Taxation Laws Amendment Bill (No. 3) 2003

Revised Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)
Previous citation Taxation Laws Amendment Bill (No. 8) 2002

General outline and financial impact

Income tax deductions for gifts

Schedule 1 to this bill amends the ITAA 1997 and the ITAA 1936 to allow income tax deductions for certain gifts of $2 or more made to the organisations listed below. This bill also reflects the name changes of some organisations and extends the period of deductibility for two organisations.

Date of effect:

Gifts to new organisations:

Aboriginal Education Council (N.S.W) Incorporated after 6 May 2002.
General Sir John Monash Foundation after 16 June 2002.
Mount Macedon Memorial Cross Trust after 14 August 2002 and before 15 August 2004.
The Manly Warringah War Memorial Regional Park Remembrance Trust after 7 April 2002 and before 8 April 2004.
Shrine of Remembrance Foundation after 2 July 2002 and before 3 July 2004.
Australian Council for Children and Youth Organisations Inc. after 23 July 2002.
St Paul's Cathedral Restoration Fund after 22 April 2002 and before 23 April 2004.

Gifts to organisations that have changed their names:

The Royal Society for the Prevention of Cruelty to Animals (Victoria) to Royal Society for the Prevention of Cruelty to Animals (Victoria) Inc. after 8 January 1992.
The Nursing Mothers' Association of Australia to Australian Breastfeeding Association after 31 July 2001.

Gifts to organisations whose period of deductibility has been extended:

Australia for UNHCR for an additional five years until 27 June 2007.
St Patrick's Cathedral Parramatta Rebuilding Fund for an additional two years until 24 February 2004.

Proposal announced: Gifts to new organisations and extensions to the period of deductibility for the specified organisations were announced by the Treasurer and Minister for Revenue and Assistant Treasurer in press releases during 2002.

Financial impact: Unquantifiable, but insubstantial, cost to revenue.

Compliance cost impact: Nil.

Employee share schemes

Schedule 2 to this bill amends the CGT provisions that deal with ESSs to ensure the law operates as intended. The amendments are required where the ESS is operated through a trust and the employee chooses to be taxed under the employee share provisions of the income tax law at the time those provisions treat the employee as acquiring the shares or rights.

The amendments will ensure that:

capital gains or capital losses that arise while the shares or rights are held in trust are recognised;
the 12-month minimum qualifying period for the CGT 50% discount begins from the time the trustee acquires the shares.

This bill also makes technical amendments to the CGT and FBT provisions as they relate to ESSs.

Date of effect: The primary amendments will apply to certain shares or rights acquired by a taxpayer after 5.00 pm eastern summer time on 27 February 2001. However, the taxpayer can choose that the amendments can apply to shares or rights acquired before, and disposed of after, this date.

The technical amendments to the ESS CGT provisions apply to assessments for the 1998-1999 and later income years.

The technical amendment to the FBTAA 1986 applies for the FBT year commencing 1 April 1995 and later FBT years.

Proposal announced: The primary amendments were announced in former Assistant Treasurer's Press Release No. 7 of 27 February 2001. The provision for the taxpayer to choose an earlier application date, and the other technical amendments, have not been previously announced.

Financial impact: The cost to revenue of the primary amendments is unquantifiable. The cost of allowing the taxpayer to choose an earlier application date is unquantifiable but is not expected to be significant. The technical amendments will not have any impact on revenue.

Compliance cost impact: Allowing taxpayers to choose an earlier application date for the primary amendments will reduce costs of compliance where it would have otherwise been difficult for taxpayers to determine the market value of shares or rights at the time the shares or rights are transferred to them from the trustee. The market value of the shares or rights at the time the trustee allocates the shares or rights to the beneficiary can be more easily ascertained by taxpayers.

Franking of distributions by co-operatives

Schedule 3 to this bill contains amendments relating to the franking of distributions by co-operative companies. This measure will enable a co-operative company to either frank distributions to shareholders or, alternatively, to claim the existing deduction for distributions of assessable income to shareholders.

Date of effect: These amendments will generally apply to distributions made on or after 1 July 2002.

Proposal announced: The former Assistant Treasurer announced in Press Release No. 41 of 27 August 2001 that co-operative companies would be given the option of franking distributions to shareholders. The Minister for Revenue and Assistant Treasurer announced the details of the proposal in Press Release No. C120/02 of 21 November 2002.

Financial impact: Cost to revenue of $5 million per annum for 2002-2003 and the next four years.

Compliance cost impact: Negligible.

Reasonable benefit limits

Schedule 4 to this bill rectifies an anomaly in the RBL provisions so that a reversionary pension benefit paid on the death of the original recipient will receive the same proportion of concessional taxation rebate as applied to the original pension. This ensures that benefits that have been assessed as above the relevant RBL of the deceased, and thus subject to reduced concessional taxation treatment, will continue to be treated in the same manner after death. This also ensures consistency with the RBL treatment of lump sum benefits paid on death.

Date of effect: The amendment applies in relation to the 1999-2000 and later years of income.

Proposal announced: The measure was announced by the Government in former Assistant Treasurer's Press Release No. 14 of 6 April 2000.

Financial impact: Negligible. The amendments correct an anomaly in the law so that the law operates as intended and that revenue that otherwise may be at risk is protected.

Compliance cost impact: Negligible. Taxpayers affected by the measure will have to ensure that they are claiming the correct amount of pension rebate.

Petroleum resource rent tax

Schedule 5 to this bill amends the PRRTAA 1987 to:

allow expenditures associated with closing down a facility that has ceased to be used in relation to a PRRT project, but continues to be used under an infrastructure licence, to be deductible against the project's PRRT receipts at the time the production licence ceases. Infrastructure licences were introduced in March 2000 to allow for the construction and operation of infrastructure facilities in Commonwealth waters without a necessary connection to any specific PRRT project; and
produce a more equitable and uniform treatment of partial use arrangements by extending the PRRT to:

include all receipts received; and
allow a deduction for all expenditures incurred,

that relate to a PRRT project's petroleum activities in the situation where, for example, one PRRT project buys unprocessed petroleum from another project and processes the petroleum (sales situation) or where one project charges another a 'toll' or fee for the use of facilities (tolling situation).

Date of effect: Royal Assent.

Proposal announced: The amendments have not been announced.

Financial impact:

Infrastructure licence proposal

Currently there are no specific petroleum projects that would be affected by these amendments and it is difficult to predict when any such changes will occur.

The amendment provides for an eligible deduction to be brought forward. It is not possible to identify the changed timing impact on PRRT receipts.

Partial use proposal

These amendments will not have any significant impact in the short term as there are currently no specific petroleum projects tolling external petroleum.

In the future the revenue impact is unquantifiable, but likely to be positive due to the broadening of activities falling within the scope of PRRT.

Any PRRT revenue impact will have a smaller but opposite income tax impact because PRRT is deductible for income tax purposes.

Compliance cost impact: Minimal.

Summary of regulation impact statement

Regulation impact on business


Infrastructure licence proposal

Currently, there are no known petroleum projects affected by these amendments and as such these changes have no immediate revenue or administrative impact.

The amendments bring forward the time at which an eligible deduction may be claimed. Compliance costs may be reduced, as a taxpayer will be able to determine their final PRRT liability when the project is terminated.

Partial use proposal

Currently there are no petroleum production operators using their infrastructure to process petroleum from another field, therefore the immediate financial impact of the partial use proposal will be nil. Any future financial impact is unquantifiable. Compliance costs will be reduced, as it will no longer be necessary to apportion capital and operating costs and receipts in partial use situations.

Main points:

The PRRTAA 1987 is amended to ensure that all appropriate closing down costs are deductible at the time the production licence ceases.
There is equitable and uniform treatment of commercial tolling situations and other partial use arrangements, for example, sale situations, whether they be contemplated from start-up or instigated at a later date.

Technical corrections

Schedule 6 to this bill makes a number of technical corrections to the ITAA 1936, the ITAA 1997 and other tax-related legislation.

Date of effect: The amendments have various dates of effect.

Proposal announced: Not previously announced.

Financial impact: Nil.

Compliance cost impact: Nil.

No tax consequences result from AGL's corporate conversion

Clause 5 of this bill ensures that generally no taxation consequences will arise for any person under any Commonwealth taxation laws as a result of the corporate conversion of AGL or from its registration under the Corporations Act 2001.

Date of effect: The provisions apply from 11 October 2002, which is the date of AGL's corporate conversion.

Proposal announced: The proposal was announced in Minister for Revenue and Assistant Treasurer's Press Release No. C60/02 of 23 May 2002.

Financial impact: Nil.

Compliance cost impact: Nil.

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