House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello MP)

General outline and financial impact

Consolidation: available fraction for loss utilisation purposes

Schedule 1 to this Bill amends the consolidation provisions in the Income Tax Assessment Act 1997 to ensure the method for calculating the rate at which the head company of a consolidated group can recoup a joining entity's losses operates as intended.

Date of effect : This amendment applies from 1 July 2002.

Proposal announced : This measure was announced in the 2005-06 Budget on 10 May 2005.

Financial impact : This measure will have these revenue implications:

Compliance cost impact : Nil.

Extension of mutuality principle

Schedule 2 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to ensure certain not-for-profit entities are not subject to tax on income as a result of the Federal Court of Australia decision in Coleambally Irrigation Mutual Co-Operative Ltd v Commissioner of Taxation
[2004] FCAFC 250 (7 September 2004) ( Coleambally ). The amendments effectively restore the longstanding benefits of the mutuality principle to those not-for-profit entities affected by the Coleambally decision.

Date of effect : This measure takes effect from 1 July 2000.

Proposal announced : This measure was announced in the Minister for Revenue and Assistant Treasurer's Press Release No. 46 of 30 May 2005.

Financial impact : This measure is not expected to have a financial impact as it is intended to maintain the long-held existing practice.

Compliance cost impact : This measure is not expected to have any compliance cost impact as it is intended to maintain the long-held existing practice.

Child care tax offset

Schedule 3 to this Bill amends Subdivision 61-IA of the Income Tax Assessment Act 1997 to ensure eligibility for the child care tax offset is consistent with the work/training/study requirements prior to the Family and Community Services Legislation Amendment (Welfare to Work) Bill 2005 receiving Royal Assent.

Date of effect : This amendment will apply in relation to assessments for income years that start on or after 1 July 2007, that is, for child care fees incurred in the child care base year (2006-07), and claimed in the income tax return for the child care offset year (2007-08).

Proposal announced : This measure was announced in the Treasurer's Press Release No. 64 of 23 June 2005.

Financial impact : Nil.

Compliance cost impact : Nil.

Medical expenses offset - exclusion of solely cosmetic procedures

Schedule 4 to this Bill amends the Income Tax Assessment Act 1936 to exclude procedures that are solely cosmetic from the medical expenses offset.

Date of effect : This measure applies to the 2005-06 income year and later income years.

Proposal announced : This measure was announced in the 2005-06 Budget and in the Treasurer's Press Release No. 47 of 10 May 2005.

Financial impact : This measure will have these revenue implications:

Compliance cost impact : There may be a minimal increase in compliance costs for taxpayers in identifying procedures that are no longer eligible.

Deductible gift recipients

Schedule 5 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to update the lists of deductible gift recipients (DGRs) and extend the period for which deductions are allowed for gifts to a certain fund that has time-limited DGR status.

Date of effect : Deductions for gifts to the following organisations that are listed as DGRs under this Schedule, apply as follows:

•

International Specialised Skills Institute Incorporated from 12 August 2005;

•

Yachad Accelerated Learning Project Limited from 30 June 2005 until 30 June 2006;

•

C E W Bean Foundation from 15 November 2005 until 14 November 2007;

•

The Vietnam War Memorial of Victoria Incorporated from 1 January 2005 until 31 December 2005;

•

Australian Red Cross Society-US 2005 Hurricane Relief Appeal from 1 September 2005 until 31 August 2006;

•

The Salvation Army Hurricane Katrina Relief Appeal from 2 September 2005 until 1 September 2006; and

•

Xanana Vocational Education Trust from 21 July 2005 until 20 July 2007.

In addition, this Schedule extends the DGR listing of the City of Onkaparinga Memorial Gardens Association Incorporated to 30 June 2005.

Proposal announced : The deductibility of gifts to the Australian Red Cross Society-US 2005 Hurricane Relief Appeal was announced in the Minister for Revenue and Assistant Treasurer's Press Release No. 074 of 2 September 2005.

The deductibility of gifts to The Salvation Army Hurricane Katrina Relief Appeal was announced in the Minister for Revenue and Assistant Treasurer's Press Release No. 078 of 7 September 2005.

Financial impact : This measure will have these revenue implications:

The cost to revenue of the DGR listing of Yachad Accelerated Learning Project Limited alone is estimated to be $1.2 million in 2006-07.

Compliance cost impact : Nil.