We are seeing information sharing between the Foreign Investment Review Board and the ATO resulting in the ATO seeking active engagement with taxpayers during the course of a transaction. It is important for taxpayers to carefully consider how to manage this interaction to ensure the smooth conduct of their transaction, and importantly, avoid the ATO seeking to use any formal powers to protect the revenue.
Some recent issues that have arisen in this context include:
- foreign currency translation issues including consideration of section 960-61 which requires a non-resident to calculate capital gains tax (CGT) outcomes using their applicable functional currency'
- exemptions available under Division 855 for certain interests that are not taxable Australian property. In considering whether a non-resident has an Indirect Australian real property interest, taxpayers must consider whether there is an associate inclusive non-portfolio interest
- how to value Taxable Australian Real Property (TARP) vs non-TARP assets when considering the exemption in Division 855 - given the recent decision of the Full Federal Court in the Commissioner of Taxation v Resource Capital Fund III LP. This may be a different valuation methodology adopted by the buyer for stamp duty purposes: Commissioner of State Taxation (WA) v Nischu Pty Ltd
- augmenting the cost base for the non-resident’s incidental costs
- ensuring that appropriate substantiation for costs is obtained in a valid format (e.g. in English) with sufficient information to support the nexus of the expense to the transaction
- the ATO has formal powers under section 255 which can require a party in control of moneys belonging to a non-resident to effective pay to the ATO, as agent of the non-resident, an amount required by the Commissioner.