Senate

Tax Laws Amendment (2010 Measures No. 3) Bill 2010

Revised Explanatory Memorandum

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

General outline and financial impact

Government co-contribution for low income earners

Schedule 1 to this Bill freezes indexation of the co-contribution income thresholds for the 2010-11 and 2011-12 income years.

Schedule 1 also permanently maintains the current matching rate and maximum co-contribution that is payable on an individual's eligible superannuation contributions.

Date of effect: 1 July 2010.

Proposal announced: This measure was announced in the 2010-11 Budget on 11 May 2010.

Financial impact: These amendments are expected to result in a $645 million fiscal saving over the forward estimates period.

Compliance cost impact: Low.

Thin capitalisation - modification of the rules in relation to the application of accounting standards for authorised deposit-taking institutions

Schedule 2 to this Bill amends the operation of the thin capitalisation rules for authorised deposit-taking institutions (ADIs) to take account of the change in the accounting treatment of certain assets from the adoption of the Australian equivalents to International Financial Reporting Standards in January 2005.

The relevant assets are:

·
treasury shares;
·
one component of the business asset excess market value over net assets - the EMVONA asset. The relevant component is the value of business in force at the time of acquisition of the relevant subsidiaries; and
·
capitalised software costs.

Certain treasury shares are to be included in adjusted average equity capital.

The safe harbour capital amount is adjusted to exclude the value of business in force component of the business asset excess market value over net assets - the EMVONA asset. This amount is only excluded to the extent to which it is reflected in the goodwill or intangible assets of the ADI group.

The safe harbour capital amount is further adjusted to include only 4 per cent of the value of capitalised software costs.

Date of effect: These amendments will apply to income years commencing on or after 1 January 2009. These amendments do not adversely affect taxpayers.

Proposal announced: This measure was announced in the then Assistant Treasurer and Minister for Competition Policy and Consumer Affairs' Media Release No. 048 of 2009.

Financial impact: Unquantifiable revenue implications from the 2009-10 income year.

Compliance cost impact: Low.

Transactions involving security and intelligence agencies

Schedule 3 to this Bill amends the tax law to provide the heads of the Australian Security Intelligence Organisation and the Australian Secret Intelligence Service with the power to declare that Commonwealth tax laws do not apply to a particular entity in relation to a particular transaction. This ensures that the tax authorities will not need to obtain information that should remain secret in the interests of national security.

Date of effect: Royal Assent.

Proposal announced: This measure has not previously been announced.

Financial impact: An unquantifiable but low revenue impact.

Compliance cost impact: Low.

Special Disability Trusts - changes to the taxation of unexpended income

Schedule 4 to this Bill amends Division 6 of the Income Tax Assessment Act 1936 so that the unexpended income of a Special Disability Trust is taxed at the relevant principal beneficiary's personal income tax rate rather than automatically at the top personal tax rate plus the Medicare levy.

Date of effect: These amendments apply from 1 July 2008 and are beneficial to taxpayers.

Proposal announced: This measure was announced jointly by the Minister for Families, Housing, Community Services and Indigenous Affairs and the Parliamentary Secretary for Disabilities and Children's Services in Media Release Extra support for people with disability and their carers of 12 May 2009.

Financial impact: This measure will have these revenue implications:

2009-10 2010-11 2011-12 2012-13
-$1.0m -$1.0m -$1.0m -$1.0m

Compliance cost impact: Low. This measure will affect only a small proportion of individuals and businesses. There is a low ongoing compliance cost impact and a low transitional impact, reflecting the need for some taxpayers to be aware of the amendments.

Definition of a managed investment trust

Schedule 5 to this Bill amends the definition of a 'managed investment trust' (MIT) in Subdivision 12-H of Schedule 1 to the Taxation Administration Act 1953. The amended definition will apply for the purposes of the MIT withholding tax rules in that Subdivision, and for the purposes of the capital account treatment rules for MITs in Division 275 of the Income Tax Assessment Act 1997 ( ITAA 1997).

These amendments to the definition of a MIT also apply in relation to capital gains tax (CGT) events happening on or after 1 November 2008, for the purpose of Subdivision 126-G of the ITAA 1997.

Date of effect: The amendments will apply to fund payments in respect of the first income year starting on or after the first 1 July after the day on which this Bill receives Royal Assent and later income years.

However, if a trust was a MIT for an income year starting before 26 May 2010 (the date of introduction of this Bill to Parliament), or a trust would have been a MIT in such an income year if the trustee of the trust had made a fund payment in relation to the income year in that income year (and before 26 May 2010), the amendments made by this Schedule will not apply to that trust for the 2010-11 through to 2016-17 income years.

The amendments will generally apply in relation to Division 275 of the ITAA 1997 in the same way as the amendments made by Schedule 3 to the Tax Laws Amendment (2010 Measures No. 1) Bill 2010 apply in relation to that Division.

These amendments to the definition of a MIT apply in relation to Subdivision 126-G of the ITAA 1997 in relation to CGT events happening on or after 1 November 2008, consistent with the application date of the limited roll-over in that Subdivision.

Proposal announced: This measure was announced in the Assistant Treasurer's Media Release No. 020 of 10 February 2010.

Financial impact: Unquantifiable revenue implications from the 2010-11 income year.

Compliance cost impact: Low.


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