Treasury Laws Amendment (2020 Measures No. 1) Bill 2020

Bills Digest No. 94, 2019-20
PDF version [783KB]

Jaan Murphy
Law and Bills Digest Section
6 May 2020

Contents

Purpose of the Bill
Structure of the Bill
Structure of this Bills Digest
Committee consideration
Policy position of non-government parties/independents
Position of major interest groups
Statement of Compatibility with Human Rights
Schedule 1—significant global entities
Financial implications
Key issues and provisions: significant global entities
Key issues and provisions: new country-by-country reporting regime
Schedule 2: CGT relief for merging superannuation funds
Financial implications
Key issues and provisions

Date introduced: 12 February 2020
House: House of Representatives
Portfolio: Treasury
Commencement: The first 1 January, 1 April, 1 July or 1 October after Royal Assent.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.

All hyperlinks in this Bills Digest are correct as at May 2020.

Purpose of the Bill

The purpose of the Treasury Laws Amendment (2020 Measures No. 1) Bill 2020 (the Bill) is to amend the Income Tax Assessment Act 1997 (the ITAA 1997), the Taxation Administration Act 1953 (the TAA 1953) and related legislation to:

broaden the definition of a significant global entity (SGE) in Australia’s tax laws by capturing groups of entities headed by an entity other than a listed company in certain circumstances and thereby expand the type and number of entities that are potentially subject to Australia’s multinational anti-avoidance law (MAAL),[1] diverted profits tax (DPT)[2] and SGE penalty provisions[3]
change the rules pertaining to which entities must undertake country-by-country reporting under Australia’s tax law to ensure these rules are aligned with Australia’s international commitments[4] and
remove impediments to mergers between complying superannuation funds by permitting the roll-over of both revenue gains or losses and capital gains or losses.[5]

The Bill will ensure that the broadened definition of a SGE continues to underpin the application of the MAAL, DPT and SGE penalty provisions whilst the new definition of a Country-by-Country reporting entity (rather than the new definition of a SGE) will underpin Australia’s country-by-country reporting regime.[6]

Structure of the Bill

The Bill has two Schedules. Schedule 1 deals with SGEs and Country-by-Country reporting. Schedule 2 deals with merging superannuation funds.

Structure of this Bills Digest

As the matters covered by each of the Schedules are independent of each other, the relevant background and analysis of the provisions are set out under the relevant Schedule heading.

Committee consideration

At the time of writing the Bill had not been referred to any Committee for inquiry and report.

Senate Standing Committee for the Scrutiny of Bills

The Senate Standing Committee for the Scrutiny of Bills noted the retrospective operation of the amendments in Schedule 1 of the Bill dealing with SGEs and left to ‘the Senate as a whole the appropriateness of applying the amendments in Schedule 1 to the bill on a retrospective basis’.[7]

Policy position of non-government parties/independents

The Australian Labor Party (Labor) has indicated it supports the Bill.[8] At the time of writing none of the non-government parties or independents appear to have expressed a view on the precise measures contained in the Bill.

Position of major interest groups

At the time of writing, the position of major interest groups in relation to the specific measures proposed by the Bill was not clear.

The measures in Schedule 1 of the Bill were the subject of a two-stage consultation process carried out by Treasury. The first consultation ran from July to August 2018.[9] The subsequent consultation ran from November to December 2019.[10] Some stakeholders who made submissions in relation to the latter consultation raised concerns about the treatment of investment entities under the proposed amendments. Those concerns are noted below. In brief however, the concerns predominately relate to:

the appropriateness of extending the definition of a SGE (and therefore the MAAL, DPT and SGE penalty provisions) to investment entities and
the potential for the proposed definitions of a Country-by-Country reporting parent or group to, in some circumstances, capture certain investment entities.[11]

In relation to Country-by-Country reporting, particular concern was expressed that the amendments would impose those obligations on a broader range of investment entities than under the Organisation for Economic Co-operation and Development’s (OECD) revised recommendations in this regard.[12] These concerns are examined later in the digest.

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.[13] The Government notes that neither schedule engages any of the applicable rights or freedoms.[14]

Parliamentary Joint Committee on Human Rights

The Parliamentary Joint Committee on Human Rights considers that the Bill does not raise human rights concerns.[15]

Schedule 1—significant global entities

Schedule 1 of the Bill and its Explanatory Memorandum contain a number of defined terms and acronyms. To aid readers, some of those terms have been further contracted when used in this Bills Digest, as set out in Table 1 below.

Table 1: Term used in the Bill and/or its Explanatory Memorandum

Term used in the Bill and/or its Explanatory Memorandum	Term used in this Digest
Diverted Profits Tax	DPT
Global Parent Entity	GPE
Group of Twenty	G20
Multinational Anti-Avoidance Law	MAAL
Multi-National Enterprises	MNEs
Notional Listed Company Group	NLGC
Significant Global Entity	SGE

Source: Explanatory Memorandum, Treasury Laws Amendment (2020 Measures No. 1) Bill 2020.

Base Erosion, profit shift and the OECD BEPS Action Plan

The OECD defines Base Erosion and Profit Shifting (BEPS) as ‘tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid’. [16] This is sometimes referred to as transfer pricing.[17]

The OECD and the Group of Twenty (G20) have been working since 2013 to develop domestic and international instruments that aim to address BEPS and other forms of corporate tax avoidance, in particular by multi-national enterprises (MNEs).[18] At the request of the G20, the OECD and G20 published the Action Plan on Base Erosion and Profit Shifting (BEPS Action Plan) in July 2013.[19] The BEPS Action Plan concluded that there was a serious risk of erosion of corporate tax bases internationally, noting that ‘current international tax standards may not have kept pace with changes in global business practices’ and ‘the tax practices of some multinational companies’.[20]

The BEPS Action Plan includes 15 ‘action items’ and sets deadlines to develop guidance on each, which the former Labor Government agreed to in 2013.[21] Subsequently, at the G20 Summit in Brisbane in November 2014, the Coalition Government committed Australia, as part of the G20, to finalising the G20 and OECD’s work on BEPS, designed to ‘modernise international tax rules’ and address multinational corporate tax evasion.[22] The OECD subsequently developed a series of final reports for each action item (Action Items).

Action Item 13 deals with, amongst other things, Country-by-Country reporting , the core of which includes a requirement that:

MNEs provide all relevant governments with needed information on their global allocation of the income, economic activity and taxes paid among countries according to a common template.[23] [emphasis added]

The purpose of Country-by-Country reporting is to require certain taxpayers (mainly large MNEs and related entities) to provide tax authorities with useful and consistent information regarding transfer pricing positions and risks. In turn, that information enables tax authorities to determine where audit resources can most effectively be deployed and, in the event audits are called for, provide information to commence and target audit enquiries. In simple terms, the information gathered by Country-by-Country reporting:

should make it easier for tax administrations to identify whether companies have engaged in transfer pricing and other practices that have the effect of artificially shifting substantial amounts of income into tax-advantaged environments.[24]

The primary goal of the Action Item 13 recommendations is to render ‘BEPS planning strategies that rely on outdated rules or on poorly co-ordinated domestic measures ... ineffective’[25] and thereby align profits (and therefore tax revenues) with value creation and substance.

Significant global entities and multinational tax avoidance laws

Consistent with Action Item 13, the OECD developed new standards for transfer pricing documentation and Country-by-Country reporting. Australia’s Country-by-Country reporting rules implement in domestic law the recommendations in Action Item 13 of the BEPS Action Plan.[26] As noted by the OECD, Australia’s legislation uses different terminology and definitions to those in the OECD model legislation such as the concept of SGE and of a ‘Global Parent Entity’ (GPE).[27]

The definition of a SGE in the ITAA 1997 used in Australia’s Country-by-Country reporting regime not only deals with Country-by-Country reporting, it also links to and underpins aspects of Australia’s MAAL and DPT regimes. Importantly, Australia’s definition of a SGE means that the Country-by-Country reporting rules in Subdivision 815-E of the ITAA 1997 may not result in the same outcomes as under the OECD’s model legislation in Action Item 13.[28] This has flow-on repercussions for Australia’s MAAL and DPT regimes.[29]

Action Item 13: documentation to increase transparency

The OECD noted that a lack of quality data on corporate taxation made it difficult for tax authorities to carry out enforcement action, including transfer pricing assessments on transactions between linked companies and the carrying out of audits.[30] Action Item 13 of the BEPS Action Plan required the development of:

rules regarding transfer pricing documentation to enhance transparency for tax administration, taking into consideration the compliance costs for business. The rules to be developed will include a requirement that MNEs provide all relevant governments with needed information on their global allocation of the income, economic activity and taxes paid among countries according to a common template.^{^[31]} [emphasis added]

Accordingly, Action Item 13 provides revised standards for transfer pricing documentation and a template for Country-by-Country reporting of income, taxes paid and certain measures of economic activity.[32] It also includes model legislation pertaining to Country-by-Country reporting.[33] The goal of the Action Item 13 recommendations is to require MNEs to provide certain information in a standardised format to tax authorities not only about their domestic tax affairs, but also those of related entities operating in other jurisdictions—that is, Country-by-Country reporting information.

To achieve that goal, Action Item 13 provides that MNEs will have to provide the following documents annually to tax authorities:

a ‘master file’: that provides high-level information regarding their global business operations and transfer pricing policies to all relevant tax administrations
a ‘local file’: containing detailed transactional transfer pricing documentation specific to each country, identifying material related party transactions, the amounts involved in those transactions and the company’s analysis of the transfer pricing determinations they have made with regard to those transactions and
a ‘Country-by-Country Report’: which provides, annually and for each tax jurisdiction in which they do business:
–      the amount of revenue, profit before income tax and income tax paid and accrued
–      the number of employees, stated capital, retained earnings and tangible assets and
–      the identity of each entity within the group doing business in a particular tax jurisdiction and an indication of the business activities each entity engages in.[34]

In relation to the Country-by-Country reporting, the OECD model legislation and other OECD guidance material sets out which entities are required to provide those reports. The OECD notes that taken together, these three documents (master file, local file and Country-by-Country report) will require taxpayers to:

articulate consistent transfer pricing positions and will provide tax administrations with useful information to assess transfer pricing risks, make determinations about where audit resources can most effectively be deployed, and, in the event audits are called for, provide information to commence and target audit enquiries.^{^[35]}

The OECD notes that such Country-by-Country information will:

make it easier for tax administrations to identify whether companies have engaged in transfer pricing and other practices that have the effect of artificially shifting substantial amounts of income into tax-advantaged environments.^{^[36]}

A key issue dealt with by Action Item 13 and related work by the OECD—and by the Bill—is to identify what types of entities are captured by the above requirements.

Action Item 13: application to MNE groups

In Action Item 13, the OECD recommended, at a broad level, that all ‘Multi-National Enterprise groups’ (MNE groups) with annual consolidated revenue of more than EUR 750 million (or equivalent local currency) be required to file a Country-by-Country reporting.[37] This included a requirement that ‘ultimate parent entities’ (UPEs) of MNE groups ‘file the Country-by-Country Report in their jurisdiction of residence’.[38] More specifically, the OECD recommended:

no special industry exemptions should be provided (other than MNE groups with income derived from international transportation or transportation in inland waterways covered by treaty provisions in certain circumstances)
no general exemption for investment funds should be provided and
no exemption for non-corporate entities or non-public corporate entities should be provided.[39]

The OECD model legislation builds on the above recommendations. Under the OECD model legislation, the Country-by-Country reporting obligations are to be imposed on not only the UPE in the jurisdiction of its tax residence, but in some circumstances also on its ‘constituent entities’ (CEs), defined as:

any separate business unit of an MNE group that is included in the Consolidated Financial Statements of the MNE group for financial reporting purposes
any separate business unit of an MNE group that would be included in the Consolidated Financial Statements of the MNE group for financial reporting purposes if equity interests in it were traded on a public securities exchange
any separate business units excluded from the MNE group’s Consolidated Financial Statements solely on size or materiality grounds[40] and
any permanent establishment (PE) of any separate business unit of the MNE group captured by the above provided the business unit prepares a separate financial statement for such PE for:
– financial reporting, regulatory, tax reporting, or
– internal management control purposes.[41]

In essence, under the OECD model legislation, a CE may be required to file a Country-by-Country report with the tax authority of the jurisdiction it is a tax resident of where the UPE of that CE has not filed a Country-by-Country report in the jurisdiction of its tax residence. In addition, the OECD has clarified that a jurisdiction may require local filing of a Country-by-Country report by a CE if:

the UPE of the MNE Group is not obligated to file a Country-by-Country report in its jurisdiction of tax residence or
where the relevant jurisdiction (for example, Australia) does not have an International Agreement in effect to exchange information with the jurisdiction of tax residence of the UPE.[42]

Australia’s current regime

For the purposes of the ITAA 1997, the term entity is very broad. It means any of the following:

an individual
a body corporate
a body politic
a partnership
any other unincorporated association or body of persons
a trust
a superannuation fund
an approved deposit fund.[43]

Australia’s current Country-by-Country reporting regime is built around three key concepts: SGEs, GPEs and the annual global income of the entities involved. To give context to the proposed amendments, these are briefly outlined below.

Current definition of a significant global entity

Currently section 960-555 of the ITAA 1997 defines a SGE as an ‘entity’:

that is a global parent entity that has annual global income of $1 billion or more in that income year or
that is a member of a group of entities that:
– are consolidated for accounting purposes as a single group, and
– one of the other members of the group is a GPE whose annual global income is $1 billion or more or
in relation to which the Commissioner has made a determination that a GPE is a SGE.

Current definition of a global parent entity

A GPE is defined in section 960-560 of the ITAA 1997 as an entity that is not controlled by another entity according to accounting principles, or if these principles do not apply, commercially accepted principles relating to accounting (CAPRAs).

Current definition of the annual global income of an entity

When applying the above definitions of a SGE the ‘annual global income’ of an entity in question is defined as:

if it is a member of a group of entities consolidated for accounting purposes: the total annual income of the GPE of that group as shown in its latest global financial statements for that period or
otherwise: the total annual income of that entity shown in its latest global financial statements for that period.[44]

The definition of a SGE links to a number of aspects of Australia’s tax laws. For example, a SGE may, if it also satisfies other requirements be subject to Australia’s:

Country-by-Country reporting rules (contained in Subdivision 815-E of the ITAA 1997)
the MAAL
the DPT and
may also face increased administrative penalties under the taxation law and face additional reporting requirements.[45]

Differences between Australia’s current model and OECD recommendations

Other than differences in terminology, there are differences between Australia’s current definition of SGE and GPE and the OECD equivalents. As a consequence, differences also exist between the application of Australia’s Country-by-Country reporting obligations and the OECD model recommendations.

The first is that the Australian model only treats an entity as being part of a group of entities if the head entity of the global group actually prepares consolidated accounts covering that entity under the applicable accounting principles. In contrast, the OECD model legislation captures:

entities actually included in the Consolidated Financial Statements of the MNE Group for financial reporting purposes and
entities that would be so included if equity interests in the business unit were traded on a public securities exchange.[46]

That is, the OECD model also requires reporting by entities that would have had to prepare consolidated accounts if either it or the parent entity in the MNE Group had been a listed company. The OECD model also requires Country-by-Country reporting by entities that are not included in consolidated accounts due to materiality rules—something which is not reflected in the existing Australian requirements.[47]

Financial implications

In relation to the reforms to the definition of a SGE in Schedule 1 to the Bill, the Explanatory Memorandum notes that as ‘this is a revenue protection measure’ the ‘revenue impact is estimated to be nil’.[48] In addition, the Explanatory Memorandum indicates that the compliance cost for business will be ‘minimal’.[49]

Key issues and provisions: significant global entities

Summary of proposed amendments

Schedule 1 of the Bill amends the definition of SGE and alters the existing Country-by-Country reporting regime contained in the ITAA 1997 as follows:

the amended definition of a SGE will capture a broader range of entities and will apply despite exceptions to accounting rules regarding when a group of entities must consolidate for accounting purposes (including materiality rules)[50] and
the amended Country-by-Country reporting rules will apply to CbC reporting entities (a sub-set of entities captured by the expanded definition of a SGE).[51]

These changes are examined below in detail.

Expanded definition of significant global entity

Item 7 of Schedule 1 of the Bill inserts proposed subsection 960-555(2A) into the ITAA 1997. The effect of this amendment is that the term SGE will capture an entity which is:

a global parent entity with an annual global income of at least $1 billion, or which is the subject of a determination made by the Commissioner under subsection 960-555(3) of the ITAA 1997
a member of a group of entities consolidated for accounting purposes, where one of the other members of the group is a global parent entity with an annual global income of at least $1 billion, or which is the subject of a determination made by the Commissioner under subsection 960-555(3) of the ITAA 1997, or
a member of a notional listed company group (NLCG) that includes a GPE that either has annual global income of at least $1 billion or is the subject of a determination made by the Commissioner referred to above.

What is a notional listed company group?

The expanded definition of a SGE largely rests upon the new concept of a NLCG defined in proposed subsection 960-575(1) as a:

group of entities that would be required to consolidate for accounting purposes as a single group if
an entity (the test entity—usually the GPE[52]) were a listed company (that is, if it had shares listed on a public securities exchange).[53]

Proposed subsection 960-555(2A) of the ITAA 1997 then provides that where the above is satisfied and one of the other members of the group is a GPE with annual global income of $1 billion or more (or the Commissioner makes a determination) the entity is a SGE.[54]

For the purposes of determining whether a group of entities would be required to consolidate for accounting purposes, proposed subsection 960-575(3) states that the relevant accounting principles are applied or, if accounting principles do not apply, the commercially accepted principles related to accounting that apply to that entity are applied.

Proposed subsection 960-575(4) of the ITAA 1997 provides that when applying the relevant accounting principles or CAPRAs to an entity, any exceptions that would otherwise permit an entity not to consolidate with other entities in the group are disregarded. By way of example, the Explanatory Memorandum states:

an investment entity that controls other entities but is not required to consolidate with those entities under relevant accounting principles would still be part of a notional listed company group with those entities.[55] [emphasis added]

What accounting rules apply?

As noted above, for the purpose of determining whether a group of entities would be required to consolidate for accounting purposes and the annual global income of the entity either the relevant:

accounting principles are applied or
if accounting principles do not apply, the commercially accepted principles related to accounting that apply to that entity are applied.[56]

In effect, accounting principles are defined in the ITAA 1997 as being the Australian Accounting Standards (as defined by the Corporations Act 2001), or authoritative pronouncements of the Australian Accounting Standards Board (AASB).[57]

In contrast, what constitutes commercially accepted principles related to accounting is not defined in the Bill or the ITAA 1997. However, guidance as to its meaning can be found in existing paragraph 432(1)(c) of the Income Tax Assessment Act 1936 (ITAA 1936) which provides that for the purposes of applying the active income test to a controlled foreign company, that test can only be passed where among other things:

(c) the company has kept accounts for the statutory accounting period and:

(i) the accounts are prepared in accordance with commercially accepted accounting principles; and

(ii) the accounts give a true and fair view of the financial position of the company.

Paragraph 960-570(a)(ii) of the ITAA 1997 applies a similar test in relation to the meaning of global financial statements. It is not clear from the drafting of either provision whether the accounting standards must give a fair and true view of the financial position of the entity in order to be considered commercially accepted principles related to accounting, or whether this is an additional requirement imposed by the provisions. In that regard the Explanatory Memorandum to the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015—which introduced many of the provisions being amended by the Bill—notes:

The concept of ‘commercially accepted’ principles is based on paragraph 432(1)(c) of the ITAA 1936. Commercially accepted auditing and accounting principles would usually be the standards in use in the country in which an entity is resident or carries on its principal business activities. These standards are typically developed and enforced by the relevant accounting and auditing authorities in each country. In addition, the standards must ensure that the statements provide a true and fair view of the entity’s financial position.[58] [emphasis added]

This extract and some expert commentary appear to suggest that the ‘fair and true view’ requirement is a necessary element for accounting standards to be considered commercially accepted principles related to accounting.[59] However, other commentary suggests it is not.[60] OECD guidance materials do not provide clarity as to which is the case.[61]

Determining the annual global income of entities

Existing section 960-565 of the ITAA 1997 defines the annual global income of a GPE:

if the entity is a member of a group of entities that are consolidated for accounting purposes, then the annual global income of the GPE is the total annual income of all the members of the group or
if the entity is not a member of a group of entities that are consolidated for accounting purposes, then the annual global income of the GPE is the total annual income of the GPE itself.

Importantly however, in both of the above cases the annual global income will be what is shown in the relevant global financial statements for the GPE for the relevant period. This led to a loophole, namely:

if an entity did not have global financial statements, it could not have annual global income and would not have been a significant global entity unless it was the subject of a determination by the Commissioner under subsection 960-555(3).[62]

Accordingly where an entity did not have global financial statements and was considered to have no annual global income it could not be a SGE. This potentially put the entity outside many of Australia’s multi-national taxation avoidance regimes which link to, and operate off, the definition of a SGE.

Expanding methods for determining the annual global income of entities

The Bill seeks to close that loophole by making a number of amendments.

First, item 10 in Schedule 1 of the Bill inserts proposed paragraph 960-565(1)(aa) into the ITAA 1997 to provide that the annual global income of an entity (not just a GPE) that is a member of a NLCG is the total income of all members of the group, worked out on the assumption that all members of the group were consolidated for accounting purposes (even if they are not actually consolidated).

As previously stated, a NLCG is defined as a group of entities that would be required to consolidate for accounting purposes as a single group if the test entity (usually the GPE) were a listed company, and exceptions that permit an entity not to consolidate with other entities in the group are disregarded. This means that a NLCG will sometimes be larger than a group of entities that are actually consolidated for accounting purposes.

Second, item 11 amends paragraph 960-565(a) of the ITAA 1997 so that if an entity is a member of a group of entities that are consolidated for accounting purposes and is also a member of a NLCG (which will be the larger group) it is the income of the NLCG that is used to determine the annual global income of the entity.[63]

This means that entities that are part of a NLCG are treated in the same way as entities that are members of a group that are required to be consolidated for accounting purposes when determining the annual global income of the group.[64] It also effectively removes the ability of an entity to choose to apply accounting rules or standards that permit it:

not to consolidate with other related entities for accounting purposes or
to only consolidate with some, but not all, related entities for accounting purposes

as a way of avoiding various reporting and other obligations linked to the definition of a SGE.

What are global financial statements?

Existing section 960-570 of the ITAA 1997 defines global financial statements for a GPE as the financial statements that have been prepared and audited in relation to that entity, or that entity and other entities, in accordance with:

accounting principles and auditing principles or
if such principles do not apply—commercially accepted principles, relating to accounting and auditing

that ensure the statements give a true and fair view of the financial position and performance of that entity (or that entity and the other entities on a consolidated basis). Item 13 of Schedule 1 amends section 960-570 to replace the existing reference to a GPE with a reference to ‘an entity’. This expands the application of the definition of global financial statements.

Expanding meaning of global financial statements capture more annual global income

As noted above:

a GPE that does not have global financial statements does not have any annual global income
it is, therefore, not a SGE and
consequently, sits outside the ambit of a number of key anti-avoidance laws (such as the MAAL).

The Bill seeks to close this loophole by amending both the meaning of global financial statements and its interaction with determining the annual global income of an entity.

Item 12 of Schedule 1 of the Bill inserts proposed subsections 960-565(2) and (3) into the ITAA 1997.

Proposed subsection 960-565(2) provides that where global financial statements have not been prepared for the entity (not just a GPE), or they have been prepared but do not show the total annual income captured by section 960-565 (as amended) then proposed subsection 960-565(3) applies.

Proposed subsection 960-565(3) provides that in the absence of global financial statements that show the total annual income of the entities captured by section 960-565 (as amended) then the annual global income of the entity is the amount that would have been shown if such global financial statements had been prepared. In explaining the operation of these changes, the Explanatory Memorandum notes:

This is an objective test based on what would be expected to be the amount of such income if adequate statements were prepared. This amendment ensures that the absence of adequate global financial statements does not prevent the total annual income of all of the members of the group from being taken into account in determining if members are significant global entities. This is particularly important for notional listed company groups, as there is no requirement for the preparation of consolidated accounts for the entirety of such groups. It also avoids any need for such groups to prepare consolidated accounts or seek a determination by the Commissioner to provide clarity about its status as a significant global entity.[65]

The changed meaning of what constitute global financial statements and how that interacts with the meaning of annual global income means that where an entity (not just a GPE) does not have global financial statements at all, or only has financial statements that do not accurately represent the annual global income of the entity and:

the group of entities it is consolidated with or
the NLCG it is a member of

then the global annual income of the entity is deemed to be the amount that would be the annual global income if such global financial statements were prepared for the relevant period.[66]

Key issue: capturing investment entities

As noted earlier in the digest, the Bill will apply the broadened definition of a SGE to underpin the application of the MAAL, DPT and SGE penalty provisions. During the exposure draft consultation conducted by Treasury, a number of stakeholders expressed concern about the expanded definition of an SGE capturing investment entities.[67]

What are investment entities?

An ‘investment entity’ is defined in the relevant Australian accounting standards as an entity that:

obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services
commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both and
measures and evaluates the performance of substantially all of its investments on a fair value basis.[68]

Can an investment entity be a significant global entity?

As noted earlier in the digest, the definitions of a SGE and NLCG include entities excluded from consolidation under the accounting rules (such as the investment entity exception to consolidation and the materiality exception). As noted by Deloitte this means the new definition of a SGE:

will bring in a wider range of large business groups, regardless of how, or if, they consolidate, including potentially, entities owned by investment entities, a term that could include some private equity vehicles.[69]

This reflects the intention that the expanded definition of a SGE captures a broader range of groups including those headed by individuals, partnerships, trusts, private companies and investment entities, and hence subjects those groups to the MAAL, DPT and SGE penalty provisions.[70]

Some stakeholders expressed concern about the potential application of the expanded definition of a SGE to investment entities. The Financial Services Council argued:

The proposal will mean the Multinational Anti-Avoidance Law (MAAL) and Diverted Profits Tax (DPT) will apply retrospectively to entities newly classified as SGEs (although we understand penalties will not apply retrospectively)... In some cases... investment entities brought into the SGE net could be small to medium sized entities (SMEs). This would be imposing a tax regime designed for large multinational businesses on SMEs, [a] result that would not be consistent with the Government’s broader economic agenda.[71]

The Australian Investment Council also expressed similar concerns, arguing that:

expanding the SGE definition would have detrimental outcomes for businesses that are backed by Private Equity (PE) investments as it would discourage investment in Australian companies by PE funds and other investment entities due to the increased reporting and regulatory compliance burden that such entities and underlying portfolio companies would have to bear
the proposed change to the SGE definition is likely to result in small-to-medium sized Australian businesses, which operate solely within Australia, becoming SGEs and, therefore, subject to a penalty regime designed for large multi-national groups and
bringing in investment entities such as PE funds (including the fund manager entity and all underlying portfolio companies) under the same anti-avoidance rules that have been put in place for multinationals would see no material benefit to government revenue or the Australian tax base. [72]

Key issues and provisions: new country-by-country reporting regime

Currently Australia’s definition of a SGE is used for a number of different areas of tax law, including the Country-by-Country reporting regime. The Bill amends the Country-by-Country reporting rules contained in Subdivision 815-E of the ITAA 1997 so that they will apply to CbC reporting entities (a sub-set of entities captured by the expanded definition of a SGE) rather than to SGEs generally.[73] These changes are examined below in detail.

Summary of proposed amendments

The Bill will apply the CbC reporting obligations to a narrower set of entities—referred to as ‘country by country reporting entities’ (CbC reporting entities)—rather than all SGEs.[74] In summary the Bill:

defines a CbC reporting entity, CbC reporting parent and CbC reporting group and
imposes CbC reporting obligations on CbC reporting entities including the provision of information on other members of the CbC reporting group and
imposes an obligation to provide general purpose financial statements on CbC reporting entities, rather than on SGEs.

The Government argues that the changes will ‘better align with international standards’.[75]

Reporting obligations of SGEs

Item 5 in Schedule 1 of the Bill inserts proposed sections 815-370 to 815-380 into Subdivision 815-E of the ITAA 1997. That Subdivision requires SGEs to give the Commissioner certain statements, including, but not limited to, statements relating to their global operations and activities, and the pricing policies relevant to transfer pricing.[76] These are discussed under the heading ‘Country-by-country reporting obligations’ below.

Meaning of country-by-country reporting entity

Proposed section 815-370 defines a CbC reporting entity as an entity that is:

a CbC reporting parent for the period or
a member of a CbC reporting group and another member of that group is a CbC reporting parent.

As CbC reporting obligations are only imposed on CbC reporting entities, the definitions of a CbC reporting parent and CbC reporting group underpin the proposed CbC reporting regime. These are examined below.

Meaning of country-by-country reporting parent

Proposed section 815-375 defines a CBC reporting parent as an entity that:

is not an individual and
if it is a member of a CBC reporting group, it is not controlled by any other entity in the same CBC reporting group and
either the:
annual global income of the CBC reporting group that it is a member of is $1 billion or more, or
if it is not a member of a CBC reporting group, the annual global income of the entity itself is $1 billion or more.[77]

Whether an entity is controlled by any other member of the CBC reporting group is determined by either applying the relevant accounting principles or if such principles do not apply, commercially accepted principles related to accounting applicable to the entity.[78] One common form of control is ownership of the entity.[79] This is of relevance to investment entities, as explained below. For the purposes of determining the annual global income of an entity, proposed subsection 815-375(2) provides that proposed paragraph 960-565(1)(aa) which deals with the meaning of annual global income is read as referring to a CBCR group, instead of a NLCG.

The effect of this definition is that a CBC reporting parent is an entity (other than an individual) that would be a GPE entity and a SGE if all the entities outside of the CBC reporting group of which it is a part were disregarded. In this context, it does not matter if that entity is controlled by another entity outside the CBC reporting group.[80] This must be considered in light of the definition of a CBC reporting group, which operates to exclude certain entities from the definition of a CBC reporting parent. By way of example, the application of accounting principles and commercially accepted principles related to accounting will mean that that investment entities will not normally form part of a CBC reporting group – and hence will not be a CBC reporting parent –even if they own (and could therefore control) another entity that is part of the CBC reporting group. According to the Explanatory Memorandum:

investment entities can form part of a group of significant global entities but, subject to the relevant accounting principles, may not be included in a country by country reporting group.... as an exception to consolidation applies in the relevant accounting principles.[81] (emphasis added)

The Explanatory Memorandum also notes that the definition of a CBC reporting parent operates to allow an alternative controlling entity to be identified in circumstances where an entity is controlled by another entity that does not form part of the country by country reporting group.[82] An example would be where an investment entity owns another entity which is a member of a group of entities (other than the investment entity) which would be required to consolidate for accounting purposes if the entity owned by the investment entity was a listed company. In such circumstances it would be the entity that is owned by the investment entity that may be a CBC reporting parent, rather than the investment entity.[83]

Meaning of country-by-country reporting group

Proposed section 815-380 of the ITAA 1997 defines when a group of entities is a CBC reporting group. It operates to exclude entities that would otherwise be considered a GPE or SGE, including individuals and certain investment entities.

Proposed subsection 815-380 provides that a group of entities is a CBC reporting group if none of the entities is an individual and:

the group is consolidated for accounting purposes as a single group or
the group is a NLCG.

As stated above, the new definition of a NLCG captures entities that would be required to consolidate for accounting purposes as a single group if the test entity (usually the GPE) were a listed company, and exceptions that permit an entity not to consolidate with other entities in the group are disregarded.[84] This means that a NLCG may include ‘an investment entity that controls other entities but is not required to consolidate with those entities’ under exceptions in the relevant accounting principles (as those exceptions are disregarded).[85]

In this regard, proposed subsection 815-380(6) provides that when determining whether entities form a CBC reporting group certain exceptions to consolidation in accounting principles or commercially accepted principles related to accounting are applied. As accounting principles often contain exceptions to consolidation where any entity is owned by an investment entity, this means that such investment entities:

can form part of a group of significant global entities but, subject to the relevant accounting principles, may not be included in a country by country reporting group... as an exception to consolidation applies in the relevant accounting principles.[86] [emphasis added]

Whilst this appears at odds with the original OECD recommendation that investment entities not be exempted from Country-by-Country reporting obligations,[87] it is consistent with the current OECD position.[88]

Country-by-country reporting obligations

Country-by-Country reporting obligations are only imposed on entities that are a CBC reporting parent for the period or are a member of a CBC reporting group where another member of that group is a CBC reporting parent.

The current Country-by-Country reporting obligations are set out in section 815-355 of the ITAA 1997. In brief, they require a range of information to be provided by a SGE (and certain other entities) to the Commissioner including:

a statement relating to the global operations and activities of the entity
the pricing policies relevant to transfer pricing of the entity and certain other members of the group of entities to which the entity belongs
a statement relating to the operations, activities, dealings and transactions of the entity
a statement relating to the allocation between countries of the income and activities of, and taxes paid by the entity and certain other members of the group of entities to which the entity belongs.[89]

Items 1–4 in Schedule 1 of the Bill provide that Country-by-Country reporting obligations are imposed on CbCR entities, and remove references to SGEs. Items 3 and 4 provide that a CBC reporting entity (rather than a SGE) must provide information on the other members of a CBCR group of which it is a member. The Explanatory Memorandum states:

consistent with the treatment of members of groups of entities that are consolidated for accounting purposes, such entities must provide statements dealing with the global operations and activities and the allocation between countries of the tax paid by the group members of any country by country reporting group of which they are a member.[90]

The Explanatory Memorandum also notes that ‘this ensures that the statements that must be provided are consistent with international practice and the OECD model legislation’.[91]

Application of the OECD country-by-country reporting model to individuals

The Bill proposes to exclude individuals from Country-by-Country reporting obligations. Whilst this is consistent with the current OECD position, in February 2020 the OECD issued a consultation paper regarding various transfer pricing and CBCR issues. In that paper the OECD noted:

Tax administrations and some stakeholders are however concerned that the current definition of an MNE Group does not cover all combinations of enterprises, that pose a transfer pricing or other BEPS risk to jurisdictions in which they operate. For example, transfer pricing rules in many jurisdictions cover controlled transactions between enterprises that are under the common control of one or more individuals, but these arrangements are not covered by the current BEPS Action 13 minimum standard. This has been identified as a particular concern by tax administrations in some jurisdiction where, for legal, historic or cultural reasons, it is common for wealthy individuals and families to hold business interests directly, through a non-corporate vehicle that is not required or able to prepare consolidated financial statements, or through an investment entity that is not required to consolidate its holdings. Where this involves holdings in several groups, which separately are required to prepare consolidated financial statements (or would be if any enterprise in the group was listed on a public securities exchange), but which do not meet the current consolidated group revenue threshold, no CbC report is required. This is despite the fact that taken together these groups may exceed the consolidated group revenue threshold and do pose a potential transfer pricing risk.[92]

In the consultation paper, the OECD proposed potential reforms to the Action Item 13 model legislation and noted:

This approach balances increased neutrality between the treatment of related businesses that are held through corporate structures and those that are held directly by individuals, through non-corporate vehicles or through investment entities, with the need to ensure a manageable burden on groups brought within scope.[93]

Whilst it is not clear if the OECD will ultimately recommend that individuals be subject to Country-by-Country reporting obligations, should this occur then proposed subsections 815-375 and 815-380—which operate to exclude individuals from Country-by-Country reporting obligations—would need to be amended to ensure compliance with any amended OECD model legislation.

Key issue: providing general purpose financial statements

Currently section 3CA of the Taxation Administration Act 1953 (the TAA 1953) provides that certain SGEs have to provide the Commissioner with a general purpose financial statement each financial year.

Items 18 and 19 in Schedule 1 of the Bill amend section 3CA to provide that only CbRC entities will have this obligation. Item 20 inserts proposed subsections 3CA(1A) and (1B) into the TAA 1953 to ensure that Australian government-related entitles can be exempted from Country-by-Country reporting obligations by the Commissioner.[94] The Explanatory Memorandum notes:

While the requirement to provide general purpose financial statements remains limited to corporate tax entities... these amendments will result in a wider range of entities being country by country reporting entities. This means that more entities are likely to be subject to the requirement to provide general purpose financial statements to the Commissioner. The types of entities that are most likely to be affected are entities that are members of notional listed company groups that are not actually consolidated as a single entity with some or all of the members of that notional listed company group.[95]

Key issue: retrospective application of amendments in Schedule 1

Item 21 of Schedule 1 deals with what tax years the amendments apply to—generally they will apply to income years or periods starting on or after 1 July 2019.

In relation to Country-by-Country reporting obligations, subitem 21(2) provides that the amendments related to determining if any entity is a CBC reporting entity for a period will apply to periods that started before 1 July 2019. In explaining why this is necessary the Explanatory Memorandum notes:

When determining if an entity has country by country reporting obligations for a period, it is necessary to determine if the entity was a country by country reporting entity for the previous period. For the avoidance of doubt, the amendments specify that if the amendments apply to a period, they also apply for the purpose of determining if an entity was a country by country entity for a previous period when this is relevant to the country by country reporting obligations of the entity in a period after 1 July 2018, even if the previous period began before 1 July 2019.

The measure generally applies retrospectively from 1 July 2019. When this measure was announced in the Budget on 8 May 2018, it applied from 1 July 2018. While the application of the measure has subsequently been deferred by one year recognising the delays in the implementation of the measure, the retrospective application of the measure is consistent with the Government’s intention to broaden the scope of the significant global entity definition to ensure that Australia’s multinational tax integrity rules apply as intended. Retrospectivity is necessary to minimise, to the extent that is reasonable in the circumstances, the period between the announcement of the measure and the application of the improved integrity rules.[96]

The Explanatory Memorandum goes on to note that subitems 21(3) and (4) operate to ensure that penalty obligations imposed under the law do not apply retrospectively by providing that where an entity is a SGE due to the amendments made by Schedule 1 for the period on or after 1 July 2019 and before 1 July 2020, the entity is not treated as a SGE for that transitional period for the purpose of penalty provisions in Divisions 284 and 286 in Schedule 1 to the TAA 1953.[97]

Key issue: investment entities and country-by-country reporting obligations

A number of stakeholders raised concerns that the Bill may result in some investment entities being captured by the country-by-country reporting regime.

What is an investment entity?

An ‘investment entity’ is defined in the relevant Australian accounting standards as an entity that:

obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services
commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both and
measures and evaluates the performance of substantially all of its investments on a fair value basis.[98]

At first instance, the OECD specifically recommended that investment entities should not be excluded from Country-by-Country reporting obligations.[99] That recommendation was not subject to any qualification. However, in June 2016 the OECD issued updated guidance on the implementation of Country-by-Country reporting under Action Item 13 which appears to have altered the position:

1.1 How should the CbC reporting rules be applied to investment funds?

As stated in paragraph 55 of the Action 13 Report, there is no general exemption for investment funds. Therefore the governing principle to determine an MNE Group is to follow the accounting consolidation rules. For example, if the accounting rules instruct investment entities to not consolidate with investee companies (e.g. because the consolidated accounts for the investment entity should instead report fair value of the investment through profit and loss), then the investee companies should not form part of a Group or MNE Group (as defined in the model legislation) or be considered as Constituent Entities of an MNE Group. This principle applies even where the investment entity has a controlling interest in the investee company. On the other hand, if the accounting rules require an investment entity to consolidate with a subsidiary, such as where that subsidiary provides services that relate to the investment entity’s investment activities, then the subsidiary should be part of a Group and should be considered as a Constituent Entity of the MNE Group (if one exists). It is still possible for a company, which is owned by an investment fund, to control other entities such that, in combination with these other entities, it forms an MNE Group. In this case, and if the MNE Group exceeds the revenue threshold, it would need to comply with the requirement to file a CbC report.[100] [emphasis added].

Are investment entities captured by the country-by-country reporting obligations?

As noted earlier in the digest, the Bill will apply the broadened definition of a SGE to underpin the application of the MAAL, DPT and SGE penalty provisions. In relation to Country-by-Country reporting, the new definition of a Country-by-Country reporting entity (rather than the new definition of a SGE) will underpin Australia’s country-by-country reporting regime.[101]

The definition of a CBC reporting parent in proposed section 815-375 (discussed above) could potentially capture an investment entity which heads up a NLCG if its own annual global income is $1 billion or more. As noted above, the OECD recommended that in relation to the application of country-by-country reporting rules to investment entities ‘the governing principle to determine an MNE Group is to follow the accounting consolidation rules’.[102]

As stated above, the new operation of the definition of a NLCG means that a NLCG may include ‘an investment entity that controls other entities but is not required to consolidate with those entities’ under exceptions in the relevant accounting principles (as those exceptions are disregarded).[103] In this regard, the Bill differs from the revised OECD guidance, which provides that exceptions under accounting rules should not be disregarded. As noted by Deloitte this means that:

Often there will be alignment between SGEs and CbCREs, but there will be differences and complexities, depending on the facts... An investment entity which heads up a NLCG for SGE purposes may be a CbC reporting parent and a CbCRE in its own right if its own total annual global income is $1 billion or more.[104]

The Financial Services Council expressed concern about this outcome, noting:

The Australian proposal is not consistent with the OECD model legislation for entities that are within the scope of Country by Country (CbC) reporting... the current Australian proposal could apply CbC reporting to many more investment entities [than] under the OECD model approach.[105]

Schedule 2: CGT relief for merging superannuation funds

Background

In 2018, the Productivity Commission (PC) inquired into the efficiency and competitiveness of Australia's superannuation system. In its final report, the PC found that there were a variety of barriers to mergers and that regulators could do more to facilitate mergers between underperforming or subscale funds.[106]

One of the recommendations of the PC was that legislation be introduced to make permanent the existing temporary loss relief and asset rollover provisions introduced in response to the Global Financial Crisis (GFC). Those provisions provide relief to merging superannuation funds from certain capital gains tax (CGT) liabilities and permit the transfer of revenue and capital between merging funds in some circumstances.[107] It is argued that providing permanent CGT relief to superannuation funds would remove an impediment to future fund mergers.[108]

In Australia, the terms ‘takeover’ and ‘merger’ are used somewhat interchangeably to refer to the acquisition of control of one company or entity by another (including superannuation funds). As such, the use of the word ‘merger’ is somewhat of a misnomer—one entity acquires the other entity itself (and hence control of it) and therefore acquires its assets, liabilities and business.

Whilst usually the ‘transferring’ entity may cease to exist as a separate legal entity after a takeover or ‘merger’ this is not a requirement for the ‘merger’ to succeed.[109] In the context of the measures proposed by the Bill, it is the disposal or ‘transfer’ of assets from one entity to another as part of the ‘merger’ that raises CGT issues.[110] For the purposes of this Bills Digest the terms:

‘transferring’ entity refers to the entity that is being acquired (and that usually ceases to exist after the ‘takeover’) and
‘receiving’ entity refers to the entity that is acquiring the assets of the transferring entity or otherwise ‘taking over’ that entity.

Financial implications

In relation to the tax relief measures extended to merging superannuation funds the Explanatory Memorandum notes that the measure will have ‘an unquantifiable reduction in revenue over the forward estimates period’.[111]

In addition, the proposal is expect to result in ‘a low overall compliance cost impact, comprising low implementation impact and a low decrease in ongoing compliance costs’.[112]

Key issues and provisions

How does the CGT regime operate?

The Australian CGT regime operates on the principle that a capital gain is taxed once it is realised, such as on the disposal of an asset. This means unless an exception applies any capital gains derived by a taxpayer on the happening of a CGT event to a CGT asset acquired after 19 September 1985 (for example, the sale of shares to another entity) are included in the assessable income of the taxpayer and subject to income tax.^{^[113]}

When CGT is payable by superannuation funds

The above general outline applies to superannuation funds—although there are some exceptions. This means that absent an exception, the capital gains derived by a superannuation fund will be included in the fund’s assessable income and subject to tax. This has implications for superannuation fund ‘mergers’.

Benefits from superannuation fund mergers

The PC’s inquiry report entitled Superannuation: Assessing Efficiency and Competitiveness (PC Report) was released publically on 10 January 2019.[114] Amongst other issues examined, the PC Report examined the arguments for removing barriers to superannuation fund mergers. Briefly, the PC noted that economies of scale realised at a system level can have positive benefits for members of superannuation funds.[115]

For example, the PC noted smaller funds typically have higher average administration and investment expenses than larger funds, and that larger funds generally have higher returns than smaller funds.[116] The PC examined the financial benefits that would flow from high-cost or underperforming funds merging with lower-cost funds and noted:

We have (conservatively) estimated that cost savings of at least $1.8 billion a year could be realised if the 50 highest-cost funds merged with 10 of the lowest-cost funds — benefitting an average member in the system by $22 000 at retirement.^{^[117]}

The PC also noted that the failure of mergers can be:

very costly for members, especially for subscale and underperforming funds — a typical full-time worker who spends their working life earning bottom-quartile investment returns, for example, is projected to retire with a balance 54 per cent (or $665 000) lower than if they earned top-quartile returns.^{^[118]}

Whilst the PC noted that organic growth in Australia’s superannuation system ‘will deliver further gains from economies of scale in the future’ it also noted that ‘gains can and should also come from consolidation—particularly the exit of higher cost funds’.[119]

In essence, the PC suggests that superannuation fund ‘mergers’ can allow sub-scale, expensive or underperforming funds to ‘merge’ with larger, cheaper and better performing funds to the benefit of not only members but also the system as a whole. In other words, superannuation fund mergers can both stimulate increased competition and arise from increased competition between superannuation funds.

Barriers to superannuation fund mergers

Whilst the PC identified the benefits that can potentially flow from increased merger activity in the superannuation system (in particular the removal of sub-scale, expensive and underperforming funds) it also identified a number of barriers to the consolidation or ‘merger’ of superannuation funds. Those barriers include:

poor fund governance (manifested by a failure to approve a merger that would benefit members)[120]
board and/or trustee self-interest[121]
a lack of regulatory settings that encouraged mergers and examines the reasons for failed mergers[122] and
the temporary nature of provisions to provide funds with relief from capital gains tax.[123]

The Bill only deals with the extension of existing CGT relief to merging superannuation funds as recommended by the PC and not the other matters listed above.[124]

CGT impact on superannuation fund mergers

The disposal or ‘transfer’ of assets from one entity to another as part of a ‘merger’ raises CGT issues for superannuation funds.[125]

For example, where a superannuation fund disposes of assets by selling or transferring them to another superannuation fund as part of a ‘merger’ this will trigger a CGT event. Absent an applicable relief provision those capital gains would be assessable income in the hands of the transferring superannuation fund which will (usually) be wound up after the ‘merger’ is complete.[126] The same applies to any capital losses arising from the sale or transfer of assets to another superannuation fund. As noted in the Explanatory Memorandum:

The transfer of assets from one superannuation fund to another, under a merger between the two funds, will typically trigger a CGT event. Therefore, the asset transfer will lead to the realisation of capital gains and/or capital losses for the transferring fund. Following this asset transfer and the transfer of members’ accounts to the receiving fund, the transferring fund will typically be wound up.^{^[127]}

In essence, the effect of a superannuation fund ‘merger’ is that the capital gains and losses remain with the transferring fund. They are not transferred to the receiving fund.

This is important because capital losses have value. They can be used to offset present and future capital gains potentially up to the value of the tax liability that would otherwise be payable. This value is extinguished on the winding up of the transferring superannuation fund. Similarly, revenue losses, such as foreign exchange losses, are also extinguished when the transferring fund is wound up.[128]

Where the tax benefits of unrealised net capital losses or revenue losses have been included in the valuation of members’ superannuation interests, then the merger of their superannuation fund with another fund will lead to a reduction in the value of their superannuation interests.[129] This is because members’ superannuation interests may include the tax benefits of unrealised net capital losses or revenue losses.[130]

It is for this reason that the PC noted that the extinguishment of capital losses can operate as a barrier to the ‘merging’ of superannuation funds.[131] According to the Explanatory Memorandum:

In the absence of optional loss relief and asset roll-over a merger may lead to a reduction in the value of members’ superannuation interests. This can act as an obstacle to the superannuation fund merging with another fund because the trustee has to take this reduction into account when considering such a merger. The trustee may decide to abandon any merger plans where there is a significant negative impact on members’ benefits. The optional loss relief and asset roll-over removes the impediment to eligible funds merging that would otherwise arise from the extinguishment of the losses.^{^[132]}

Relevant types of CGT relief

This Bills Digest does not examine all of the CGT relief mechanisms available to superannuation funds generally, or to merging superannuation funds—only those relevant to the Bill.

One common type of exception to CGT is ‘rollover relief’. An asset rollover is a mechanism to defer the levying of CGT on a capital gain or loss to a later point in time, either on the same entity or a different entity.[133] It is available in a range of circumstances.

Relevant to the measures proposed in Schedule 2 of the Bill, various forms of asset rollover relief allow a business to dispose of CGT assets to (usually) related entities without having to pay CGT ‘twice’ (that is, the disposing business paying CGT and then the receiving business paying CGT again at some future point).[134] That is, asset rollover relief can, in some circumstances, allow an entity to ‘transfer’ CGT assets to another related entity without triggering a CGT liability in relation to that asset.

Another form of relief is allowing previously realised capital or revenue losses to be transferred from the transferring entity to the receiving entity.[135] This allows the preservation of the tax value of such losses, which can be used to offset against future assessable income of the receiving entity.[136] This would allow the receiving entity to potentially use any transferred capital losses to offset any of its existing capital gains, thus preserving the tax value of the CGT assets it acquires from the ‘merging’ entity.

Existing CGT exceptions for merging superannuation funds

In response to the global financial crisis, the former Labor Government introduced the Tax Laws Amendment (2009 Measures No. 6) Bill 2009 which was enacted as the Tax Laws Amendment (2009 Measures No. 6) Act 2010 (the 2010 TLA Act).

The 2010 TLA Act inserted Division 310 into the ITAA 1997. Division 310 provided for asset-rollover relief for merging superannuation funds.[137] In simple terms, in relation to asset roll-over relief the reforms provided that:

for the transferring fund the CGT assets are treated as having been disposed of at their cost base, thus ensuring no capital gain or loss is realised on their disposal and
for the receiving fund, the cost base of the CGT assets is taken to be equal to the cost base of the CGT asset just before its transfer.[138]

The reforms also provided that a transferring fund could, in some circumstances, transfer certain capital and revenue losses to the transferring fund.[139] In the context of concerns regarding the GFC, the 2010 TLA Act originally provided that the above CGT relief for merging superannuation funds would be available for mergers that occur on or after 24 December 2008 and before 1 July 2011.[140] The Tax Laws Amendment (2011 Measures No. 7) Act 2011, the Superannuation Laws Amendment (Capital Gains Tax Relief and Other Efficiency Measures) Act 2012 (the 2012 SLA Act) and subsequent amendments to that Act, and the Treasury Laws Amendment (2018 Measures No. 1) Act 2018 ultimately provided that the merger relief provisions in the ITAA 1997 introduced by the 2009 TLA Act would also apply to mergers that occurred up to 1 July 2020.[141]

What the Bill does

The amendments in Schedule 2 of the Bill make the above superannuation merger loss relief and asset rollover relief provisions—due to expire on 1 July 2020—permanent.[142] It does this by amending the 2010 TLA Act, 2012 SLA Act and ITAA 1997 to provide that the relief provisions apply to mergers happening on or after 1 October 2011.[143]

Item 6 in Schedule 2 of the Bill repeals Parts 4 and 5 of the 2010 TLA Act, which would have operated to repeal the temporary loss relief provisions on 1 July 2022 and provided various transitional arrangements. By doing so, the amendment ensures that the loss relief provisions become permanent.

Item 7 in Schedule 2 of the Bill deals with the application of the amendments. It provides that the amendments apply in relation to transfer events that happen on or after 1 October 2011. It also provides that:

all of the members of the transferring entity must become members of the receiving entity on or after 1 October 2011 and
the transferring entity needs to cease to hold all relevant assets on or after 1 October 2011.

This means that the amendments operate retrospectively. However, the Explanatory Memorandum notes:

While the application of the amendments is retrospective, the amendments operate only to make permanent the concessional taxation treatment that has been afforded to merging entities in the period 1 October 2011 to 1 July 2020. In this way, the retrospectivity is not disadvantageous to affected entities.^{^[144]}

Will it work?

The PC noted that whilst impediments to superannuation fund mergers exist they are ‘often overstated’.[145] However it also noted that CGT issues ‘will be an impediment in the absence of permanent relief’.[146] It remains to be seen if this reform will have a substantial impact on merger activity in the superannuation sector. However, it would appear that the removal of adverse tax impacts on members’ accounts will make it easier for trustees of superannuation funds to agree to merger proposals when discharging their legal duties to act in the best interests of their members. This is because by making the CGT relief provisions permanent it allows trustees to focus on the potential long-term benefits to members from a proposed merger, and not only the short-term effect on members’ account valuations.[147]

[1]. Section 177DA of the Income Tax Assessment Act 1936 (ITAA 1936), inserted by the Tax Laws Amendment (Combating Multinational Tax Avoidance) Act 2015. Information is available in J Olender and L Nielson, Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015, Bills digest, 45, 2015–16, Parliamentary Library, Canberra, 10 November 2015.

[2]. ITAA 1936, sections 177H to 177R inserted by the Treasury Laws Amendment (Combating Multinational Tax Avoidance) Act 2017. See J Murphy, Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017 [and] Diverted Profits Tax Bill 2017, Bills digest, 81, 2016-17, Parliamentary Library, Canberra, 27 March 2017.

[3]. Explanatory Memorandum, Treasury Laws Amendment (2020 Measures No. 1) Bill 2020, p. 10.

[4]. Ibid.

[5]. Ibid., pp. 3–4, 6, 10.

[6]. Ibid., p. 8: ‘Schedule 1 also amends the reporting rules in Subdivision 815-E so that these rules now apply to entities that are country by country reporting entities (also referred to as CBC reporting entities) rather than all significant global entities to ensure these rules are aligned with Australia’s international commitments.’

[7]. Senate Standing Committee for Scrutiny of Bills, Scrutiny digest, 3, 2020, 26 February 2020, p. 17.

[8]. S Jones, ‘Second reading speech: Treasury Laws Amendment (2020 Measures No. 1) Bill 2020’, House of Representatives, Debates, 4 March 2020, p. 2606: ‘... Labor's going to support these schedules. We actually think that they're important. The bill has sensible improvements in our tax legislation.’

[9]. Australian Government, Extending the definition of a Significant Global Entity, draft legislation, Treasury website.

[10]. Australian Government, Extending the definition of a Significant Global Entity (SGE), exposure draft, Treasury website, November 2019.

[11]. See submissions from the: Financial Services Council (FSC), submission to Treasury Consultation ‘Extending the definition of a Significant Global Entity (SGE) - November 2019’, 15 January 2020, pp. 1 and 2: ‘The FSC, as the peak body representing managed funds in Australia, has concerns with the proposed extension of the SGE definition... The proposal will mean the Multinational Anti-Avoidance Law (MAAL) and Diverted Profits Tax (DPT) will apply retrospectively to entities newly classified as SGEs (although we understand penalties will not apply retrospectively)... the current Australian proposal could apply CbC reporting to many more investment entities [than] under the OECD model approach’ (emphasis added); Australian Investment Council (AIC), submission to Treasury Consultation ‘Extending the definition of a Significant Global Entity (SGE) - November 2019’, 11 December 2019, p. 3: ‘the focus of the expanded SGE definition is to ensure that cross-border related party transactions fall within the scope of the package of integrity measures under Country-by-Country (CbC) reporting, Multinational Anti-Avoidance Law (MAAL), and Diverted Profits Tax (DPT) rules... the broadened SGE definition would require the aggregation of all investments of a [private equity], [venture capital] or [private credit] fund, or a number of funds managed by the same firm, together. The consequence would be that the proposed legislation would capture individual companies or subgroups of entities conducting separate businesses – which have not entered into transactions with one another, cross-border or otherwise... For instance, we note that the intention of the DPT targets entities within multinational groups that enter into arrangements to divert their Australian profits to offshore related parties in order to avoid paying Australian tax. The broadened SGE definition will bring in-scope entities which have the characteristics of passive investment vehicles, which do not enter into the types of arrangements the DPT seeks to address.’

[12]. See submissions from the: FSC, submission to Treasury Consultation ‘Extending the definition of a Significant Global Entity (SGE) - November 2019’, 15 January 2020, p. 2: ‘the current Australian proposal could apply CbC reporting to many more investment entities [than] under the OECD model approach’; AIC, submission to Treasury Consultation ‘Extending the definition of a Significant Global Entity (SGE) - November 2019’, 11 December 2019, p. 5.

[13]. The Statement of Compatibility with Human Rights can be found at page 27 of the Explanatory Memorandum to the Bill.

[14]. Explanatory Memorandum, Treasury Laws Amendment (2020 Measures No. 1) Bill 2020, pp. 27-28.

[15]. Parliamentary Joint Committee on Human Rights, Human rights scrutiny report, 3, 2020, 26 February 2020, p. 19.

[16]. Organisation for Economic Co-operation and Development (OECD), ‘About BEPS and the inclusive framework’, OECD website.

[17]. Transfer pricing refers to the prices of goods and services provided by one part of any organisation to another. This applies particularly to transactions between firms and their branches, subsidiaries, or affiliates in other countries. It is possible by using suitable transfer prices to shift overall profits between different parts of the same business. This may be advantageous when tax rates and rules differ across countries. It may also be politically advantageous if profits in one country are more likely to attract criticism, or the attention of regulators, than equal profits in another. Where there is a competitive market in similar products, an appropriate transfer price can be defined and used by a regulator to detect transfer price manipulation. Where there are no arm’s-length prices for comparable transactions, the determination of fair transfer prices is a real problem. Source: J Black, N Hashimzade and G Myles, Oxford dictionary of economics, 5th edn, Oxford University Press, Oxford, UK, 2017, p. 531.

[18]. OECD, ‘About BEPS and the inclusive framework’, op. cit.

[19]. OECD, Action plan on base erosion and profit shifting (Action Plan), OECD Publishing, Paris, 2013.

[20]. OECD, Addressing Base Erosion and Profit Shifting, OECD Publishing, Paris, February 2013, pp. 6–7.

[21]. D Bradbury (Assistant Treasurer, Minister Assisting for Deregulation), Supporting better tax policy for a stronger, smarter, fairer society: address at the launch of the Tax and Transfer Policy Institute, Canberra, speech, 27 June 2013.

[22]. Group of Twenty (G20) Leaders, Communiqué, G20 Leaders Meeting, Brisbane, 15–16 November 2014.

[23]. OECD, Transfer pricing documentation and Country-by-Country Reporting, Action 13 – 2015 final report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris, 2015, p. 9.

[24]. Ibid.

[25]. Ibid., p. 3.

[26]. Explanatory Memorandum, Treasury Laws Amendment (2020 Measures No. 1) Bill 2020, p. 6; OECD, Transfer pricing documentation, op. cit., 2015, p. 9.

[27]. OECD, Country-by-Country Reporting – compilation of Peer Review Reports (Phase 1): Inclusive Framework on BEPS: Action 13, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris, 2018, p. 43.

[28]. Explanatory Memorandum, Treasury Laws Amendment (2020 Measures No. 1) Bill 2020, p. 6.

[29]. Ibid., pp. 6, 10.

[30]. OECD, ‘Action 13 Country-by-Country Reporting. Action overview’, OECD, [2019]; OECD, Transfer pricing documentation and Country-by-Country Reporting, Action 13 – 2015 final report, op. cit., pp. 4, 9.

[31]. OECD, Transfer pricing documentation and Country-by-Country Reporting, Action 13 – 2015 final report, op. cit., p. 9.

[32]. Ibid., p. 9.

[33]. Ibid., pp. 10, 20–21, 23, 37 and 39–43.

[34]. Ibid., p. 9.

[35]. Ibid.

[36]. Ibid.

[37]. OECD, Transfer pricing documentation and Country-by-Country Reporting, Action 13 – 2015 final report, op. cit., p. 21.

[38]. Ibid., pp. 21–22.

[39]. Ibid.

[40]. In an accounting sense, materiality is defined as information that if omitted or misstated ‘could influence decisions that users make on the basis of financial information about a specific reporting entity. In other words, materiality is an entity-specific aspect of relevance based on the nature or magnitude, or both, of the items to which the information relates in the context of an individual entity’s financial report’: Australian Accounting Standards Board (AASB), ‘AASB Practice Statement 2: Making Materiality Judgements’, AASB, December 2017, p. 5.

[41]. OECD, Transfer pricing documentation and Country-by-Country Reporting, Action 13 – 2015 final report, op. cit., p. 31. See also Article 2 of the OECD Model Legislation related to Country-by-Country Reporting at pages 40 to 41.

[42]. Ibid; see also OECD, BEPS Action 13 on Country-by-Country Reporting – Peer Review Documents, OECD/G20 Base Erosion and Profit Shifting Project, OECD, Paris, 2017, paragraph 8(c), pp. 13–14.

[43]. ITAA 1997, subsection 960-100(1).

[44]. ITAA 1997, section 960-565.

[45]. Explanatory Memorandum, Treasury Laws Amendment (2020 Measures No. 1) Bill 2020, p. 6.

[46]. Ibid; OECD, Transfer pricing documentation and Country-by-Country Reporting, Action 13 – 2015 final report’, op. cit., p. 31. See also Articles 1(1) (definition of ‘group’), 1(4) (definition of ‘Constituent Entity’), and 1(6) (definition of ‘Ultimate Parent Entity’) of the OECD Model Legislation related to Country-by-Country Reporting (pages 40 to 41 of OECD, Transfer pricing documentation and Country-by-Country Reporting, Action 13 – 2015 final report, op. cit.); OECD, Country-by-Country Reporting – compilation of Peer Review Reports (Phase 1): Inclusive Framework on BEPS: Action 13, op. cit., 2018, pp. 43–44.

[47]. Explanatory Memorandum, Treasury Laws Amendment (2020 Measures No. 1) Bill 2020, p. 7; OECD, Transfer pricing documentation and Country-by-Country Reporting, Action 13 – 2015 final report, op. cit., p. 31. See also Articles 1(4) (definition of ‘Constituent Entity’) and 1(5) (definition of ‘Reporting Entity’) of the OECD Model Legislation related to Country-by-Country Reporting (pages 40 to 41) of OECD, Transfer pricing documentation and Country-by-Country Reporting, Action 13 – 2015 final report, op. cit.); OECD, Country-by-Country Reporting – compilation of Peer Review Reports (Phase 1): Inclusive Framework on BEPS: Action 13, op. cit., p. 44.

[48]. Explanatory Memorandum, Treasury Laws Amendment (2020 Measures No. 1) Bill 2020, p. 3.

[49]. Ibid.

[50]. Ibid., pp. 7–10.

[51]. Ibid.

[52]. Explanatory Memorandum, Treasury Laws Amendment (2020 Measures No. 1) Bill 2020, p. 12.

[53]. Inserted by item 14 in Schedule 1 of the Bill.

[54]. Inserted by item 7 in Schedule 1 of the Bill. Existing subsection 960-555(3) of the ITAA 1997 empowers the Commissioner to make a determination in relation to a global parent entity under certain circumstances. In that case, the Commissioner must give a notice of the determination to the global parent entity, or to another entity that becomes a significant global entity as a result of the determination.

[55]. Explanatory Memorandum, Treasury Laws Amendment (2020 Measures No. 1) Bill 2020, p. 12.

[56]. ITAA 1997, proposed subsection 960-575(3), inserted by item 14 of Schedule 1 of the Bill.

[57]. ITAA 1997, subsection 995-1(1); Corporations Act, sections 9 and 334.

[58]. Explanatory Memorandum, Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015, para 2.33.

[59]. BDO Australia, ‘ATO issues guidance on general purpose financial statements for significant global entities’, BDO website, October 2017: ‘Where other accounting principles are used, whether they are CAAP is a question of fact. This can only be determined on a case-by-case basis. One consideration is whether such principles ensure that financial statements provide a true and fair view.’

[60]. Deloitte, ‘Clarity in financial reporting: Understanding the ‘general purpose financial statements’ requirements for significant global entities’, Deloitte Australia website, May 2019, p. 5: ‘...commercially accepted principles relating to accounting and auditing can be applied, so long as they ensure the financial statements give a true and fair view of the financial position and performance of the entity (or consolidated entity)’; PWC, ‘ATO guidance on lodgment of GPFS’, PWC website, 28 September 2017, p. 4: ‘If Australian accounting standards do not apply to an entity, for example limited partnerships or entities with permanent establishments, the [general purpose financial statements] GPFS must be prepared in accordance with ‘commercially accepted principles relating to accounting’ (CAAP) ... According to the ATO, where other accounting principles are used, the financial statements must be assessed on a case-by-case basis and one consideration will be whether the financial statements provide a true and fair view.’ (emphasis added).

[61]. OECD, Guidance on the implementation of Country-by-Country Reporting, BEPS Action 13, op. cit., p. 17.

[62]. Explanatory Memorandum, Treasury Laws Amendment (2020 Measures No. 1) Bill 2020, p. 11.

[63]. Ibid., p. 11.

[64]. Ibid.

[65]. Ibid., p. 12.

[66]. Ibid., p. 11.

[67]. See submissions from the: FSC, Submission to Treasury Consultation ‘Extending the definition of a Significant Global Entity (SGE) - November 2019’, 15 January 2020, p. 2; AIC, Submission to Treasury Consultation ‘Extending the definition of a Significant Global Entity (SGE) - November 2019’, 11 December 2019, pp. 1–2.

[68]. Australian Accounting Standards Board (AASB), Consolidated Financial Statements, AASB 10, 20 April 2018, para 27.

[69]. Deloitte, ‘Expanded definition of Significant Global Entity’, Deloitte website, 4 March 2020, p. 2.

[70]. Ibid; Explanatory Memorandum, Treasury Laws Amendment (2020 Measures No. 1) Bill 2020, pp. 7, 10.

[71]. FSC, Submission to Treasury Consultation ‘Extending the definition of a Significant Global Entity (SGE) - November 2019’, 15 January 2020, pp. 1-2.

[72]. AIC, Submission to Treasury Consultation ‘Extending the definition of a Significant Global Entity (SGE) - November 2019’, 11 December 2019, pp. 1 and 4.

[73]. Explanatory Memorandum, Treasury Laws Amendment (2020 Measures No. 1) Bill 2020, pp. 7–10.

[74]. Ibid., p. 14.

[75]. Ibid.

[76]. ITAA 1997, subsection 815-355(3).

[77]. ITAA 1997, section 960-565 as amended by items 9 to 12 of Schedule 1 to the Bill; Explanatory Memorandum, Treasury Laws Amendment (2020 Measures No. 1) Bill 2020, p. 15.

[78]. ITAA 1997, proposed paragraph 815-375(1)(b) inserted by item 5 in Schedule 1 of the Bill.

[79]. Corporations Act, subsection 50AA(1); J Bibby & Sons Ltd v IR Commrs (1945) 29 TC 167; WP Keighery Pty Ltd v Federal Commission of Taxation (1957) 100 CLR 66, [1957] HCA 2.

[80]. Explanatory Memorandum, Treasury Laws Amendment (2020 Measures No. 1) Bill 2020, p. 15.

[81]. Ibid., p. 16.

[82]. Ibid., p. 15.

[83]. Ibid., p. 16.

[84]. ITAA 1997, proposed subsection 960-575, inserted by item 14 in Schedule 1 of the Bill.

[85]. Explanatory Memorandum, Treasury Laws Amendment (2020 Measures No. 1) Bill 2020, p. 12.

[86]. Ibid., p. 16.

[87]. OECD, Transfer pricing documentation and Country-by-Country Reporting, Action 13 – 2015 final report, op. cit., p. 21.

[88]. OECD, Guidance on the implementation of Country-by-Country Reporting, BEPS Action 13, op. cit., p. 15.

[89]. ITAA 1997, subsection 815-355(3).

[90]. Explanatory Memorandum, Treasury Laws Amendment (2020 Measures No. 1) Bill 2020, p. 18.

[91]. Ibid.

[92]. OECD, Public consultation document: Review of Country-by-Country Reporting (BEPS Action 13), OECD, Paris, 6 February 2020, p. 17.

[93]. Ibid., p. 18.

[94]. Explanatory Memorandum, Treasury Laws Amendment (2020 Measures No. 1) Bill 2020, p. 20.

[95]. Ibid., p. 19.

[96]. Ibid., p. 21.

[97]. Ibid.

[98]. Australian Accounting Standards Board (AASB), Consolidated Financial Statements, AASB 10, 20 April 2018, para 27.

[99]. OECD, Transfer pricing documentation and Country-by-Country Reporting, Action 13 – 2015 final report, op. cit., p. 21.

[100]. OECD, Guidance on the implementation of Country-by-Country Reporting, BEPS Action 13, OECD , Paris, December 2019, p. 15.

[101]. Explanatory Memorandum, Treasury Laws Amendment (2020 Measures No. 1) Bill 2020, p. 8: ‘Schedule 1 also amends the reporting rules in Subdivision 815-E so that these rules now apply to entities that are country by country reporting entities (also referred to as CBC reporting entities) rather than all significant global entities to ensure these rules are aligned with Australia’s international commitments.’

[102]. OECD, Guidance on the implementation of Country-by-Country Reporting, BEPS Action 13, OECD , Paris, December 2019, p. 15.

[103]. Explanatory Memorandum, Treasury Laws Amendment (2020 Measures No. 1) Bill 2020, p. 12.

[104]. Deloitte, ‘Expanded definition of Significant Global Entity’, Deloitte website, 4 March 2020, p. 7.

[105]. FSC, submission to Treasury Consultation ‘Extending the definition of a Significant Global Entity (SGE) - November 2019’, 15 January 2020, p. 2.

[106]. Productivity Commission (PC), Superannuation: assessing efficiency and competitiveness, Report, 91, PC, Canberra, 21 December 2018.

[107]. Ibid., p. 73.

[108]. Ibid., pp. 450–451.

[109]. Explanatory Memorandum, Treasury Laws Amendment (2020 Measures No. 1) Bill 2020, p. 23.

[110]. Ibid., p. 23.

[111]. Ibid., p. 4.

[112]. Ibid.

[113]. CCH Australia, Australian superannuation commentary: [¶7-130] Application of CGT provisions, CCH, 30 June 2019.

[114]. PC, Superannuation: assessing efficiency and competitiveness, op. cit.

[115]. Ibid., p. 351.

[116]. Ibid., p. 353.

[117]. Ibid., p. 22.

[118]. Ibid., p. 523.

[119]. Ibid., p. 355.

[120]. Ibid., pp. 421, 457, 523.

[121]. Ibid., pp. 26, 524.

[122]. Ibid., pp. 609, 621.

[123]. Ibid., p. 524.

[124]. PC, Superannuation: assessing efficiency and competitiveness, op. cit., recommendation 21.

[125]. Explanatory Memorandum, Treasury Laws Amendment (2020 Measures No. 1) Bill 2020, p. 23.

[126]. Explanatory Memorandum, Tax Laws Amendment (2009 Measures No. 6) Bill 2010, p. 39.

[127]. Explanatory Memorandum, Treasury Laws Amendment (2020 Measures No. 1) Bill 2020, p. 23.

[128]. Ibid.; Explanatory Memorandum, Tax Laws Amendment (2009 Measures No. 6) Bill 2010, p. 40.

[129]. Explanatory Memorandum, Tax Laws Amendment (2009 Measures No. 6) Bill 2010, p. 40.

[130]. Explanatory Memorandum, Treasury Laws Amendment (2020 Measures No. 1) Bill 2020, p. 23.

[131]. PC, Superannuation: assessing efficiency and competitiveness, op. cit., pp. 26 and 524: ‘Unfortunately, little is known about mergers that have been broached but not completed. Some barriers to mergers are still evident... Trustee self-interest is clearly one of the barriers. The temporary nature of provisions to provide funds with relief from capital gains tax is another’ (emphasis added).

[132]. Explanatory Memorandum, Treasury Laws Amendment (2020 Measures No. 1) Bill 2020, pp. 23–24.

[133]. The Board of Taxation (TBoT), Review of CGT Roll-overs – consultation guide, TBoT, Canberra, February 2020, p. 5.

[134]. CCH Australia, Australian premium master tax guide: [¶12-450] When same-asset CGT roll-over available, CCH, 31 December 2019.

[135]. ITAA 1997, subdivisions 310-C and 310-D, sections 310-30 and subsection 310-40 in particular; CCH Australia, Australian Superannuation Commentary: [¶45-160] Application of CGT provisions to superannuation funds, CCH, 19 November 2019.

[136]. Explanatory Memorandum, Tax Laws Amendment (2009 Measures No. 6) Bill 2010, pp. 39–40.

[137]. Ibid., p. 41; ITAA 1997, subsections 310-30(1), 310-35(1), 310-40(1) and 310-40(2); CCH Australia, Australian Superannuation Commentary: [¶45-160] Application of CGT provisions to superannuation funds, CCH, 19 November 2019.

[138]. ITAA 1997, subsections 310-30(1), 310-35(1), 310-40(1) and 310-40(2); CCH Australia, Australian Superannuation Commentary: [¶45-160] Application of CGT provisions to superannuation funds, CCH, 19 November 2019.

[139]. ITAA 1997, sections 310-45, 310-50 and subsections 310-55(1) to (3); CCH Australia, Australian Superannuation Commentary: [¶45-160] Application of CGT provisions to superannuation funds, CCH, 19 November 2019.

[140]. Tax Laws Amendment (2009 Measures No. 6) Act 2010 (as enacted), Schedule 3, Part 3, section 11.

[141]. Explanatory Memorandum, Treasury Laws Amendment (2020 Measures No. 1) Bill 2020, p. 24; Tax Laws Amendment (2011 Measures No. 7) Act 2011, Schedule 6, item 1; Superannuation Laws Amendment (Capital Gains Tax Relief and Other Efficiency Measures) Act 2012 (as enacted), Schedule 1, Part 1, item 1; Treasury Laws Amendment (2018 Measures No. 1) Act 2018, Schedule 2.

[142]. Explanatory Memorandum, Treasury Laws Amendment (2020 Measures No. 1) Bill 2020, pp. 24–25.

[143]. Treasury Laws Amendment (2020 Measures No. 1) Bill 2020, Schedule 2, items 1 to 5.

[144]. Explanatory Memorandum, Treasury Laws Amendment (2020 Measures No. 1) Bill 2020, p. 26.

[145]. PC, Superannuation: assessing efficiency and competitiveness, op. cit., p. 450.

[146]. Ibid.

[147]. Ibid., p. 451: ‘As Treasury noted: “Tax considerations are a major impediment to mergers as trustees of superannuation funds must consider the adverse tax impacts on members’ accounts. Although a merger may be in the long-term interest of members, the effect on members’ account balances may preclude this from happening”’ and p. 562: ‘Given that trustees must focus on the best interests of members when considering fund mergers, a merger that would negatively impact on member outcomes would not be expected to obtain trustee support’.

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