House of Representatives

Explanatory Memorandum PART A

(Circulated by authority of the Treasurer, the Hon P.J. Keating, MP)

GENERAL OUTLINE

TAXATION LAWS AMENDMENT BILL (NO.6) 1988

This Bill will amend the Income Tax Assessment Act 1936 -

Superannuation and Approved Deposit Funds

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to introduce new arrangements for the taxation of superannuation funds and approved deposit funds, effective from 1 July 1988 (proposal announced in the Economic Statement of 25 May 1988 and in further statements dated 20 June 1988, 29 June 1988, 1 July 1988 and 11 August 1988);

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to apply those new arrangements generally to Commonwealth and other public sector superannuation funds;

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as part of those arrangements, to provide for the establishment of pooled superannuation trusts to act as investment vehicles for complying superannuation and approved deposit funds and to provide a basis for taxing such trusts;

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to make provision for complying superannuation and approved deposit funds to transfer their liability to tax on contributions and certain rolled-over amounts to a pooled superannuation trust, a life insurance office or a registered organisation which agrees to take on that liability;

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to remove the limits on deductibility of superannuation contributions made by employers on behalf of employees;

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to increase the deduction available for superannuation contributions made to personal funds by self-employed persons and employees without employer superannuation support from $1500 to $3000;

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to deny, from the date of introduction, deductions to employers for amounts merely set apart for the purpose of providing superannuation benefits for employees and not actually paid to a superannuation fund; and

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to make consequential amendments as a result of the above superannuation amendments to the Income Tax Assessment Act and to certain other Acts including the Occupational Superannuation Standards Act 1987 and the Superannuation Act 1976.

Life insurance companies

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to repeal, with effect from the 1988-89 income year, the deduction under section 115 and the exemption under section 116 relating to the calculated liabilities of life insurance companies (proposal announced in the Economic Statement of 25 May 1988).

Share cancellations

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to provide that where shares held by a subsidiary company in its holding company are cancelled (or redeemed) and the consideration received by the subsidiary company for the cancellation is less than the market value of the shares :

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the income tax (including the capital gains tax) effects for the subsidiary company, as a consequence of the cancellation, are to be determined on the basis that the consideration received was equal to the market value of the shares; and

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the income tax (including the capital gains tax) consequences for the holding company on the disposal of its interests in the subsidiary (eg. shares) are to be determined as if the subsidiary had received market value for the cancelled shares (proposal announced on 11 August 1988).

Approved research institutes

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to amend the definition of "an approved research institute" in the Act to alter the list of approving authorities.

INCOME TAX RATES AMENDMENT BILL (NO.2) 1988

This Bill will amend the Income Tax Rates Act 1986 to impose tax on complying superannuation funds, approved deposit funds and pooled superannuation trusts at 15% on their income generally and 49% on their excessive non-arm's length income.

INCOME TAX (FUND CONTRIBUTIONS) BILL 1988

This Bill will only have effect if the proposed amendment of the Income Tax Act 1986 is required to be given effect to. In that case this Bill will impose tax on the contributions to superannuation funds and approved deposit funds.

INCOME TAX AMENDMENT BILL (NO.2) 1988

This Bill will amend the Income Tax Act 1986 to ensure that, if the proposal to tax both contributions to superannuation funds and approved deposit funds and the other income of those funds would be in breach of the Constitution, the Income Tax Act will only apply to tax that other income.