House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

General outline and financial impact

Film tax offsets

Schedule 1 to this Bill amends the Income Tax Assessment Act 1997 to make two changes to the eligibility criteria for accessing the film tax offsets. The minimum qualifying expenditure threshold for the post, digital and visual effects offset is reduced from $5 million to $500,000. The requirement for films with qualifying Australian production expenditure of less than $50 million to have at least 70 per cent of the total of all the company's production expenditure on the film as qualifying Australian production expenditure, in order to qualify for the location offset, is removed.

Date of effect : These amendments apply retrospectively from 1 July 2010. As the changes broaden access to the offsets, this retrospectivity is beneficial for affected taxpayers.

Proposal announced : This measure was announced in the 2010-11 Budget and in the then Assistant Treasurer's and the then Minister for Environment Protection, Heritage and the Arts' joint Media Release No. 089 of 11 May 2010.

Financial impact : This measure is estimated to increase expenditure on the film tax offsets by $6.9 million over the forward estimates.

Compliance cost impact : This measure is expected to reduce compliance costs for affected taxpayers.

Amendments to the capital protected borrowings provisions

Schedule 2 to this Bill amends Division 247 of the Income Tax Assessment Act 1997 and Division 247 of the Income Tax (Transitional Provisions) Act 1997 to adjust the benchmark interest rate used to determine the cost of capital protection on a capital protected borrowing from the Reserve Bank of Australia's (RBA's) Indicator Lending Rate for Personal Unsecured Loans to the RBA's Indicator Lending Rate for Standard Variable Housing Loans plus 100 basis points.

Date of effect : The new benchmark interest rate for determining the cost of capital protection on a capital protected borrowing applies to capital protected borrowings entered into or extended after 7.30 pm on 13 May 2008, and applies to capital protected borrowings entered into or extended at or before 7:30 pm on 13 May 2008 from 1 July 2013.

Changes to the benchmark interest rate to the RBA's Indicator Lending Rate for Standard Variable Housing Loans were originally announced on 13 May 2008. Implementation of the announced changes was delayed to address industry concerns that the announced rate did not appropriately reflect the credit risks borne by lenders in capital protected borrowings.

As a result of subsequent consultation with industry, the Government announced in the 2010-11 Budget that the benchmark rate would be revised upwards by 100 basis points to take into account the additional credit risk borne by lenders for the cost of capital protection that is paid on a deferred basis and that the transitional arrangements would be extended to 30 June 2013.

These amendments apply retrospectively to capital protected borrowing entered into, amended or extended after the 2008 Budget time, but they are beneficial to affected taxpayers compared to the benchmark interest rate announced on 13 May 2008.

Proposal announced : These amendments were announced as part of the 2010-11 Budget in the then Assistant Treasurer's Media Release No. 094 of 11 May 2010.

Financial impact : This measure will have the following revenue implications:

Compliance cost impact : These amendments are expected to have a low transitional compliance cost for issuers of capital protected borrowings but no increase in ongoing compliance costs.

Extend the main residence capital gains tax exemption to compulsory acquisitions of part of a main residence

Schedule 3 to this Bill amends the Income Tax Assessment Act 1997 to extend the main residence capital gains tax (CGT) exemption to a CGT event that is a compulsory acquisition (or similar arrangement) of part of the adjacent land or structure of a main residence, without the compulsory acquisition applying to the dwelling.

Date of effect : This measure applies to CGT events happening on or after the day this Bill receives Royal Assent. However, taxpayers may choose to apply the measure to CGT events relating to them that happen in the period that starts with the 2004-05 income year and ends immediately before this Bill receives Royal Assent.

Proposal announced : This measure was announced in the then Assistant Treasurer and Minister for Competition Policy and Consumer Affairs' Media Release No. 019 of 19 March 2009.

Financial impact : This measure will have an unquantifiable (but small) cost to revenue.

Compliance cost impact : These amendments are expected to have a low overall compliance cost impact. This comprises a low implementation impact and no expected change in ongoing compliance costs relative to the affected group.

Deductions in relation to benefits for terminal medical conditions

Schedule 4 to this Bill extends the benefits in section 295-460 of the Income Tax Assessment Act 1997 to include terminal medical condition benefits. The benefits in section 295-460 are benefits in relation to which complying superannuation funds and retirement savings account providers can claim a deduction.

Date of effect : This measure applies from 16 February 2008. This measure does not adversely affect taxpayers as it provides a tax deduction for certain taxpayers from the application date.

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

Financial impact : This measure will have an ongoing cost to revenue.

Compliance cost impact : Low.

Non-profit sub-entities

Schedule 5 to this Bill amends the A New Tax System (Goods and Services Tax) Act 1999 to allow non-profit sub-entities to access the goods and services tax concessions available to their parent entity, including the higher registration turnover threshold available for non-profit bodies.

Date of effect : This measure applies from the start of the first tax period after Royal Assent.

Proposal announced : This measure was announced in the then Assistant Treasurer and Minister for Competition Policy and Consumer Affairs' Media Release No. 042 of 12 May 2009.

Financial impact : Nil.

Compliance cost impact : Low.

Running balance accounts

Schedule 6 to this Bill amends the Taxation Administration Act 1953 to provide that it will not be mandatory for the Commissioner of Taxation to apply a payment, credit or running balance account surplus against a tax debt that is a business activity statement amount unless that amount is due and payable.

Date of effect : This measure applies on and from 1 July 2011.

Proposal announced : This measure was announced in the then Assistant Treasurer and Minister for Competition Policy and Consumer Affairs' Media Release No. 042 of 12 May 2009.

Financial impact : Unquantifiable.

Compliance cost impact : Low.

Education expenses tax offset (uniforms)

Schedule 7 to this Bill amends the Income Tax Assessment Act 1997 to include school uniforms in the range of eligible expenses for the education expenses tax offset from 1 July 2011.

Date of effect : This measure applies to assessments for the 2011-12 and later years of income.

Proposal announced : This measure was announced in the Prime Minister's Media Release of 13 July 2010.

Financial impact : This measure will have these expense impacts:

Compliance cost impact : These amendments are expected to have a minimal compliance cost.