Depository institutions, custodians, investment entities and insurance companies that issue or make payments to investment linked life insurance or annuity contracts will be required to collect and report information to the ATO under the CRS that they identify as being owned or controlled by a non-resident, unless the account or policies are exempt.
If implemented, these issues will need to be considered:
- how to ‘look through’ (in trusts, for example) to the ultimate controlling entity
- cases where individuals change their tax residence
- compliance costs to smaller Australian financial institutions which are not currently part of the US FATCA regime
- this scheme is based on the calendar year while the Australian tax year starts on July 1, leading to increased compliance costs
- Australia uses Tax File Numbers, and is not part of the proposed global tax identifier regime
- financial institutions may lack all the information necessary for the standards to work
- the lack of any materiality criteria in the CRS
- the concerns of confidentiality of taxpayer information.
As there is enhanced reporting under the proposals, it is likely financial institutions will need to consider changes to their systems to be able to provide the required information to the ATO. Internationally, there is significant political will to implement this standard. Thus, implementation of the CRS is a real possibility in Australia, which could lead to increased compliance costs for financial institutions going forward.