but it conducted business in Australia and
has carried out its central control and management4 in Australia or shareholders of the
company are resident of Australia and through the voting power they exercise control
over company56.
Description of tax treatments for foreign residents
Australia operates a foreign tax credits system, which states that tax credits are provided to a
resident of Australia that makes payment of foreign tax on the foreign income. In addition, the
foreign residents are entitled to capital gains, on merely limited sorts of assets, for example, real
estate7. Moreover, the capital gains are covered under the assessable income of the taxpayer and
thereby on every applicable income tax rate of the taxpayer. The imposition of Medical Levy is
done at a flat rate of 1.5% of the person’s taxable income, yet there are exempts that may be
provided to low-income foreign residents. Generally, the withholding tax is payable when
dividends, royalties or interest are payable by the resident of Australia to the foreign business
entity. The withholding rate is usually established in the viable double tax agreement.
For the GST purpose, the foreign resident is required to register for the same within Australia, in
a situation where they are operating an entity, and their GST turnover held from the sales are
related with Australia. Further, the GST is a wide-ranging tax of 10% on the majority of goods,
and sale or consumption of other goods in Australia. For registering the GST, the foreign
resident must initially get an Australian business number (ABN). The ABN has stated as a
unique 11 digit identifier that facilitates for business and all government level for the purpose of
interaction. Further, a foreign entity might be subjected to an ABN when it to carry out an
enterprise within Australia, or it generates sales that are linked with Australia8. It is not essential
4 De Beers Consolidated Mines Ltd v Howe[1906] AC 455
5 Untelrab Ltd v McGregor (Inspector of Taxes)[1996] STC(SCD) 1
6 Dixon, J. M., and Jason Nassios. Modelling the impacts of a cut to company tax in Australia. Centre for Policy
Studies, (Victoria University, 2016).
7 Becker, Johannes, "Taxation Of Foreign Profits With Heterogeneous Multinational Firms" (2012) 36(1) The
World Economy
8 Chang Hee Lee, "Taxing Interest Income Derived By Non-Residents And Foreign Corporations" (2012)
18(3) Seoul Tax Law Review

that the enterprise shall be located within Australia. It is important for a foreign resident to
register an ABN for some tax purposes, like GST and (PAYG) withholding.
Being a foreign resident, they must accommodate a tax return in Australia; they must initially
pay tax on all the income sourced in Australia, excluding that income which has been
appropriately taxed already, such as royalties, interest and unfranked dividends. Foreign
residents are not entitled to the tax-free threshold; therefore, the tax on income is right from the
first dollar9. Australia consists of tax treaties with other countries, and this might impact the tax
amount that they require to pay. It is to be ensured by the foreigner that their Australian financial
institution has updated offshore address and the status of residence, so they eliminate the relevant
amount of tax. This will deduct follow up actions by Australia or another treaty country when the
inconsistencies are held10. They are taxed automatically at a rate of 32.5% for the income not
more than or equivalent to $87,000. They are exceeding the threshold states higher tax rates,
based on the ATO tax matrices as well as thresholds. On the other hand, they do not need to
make payment for Medicare levy. Foreign residents are just subjected to capital gain tax in
regards with the gain generated on assets that are assessed TAP which exempts assets like shares,
fund investments and options11.
In an effective manner, they can possibly prevent paying Australian capital gain tax on assets
that are non-TAP, at the time of their non-residency. To this note, the ATO identified residency
status by examining if or if not the person meets the conditions of statutory which are Resides
Test, Domicile Test, 183-day Test and Superannuation Test. If a foreign resident is conducting
business in Australia, then their obligations on tax will be impacted by the tax treaties among
Australia and other treaty countries and by the nature and scope of the business. If a foreign
resident decided to carry out business in Australia, then they require registering in the Australian
tax system and make payment of Australian taxed, this is primarily based on if or if not from
they belong (country) that consist a tax treaty with Australia and if or if not they have Australian
permanent establishment.
9 Davies, Ronald B., Hartmut Egger and Peter Egger, "Profit Taxation And The Mode Of Foreign Market Entry"
(2010) 43(2) Canadian Journal of Economics/Revue canadienne d'économique
10 Being A ‘Non-Resident’ Makes A Difference For Tax Treatment | Lewis Accountants | Lake Haven, Central
Coast (2019) Lewis Accountants | Lake Haven, Central Coast
<https://www.lewistaxation.com.au/tax/general-tax/non-resident-tax-treatment>
11 Bywater Investments Ltd v FC of T [2015] FCAFC 176

Foreign business entities might be imposed on the CGT on asset obtained and employed in
conducting business in Australia12. Further, the business must manage the records on acquiring
assets that might be entitled to CGT in the near future. Small-scale business might also be
entitled to the concessions on CGT as per some circumstances. Often, foreign residents are
taxable on the income sourced in Australia, for example earning money in Australia.
Implications of described treatment to foreigners
An individual who is not a resident of Australia is not allowed for the $18,200 tax-free threshold;
hence all the assessable incomes is taxable from the first dollar. There are also differences in the
marginal tax rates; there is the absence of specified rules for temporary residents. Exemptions
exist for temporary and exempt visitors. There are tax implications in ceasing the tax residency
of foreign residents namely; HECS/HELP and TSL debts, investments, existing corporate
structures and primary place of residence. If the foreign resident expects their investment to rise
in value at the time, when they are not present in Australia, then they need to pay the tax liability
at the time of departure. This will then state that the growth in the investment value at the time of
that period of non-residency will not be entitled to Australian tax, thereby showcasing the free of
tax growth. However, there might be tax implications in the foreign residence country, if the
asset is sold.
Certain tax implications for the foreign resident taxpayers are inclusive of foreign residents taxed
on Australian source; they are generally required to be pay tax on the Australian sourced income.
Tax rates for the foreigners, they are not allowed for the tax-free threshold (which is $18,200 for
2014-15, and $19,400 for 2015-16). Thus the income is taxable initially from the first dollar. For
the Medicare levy, they are not required to pay for the same and thus are not eligible to claim for
the Medicare benefits. The foreign residents will have 10% of any interest gained from the bank
accounts of Australia withheld for tax, imposed on any “double taxation agreement” that may
subject a distinct rate. There is no inclusion of interest in the assessable income, but they must
need to offer an overseas address or else the tax would be withheld at the resident top marginal
rate. There are some tax offsets, which the foreign residents are not able to claim and several
other supportive schemes accessible to the residents; some example is inclusive of some family
12 Tax On Australian Income For Foreign Residents (2019) Ato.gov.au
<https://www.ato.gov.au/Business/International-tax-for-business/In-detail/Australian-income-of-foreign-residents/
Tax-on-Australian-income-for-foreign-residents/>

payment, aid with healthcare and School kids Bonus. Other requirements comprise of that a
foreign resident taxpayer might have the relevant visas and consent to operate. However other
administrative requirement is to possess a tax file number (TFN). If the TFN is not owned by the
foreign resident, then there would be a deduction of tax from the wages and salaries at the top tax
rate. Tax payer is needed to consider declaration of only income sourced in Australia and is
gained on their tax on return; they do not conduct declaration of foreign income on their
Australian tax return. The tax residency tax is also broadened by the ATO for the foreign based
business, the ATO also issues a draft ruling based on central management and control for the
foreign based companies. In addition, there is also the adoption of wider tests, and inclusive
review is held on all corporate structures.
Recommendations for relevant law forms
By considering all the conditions, implications and allowances for the foreign residents,
recommendations for the relevant law forms can be made that raise of revenue must be forced on
four key wide-ranging taxes which are; personal income, business income, rent based on land
and natural resources and private consumption13. There must be a progression in tax and transfer
system must be served by the personal income tax extent and transfer payments. In this way, the
tax-free threshold should be established with the stable marginal rate to offer better transparency.
In addition, there must be a continuation of the primary unit within the individual tax system by
the tax system must be limited, on the other hand, there can be the situation for optional couple
assessment for the individuals14. Along with this, income support and extra payments must be tax
exempted for the foreign residents. Plus, it is also recommended that the Medicare Levy and tax
offsets must be eliminated that are low income and beneficiary tax offsets etc. as single elements
of the system and integrated into the individual income tax rate scale.
It is also suggested that unnecessary complexity must be eliminated and government assistance
must be ensured effectively with good targets, and there must be the elimination of concessional
offsets with the replacement by outlays15. The recommendations are also to adopt a bright line
test as the initial test to identify a residency of the individual that shall decrease the compliance
13 Libguides: Public International Law: Australian International Tax Law (2019) Unimelb.libguides.com
<http://unimelb.libguides.com/internationallaw/Australian_international_tax_law>
14 Australian Board Of Taxation Recommends Extensive Reform (2019) Taxinsights.ey.com
<https://taxinsights.ey.com/archive/archive-news/australian-board-of-taxation-recommends-extensive-reform.aspx>

and burdens of risks while simultaneously raising the certainty level by which a foreign resident
can individually consider their position of income tax in Australia. Further, recommendations
include that there must be limitations placed on the Temporary Resident tax concessions to 4
year period while reviewing and analysing the adverse and negative outcomes of the limitations
to the previous foreign employment income tax exemption16. It is also suggested that there must
be a proper addressing of double taxation of fringe benefits and the complications present in the
foreign residency obligations and him closer alignment with visa rules.
15 Part 1: Overview - Chapter 12: List Of Recommendations - Australia's Future Tax System: Final Report (2019)
Taxreview.treasury.gov.au <http://taxreview.treasury.gov.au/content/finalreport.aspx?doc=html/publications/
papers/final_report_part_1/chapter_12.htm>
16 Wamser, Georg, "Foreign (In)Direct Investment And Corporate Taxation" (2011) 44(4) Canadian Journal of
Economics/Revue canadienne d'économique

REFERENCES
Australia Broadens The Tax ‘Resident’ Test For Foreign Incorporated Companies (2019) RSM
Australia <https://www.rsm.global/australia/insights/tax-insights/australia-broadens-tax-
resident-test-foreign-incorporated-companies>
Australian Board Of Taxation Recommends Extensive Reform (2019) Taxinsights.ey.com
<https://taxinsights.ey.com/archive/archive-news/australian-board-of-taxation-
recommends-extensive-reform.aspx>
Awasthi, Atul. "Transformation of Tax Laws: A Global Perspective. (2017) 45, no. 2 Intertax
175-181.
Becker, Johannes, "Taxation Of Foreign Profits With Heterogeneous Multinational Firms"
(2012) 36(1) The World Economy
Being A ‘Non-Resident’ Makes A Difference For Tax Treatment | Lewis Accountants | Lake
Haven, Central Coast (2019) Lewis Accountants | Lake Haven, Central Coast
<https://www.lewistaxation.com.au/tax/general-tax/non-resident-tax-treatment>
Burns, Andrew. "Mid market focus: Tax considerations when doing business offshore. (2017)
51, no. 10Taxation in Australia : 535.
Chang Hee Lee, "Taxing Interest Income Derived By Non-Residents And Foreign Corporations"
(2012) 18(3) Seoul Tax Law Review
Davies, Ronald B., Hartmut Egger and Peter Egger, "Profit Taxation And The Mode Of Foreign
Market Entry" (2010) 43(2) Canadian Journal of Economics/Revue canadienne
d'économique
Dixon, J. M., and Jason Nassios. Modelling the impacts of a cut to company tax in Australia.
Centre for Policy Studies, (Victoria University, 2016).
Lam, Dung, and Alex Whitney. "Taxation and property: Practical aspects of the new foreign
resident CGT witholding tax (2016) LSJ: Law Society of NSW Journal 21: 84.
Libguides: Public International Law: Australian International Tax Law (2019)
Unimelb.libguides.com
<http://unimelb.libguides.com/internationallaw/Australian_international_tax_law>
Part 1: Overview - Chapter 12: List Of Recommendations - Australia's Future Tax System: Final
Report (2019) Taxreview.treasury.gov.au
<http://taxreview.treasury.gov.au/content/finalreport.aspx?doc=html/publications/
papers/final_report_part_1/chapter_12.htm>

Tax On Australian Income For Foreign Residents (2019) Ato.gov.au
<https://www.ato.gov.au/Business/International-tax-for-business/In-detail/Australian-
income-of-foreign-residents/Tax-on-Australian-income-for-foreign-residents/>
Wamser, Georg, "Foreign (In)Direct Investment And Corporate Taxation" (2011)
44(4) Canadian Journal of Economics/Revue canadienne d'économique