• Service: Tax, Corporate Tax, Topics, Tax Reform
  • Industry: Financial Services
  • Type: Regulatory update
  • Date: 3/07/2014

Tax Insights

KPMG's analysis of tax issues and developments.

Connie Van Werkum

Connie Van Werkum
Partner, Corporate Tax

+61 3 9288 6516

Australian CFC reform? Don’t hold your breath 

by Connie Van Werkum, Financial Services Specialist

In the 2009-10 Federal Budget, the Rudd Government announced that Australia’s Controlled Foreign Company (CFC) rules would be reformed as part of wider reforms to Australia’s foreign source income anti-tax-deferral rules. Consultation papers on the CFC rules were released in January 2010 and July 2010. This was followed by Exposure Draft legislation in 2011 and a further round of submissions. It then went very quiet.

Included in the Exposure Draft legislation was a proposed exemption applicable to complying superannuation entities (and certain assets of life insurance companies) from including an amount of CFC attributable income in their assessable income. As stated by the Assistant Treasurer at the time, as such entities are generally subject to tax at 15 percent, any tax deferral benefits would be minimal.


The current CFC rules result in significant administration and compliance costs for superannuation entities and act as an impediment to offshore investment. It was for these reasons that a similar exemption in the former Foreign Investment Fund rules was introduced.


Given the current Government’s disappointing announcement on 14 December 2013 that the modernisation of the CFC rules including the proposed exemption for complying superannuation entities would not be proceeding, it seems that the current CFC rules are here to stay, at least in the medium term.


As such, there is an urgent need for the Government to amend the law to exempt complying superannuation entities from the current CFC rules.


In the meantime, taxpayers should continue to monitor the CFC status of their foreign investments. If CFC calculations are currently being performed, now is also the time to consider the impact of the proposed changes to the dividend rules (sections 23AJ and 404) as these have the potential to affect CFC attributable income. Accordingly, current investment structures should be reviewed.


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