House of Representatives

Tax Laws Amendment (2008 Measures No. 5) Bill 2008

Explanatory Memorandum

Circulated By the Authority of the Treasurer, the Hon Wayne Swan Mp

General outline and financial impact

GST and the sale of real property - integrity measure

Schedule 1 to this Bill amends the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to maintain the integrity of the goods and services tax (GST) tax base by ensuring that the interaction between the margin scheme provisions (refer Chapter 1, paragraph 1.4) and the going concern, farmland and associates provisions does not allow property sales to be structured in a way that results in GST not applying to the value added to real property on or after 1 July 2000 by an entity registered or required to be registered for GST.

These amendments:

·
ensures that where the margin scheme is used after certain GST-free or non-taxable supplies, the value added by the registered entity which made that supply is included in determining the GST subsequently payable under the margin scheme;
·
ensures that eligibility to use the margin scheme cannot be reinstated by interposing a GST-free or non-taxable supply; and
·
confirms that the GST general anti-avoidance provisions can apply to contrived arrangements entered into to avoid GST.

Date of effect : This measure has effect from the date of Royal Assent.

Proposal announced : This measure was announced in the 2008-09 Budget.

Financial impact : This measure has the following revenue implications:

2007 - 08 2008 - 09 2009 - 10 2010 - 11 2011 - 12
Nil $43m $135m $160m $185m

The revenue impact has been revised since the 2008-09 Budget due to a change in the commencement date of the measure from 1 July 2008 to 1 January 2009, and an update of the base data used in the costing model.

Compliance cost impact : Low. This measure will result in a small increase in ongoing compliance costs as there may be additional information requirements for entities that purchase real property as a GST-free going concern or farmland and then subsequently decide to sell under the margin scheme.

Thin capitalisation - modification of the rules in relation to application of accounting standards

Schedule 2 to this Bill modifies the thin capitalisation regime contained within Division 820 of the Income Tax Assessment Act 1997 in relation to the use of accounting standards for identifying and valuing an entity's assets, liabilities and equity capital. It aims to adjust for certain impacts of the 2005 adoption of Australian equivalents to International Financial Reporting Standards on the thin capitalisation position of complying entities. The amendments will, in specified circumstances:

·
prohibit entities from recognising:

-
defined benefit plan assets and liabilities; and
-
tax deferred assets and liabilities; and

·
permit entities to:

-
recognise internally generated intangible assets; and
-
revalue intangible assets, where this is currently prohibited due to the absence of an active market.

Date of effect : The amendments will apply to assessments for each income year commencing on or after the date of Royal Assent.

Proposal announced : The Treasurer and the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs jointly announced the amendments in Media Release No. 053 of 13 May 2008.

Financial impact : Unquantifiable.

Compliance cost impact : Minimal.

Interest withholding tax - extension of eligibility for exemption to state government bonds

Schedule 3 to this Bill amends section 128F of the Income Tax Assessment Act 1936 to extend eligibility for exemption from interest withholding tax to bonds issued in Australia by state and territory central borrowing authorities.

Date of effect : This amendment applies to interest paid on or after the date of Royal Assent.

Proposal announced : This measure was announced in the Treasurer's Media Release No. 058 of 20 May 2008.

Financial impact : This measure has the following revenue implications:

2007 - 08 2008 - 09 2009 - 10 2010 - 11 2011 - 12
Nil -$7m -$17m -$19m -$21m

Compliance cost impact : Nil.

Fringe benefits tax - jointly held assets

Schedule 4 to this Bill amends the Fringe Benefits Tax Assessment Act 1986 to ensure that the 'otherwise deductible rule' applies appropriately to benefits provided in relation to investments that the employee holds jointly with a third party.

Date of effect : These amendments will apply from 7:30 pm Australian Eastern Standard Time (AEST) on 13 May 2008.

For employees who have entered into a salary sacrifice arrangement with their employer before 7:30 pm (AEST) on 13 May 2008 and which involves an expense payment fringe benefit related to the investment, the existing treatment continues to apply to benefits provided until 1 April 2009.

For employees who have entered into a loan arrangement before 7:30 pm (AEST) on 13 May 2008, the existing treatment that currently applies to the loan benefit continues to apply to benefits provided until 1 April 2009.

Proposal announced : This measure was announced in the 2008-09 Budget and in the Treasurer's Media Release No. 048 of 13 May 2008.

Financial impact : This measure has these revenue implications:

2007 - 08 2008 - 09 2009 - 10 2010 - 11 2011 - 12
Nil $4m $15m $15m $15m
Compliance cost impact : Minimal.

Managed funds - changes to the eligible investment business rules

Schedule 5 to this Bill amends Division 6C of the Income Tax Assessment Act 1936 to streamline and modernise the eligible investment business rules for managed funds.

These amendments will:

·
clarify the scope and meaning of investing in land for the purpose of deriving rent;
·
introduce a 25 per cent safe harbour allowance for non-rental, non-trading income from investments in land;
·
expand the range of financial instruments that a managed fund may invest in or trade; and
·
provide a 2 per cent safe harbour allowance at the whole of trust level for non-trading income.

Date of effect : This measure will apply to the income year of Royal Assent and later income years.

Proposal announced : This measure was announced in the 2008-09 Budget.

Financial impact : This measure has an unquantifiable revenue cost impact that is not expected to be significant.

Compliance cost impact : This measure is expected to impose a small increase in compliance costs in the transitional year. Ongoing compliance costs are expected to be reduced.


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