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Chapter 30: Investment in Australia by non-residents

The challenge for taxation policy

Australia needs to obtain a reasonable revenue contribution from non-residents on Australian source income without affecting unduly the cost and level of foreign investment.

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A strategy for reform

The proposed new entity regime would bring with it changes to the way that non-residents are taxed on their Australian source income. Changes would need to be made to the taxation of non-residents to ensure that foreign investment is not unduly affected. These changes will depend on the options chosen for the entity regime.

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Key policy
issues
How should Australian tax be levied on non-residents investing in Australian entities? How should non-residents investing in Australian collective investment vehicles be taxed? How should profits remitted by branches of foreign companies be taxed? What rates of tax should apply to non-residents? How should tax on income of non-residents be collected? Should indirect transfers of Australian assets held by non-residents be subject to Australian tax?
Option 1
Impose full entity tax but no DWT.

Option 2
Impose DWT and refund some entity tax.

Option 1
A flow-through tax treatment for special collective investments vehicles holding investments solely for non-residents.

Option 2
A flow-through tax treatment for all collective investment vehicles.

Options
With deferred company tax, the tax could be applied to profits remitted.

Under alternative approaches, tax equivalent to DWT could be applied to remittances.

Option
A flat rate for non-residents (except where the treaty provides otherwise) at the company rate, with a lower rate for capital gains taxed on a gross basis.
Option
Impose a broader non-resident withholding tax.
Option
Tax indirect transfers of assets.