House of Representatives

Tax Laws Amendment (2007 Measures No. 2) Bill 2007

Explanatory Memorandum

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

General outline and financial impact

Effective life provisions

Schedule 1 to this Bill amends the provisions of the Income Tax Assessment Act 1997 relating to depreciating assets under the uniform capital allowance system. These amendments will more closely align the decline in value deductions for mining, quarrying and prospecting rights with that for other depreciating assets.

Date of effect: These amendments apply to assessments for the income year in which 1 July 2001 occurred, and to later income years. This date was the commencement date of the uniform capital allowance system. This does not disadvantage taxpayers as the intent of the law has always been followed and this measure clarifies the law.

Proposal announced: This measure was announced in the Minister for Revenue and Assistant Treasurer's Press Release No. 021 of 9 May 2006.

Financial impact: Nil.

Compliance cost impact: Nil.

Taxation of boating activities

Schedule 2 to this Bill changes the taxation treatment of boating activities. These changes allow taxpayers who cannot demonstrate that they are carrying on a business using a boat to claim deductions for boating expenses up to the level of their boating income.

Date of effect: These amendments apply to the first income year starting on or after the day on which this Bill receives Royal Assent, and to later income years.

Proposal announced: This measure was announced in the Minister for Revenue and Assistant Treasurer's Press Release No. 022 of 9 May 2006.

Financial impact: This measure will have these revenue implications:

2006 - 07 2007 - 08 2008 - 09 2009 - 10
- -$5m -$6m -$6m

Compliance cost impact: This measure is expected to impose minor compliance costs because taxpayers need to account for boating expenses to benefit from the measure.

Certain expenditure on research and development activities

Schedule 3 to this Bill amends the provisions of the Income Tax Assessment Act 1936 relating to expenditure on research and development (R & D). These amendments clarify and make 10 technical amendments to the provisions for the premium incremental concession and the refundable R & D tax offset.

Date of effect: These amendments are technical in nature and have various dates of effect.

Proposal announced: This measure was announced on 9 May 2006 in the 2006-07 Budget.

Financial impact: This measure is expected to lead to an additional $7 million per year in R & D tax offset payments and decreased revenue of $2.5 million per year as a result of the premium incremental concession.

Compliance cost impact: Negligible. As this measure clarifies and makes technical amendments to the law it is not anticipated to impact on the compliance costs for R & D companies.

Donation of listed shares to deductible gift recipients

Schedule 4 to this Bill amends the Income Tax Assessment Act 1997 to allow a tax deduction for donations of publicly listed shares, to eligible deductible gift recipients, acquired more than 12 months before gifting and valued at $5,000 or less.

Date of effect: This measure applies in an income year commencing on or after the date of Royal Assent.

Proposal announced: This measure was announced in the Minister for Revenue and Assistant Treasurer's Press Release No. 019 of 9 May 2006.

Financial impact: This measure will have these revenue implications:

2007 - 08 2008 - 09 2009 - 10 2010 - 11
- -$10m -$11m -$11m

Compliance cost impact: Nil.

Deductible gift recipients

Schedule 5 to this Bill amends the Income Tax Assessment Act 1997 to update the list of deductible gift recipients (DGRs).

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

·
American Australian Association Limited from 14 November 2006; and
·
Bunbury Diocese Cathedral Rebuilding Fund from 19 December 2006 until 18 December 2008.

In addition, this Schedule extends the DGR listing of The Finding Sydney Foundation to 27 August 2007.

Proposal announced: The deductibility of gifts to the American Australian Association Limited was announced in the Prime Minister's Media Release of 14 November 2006.

The deductibility of gifts to the Bunbury Diocese Cathedral Rebuilding Fund was announced in the Minister for Revenue and Assistant Treasurer's Press Release No. 098 of 22 December 2006.

The extension for the deductibility of gifts to The Finding Sydney Foundation was announced in the Minister for Revenue and Assistant Treasurer's Press Release No. 082 of 10 November 2006.

Financial impact: This measure will have these revenue implications:

2007 - 08 2008 - 09 2009 - 10 2010 - 11 2011 - 12
-$5m -$1m -$0.7m -$0.6m -$0.6m

Compliance cost impact: Nil.

Deductions for contributions relating to fund-raising events

Schedule 6 to this Bill amends the Income Tax Assessment Act 1997 to extend the eligibility for tax deductions for contributions to deductible gift recipients, where an associated minor benefit is received for an eligible fund-raising event.

Date of effect: These amendments apply to contributions made on or after 1 January 2007.

Proposal announced: These amendments were announced jointly by the Minister for Revenue and Assistant Treasurer and the Minister for Families, Community Services and Indigenous Affairs, in Press Release No. 086 of 1 December 2006.

Financial impact: This measure will have these revenue implications:

2007 - 08 2008 - 09 2009 - 10
-$1.5m -$6m -$6m

Compliance cost impact: Nil.

Technical amendments and corrections

Schedule 7 to this Bill addresses a defect in the definitions of 'exempt entity' in the Income Tax Assessment Act 1997 (ITAA 1997) and 'excepted trust' in the Income Tax Assessment Act 1936 . It also corrects some minor technical errors in Division 58 of the ITAA 1997.

Date of effect: These amendments apply from 1 July 2005. Transitional rules ensure that taxpayers are not retrospectively disadvantaged.

Proposal announced: Not previously announced.

Financial impact: Nil. Compliance cost impact: This measure is expected to reduce compliance costs because it corrects a defect in the current law, reducing uncertainty.

Venture capital

Schedule 8 to this Bill amends the venture capital regime by:

·
relaxing the eligibility requirements for concessional taxation treatment for foreign residents investing in venture capital limited partnerships (VCLPs) and Australian venture capital funds of funds (AFOFs); and
·
providing taxation concessions for Australian residents and foreign residents investing in early stage venture capital activities through a new investment vehicle called an early stage venture capital limited partnership (ESVCLP).

Amendments are made to close the pooled development fund (PDF) scheme to new applications as a result of the introduction of the ESVCLP investment vehicle.

A technical amendment is also made to the regime in relation to the conditional registration of VCLPs and AFOFs.

Date of effect: Parts 1 to 4 apply to the 2007-08 income year and all later years. Part 5 applies from the commencement of the Venture Capital Act 2002 .

Proposal announced: This measure was announced in the Treasurer's Press Release No. 37 of 9 May 2006.

Financial impact: This measure will have these revenue implications:

2007 - 08 2008 - 09 2009 - 10 2010 - 11
- -$2m -$7m -$16m

Compliance cost impact: Small.

Summary of regulation impact statement

Regulation impact on business

Impact: This measure will impact on:

·
small and medium entities seeking capital injections to finance the future activities of relatively high risk and expanding businesses;
·
Australian resident investors - they will be tax-exempt on income and profits and capital gains made by ESVCLPs in which they are partners;
·
general partners of ESVCLPs - they will be entitled to the carried interest tax concession which will be exempt from tax; and
·
general partners of VCLPs - they will have more investment choices.

Main points:

·
The operation of the VCLP regime is to be enhanced by removing or relaxing unnecessary restrictions. These changes:

-
remove restrictions on the country of residence of limited partners;
-
reduce the required minimum capital from $20 million to $10 million;
-
allow investment in unit trusts and convertible notes as well as shares and options;
-
allow the appointment of auditors to investee entities to occur at the end of the financial year in which the investment is made; and
-
allow up to 20 per cent of a VCLP's committed capital to be invested in companies and unit trusts that do not satisfy the residency requirements.
-
An ESVCLP regime will be introduced to provide an investment vehicle targeted at ESVCLPs. These partnerships will provide flow through tax treatment and a complete tax exemption for income, both revenue and capital, received by its domestic and foreign partners. The regime will progressively replace the PDF programme which provides tax concessions to investors carrying on eligible activities in eligible small and medium sized companies.


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