Explanatory Memorandum(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)
General outline and financial impact
Removing tax issues facing special disability trusts
Schedule 1 to this Bill amends the Income Tax Assessment Act 1997 to provide:
- a capital gains tax (CGT) exemption for an asset transferred into a special disability trust (SDT) for no consideration;
- a CGT main residence exemption for a trustee of an SDT;
- a CGT exemption for a recipient of the principal beneficiary's main residence, if their ownership interest ends within two years of the principal beneficiary's death; and
- equivalent taxation treatment amongst SDTs established under different Acts.
Date of effect: These amendments apply to income tax assessments for the 2006-07 income year and later income years.
These amendments, which are beneficial to taxpayers, are retrospective so as to ensure transactions that have occurred since SDTs were first able to be established are covered by these amendments.
Proposal announced: The original measure to provide a CGT main residence exemption to SDTs was announced jointly by the Minister for Families, Housing, Community Services and Indigenous Affairs and the then Parliamentary Secretary for Disabilities and Children's Services in Media Release Extra support for people with disability and their carers on 12 May 2009 as part of the 2009-10 Budget.
Extensions to this measure were announced in the Assistant Treasurer and Minister for Financial Services and Superannuation's and the Parliamentary Secretary for Disabilities and Carers' joint Media Release No. 070 of 10 May 2011, as part of the 2011-12 Budget.
Financial impact: These amendments have a small unquantifiable cost to revenue over the forward estimates, expected to be between $0 and $10 million per annum.
Compliance cost impact: Low overall, comprising of a low implementation impact and a low decrease in ongoing compliance costs relative to the affected group.
Pacific Seasonal Workers - reduction in marginal tax rate
Schedule 2 to this Bill amends the Income Tax Rates Act 1986 to reduce the lowest marginal tax rate for workers participating in the Pacific Seasonal Worker Pilot Scheme (Scheme) from 29 per cent to 15 per cent. All other tax brackets for participants in the Scheme will remain unchanged. This change only applies to non-residents who hold a Special Program Visa (subclass 416) and who are employed by an 'Approved Employer' under the Scheme. Tax rates for other non-residents remain unchanged.
This measure is designed to achieve two things, namely, to address equity issues associated with the high effective tax rate that currently applies to participants in the Scheme and to deliver better remittance outcomes for participants in the Scheme.
Date of effect: This measure applies to the 2011-12 year of income.
Proposal announced: This measure was announced in the 2011-12 Budget.
Financial impact: The measure will have the following cost to revenue:
The Government has not yet made a decision about the future of the Scheme beyond its end date of 30 June 2012, so later financial impacts are not recorded.
Compliance cost impact: Low. This measure will only affect a very small number of employers and employees. Employers will be required to make minimal system changes as a result of the change.
Taxation of financial arrangements and pay as you go instalments
Schedule 3 to this Bill amends the Taxation Administration Act 1953 so that instalment income of a taxpayer who is required to apply Division 230 of the Income Tax Assessment Act 1997 to their financial arrangements also includes their net gains from their Division 230 financial arrangements (to the extent the gains equal or exceed the losses) as worked out under the taxation of financial arrangements (TOFA) provisions.
Date of effect: These amendments commence on Royal Assent. The amendments generally apply from the first instalment quarter of an income year following the lodgment of the first income tax return in which a taxpayer reported an assessable gain or deductible loss from their Division 230 financial arrangements.
Proposal announced: These amendments were announced in the then Assistant Treasurer's Media Release No. 145 of 29 June 2010. The Media Release advised that amendments would be made to ensure that the TOFA provisions would interact appropriately with the pay as you go instalments provisions to lower compliance costs for taxpayers.
Financial impact: Nil. However, some small but unquantifiable timing differences may arise over the first two years of implementation.
Compliance cost impact: These amendments will reduce compliance costs for taxpayers who are required to apply the TOFA provisions to their financial arrangements.
Commissioner's discretion to extend the time for notifying taxation of financial arrangements transitional elections
Schedule 4 to this Bill amends the Tax Laws Amendment (Taxation of Financial Arrangements) Act 2009 (TOFA Act) to give the Commissioner of Taxation (Commissioner) a limited discretion to extend the time for a taxpayer to notify the Commissioner of the making of the transitional election to apply Division 230 of the Income Tax Assessment Act 1997 and related consequential and transitional amendments (TOFA provisions) to its existing financial arrangements.
Date of effect: These amendments commence the day after Royal Assent and apply in relation to lodgment dates mentioned in paragraph 104(5)(b) of the TOFA Act, whether the lodgment dates occur before, on, or after the commencement of these amendments.
Proposal announced: These amendments were announced in the Assistant Treasurer and Minister for Financial Services and Superannuation's Media Release No. 019 of 29 November 2010.
Financial impact: Nil.
Compliance cost impact: These amendments will reduce compliance costs for taxpayers who have elected to apply the TOFA provisions to their existing financial arrangements, but have failed to notify the Commissioner of this election on or before the first lodgment date that occurs on or after the start of their first TOFA applicable income year.
Farm management deposits
Schedule 5 to this Bill amends Division 393 of the Income Tax Assessment Act 1997 (ITAA 1997) to allow a farm management deposit (FMD) owner affected by an applicable natural disaster to access their FMDs within 12 months of making a deposit while retaining concessional tax treatment.
Schedule 5 to this Bill also amends:
- section 398-5 of Schedule 1 to the Taxation Administration Act 1953 to require FMD providers to report certain information about FMDs to the Agriculture Secretary on a monthly basis before the 11th day after the end of a calendar month;
- Division 393 of the ITAA 1997 to allow FMD owners to hold FMDs simultaneously with more than one FMD provider; and
- section 69 of the Banking Act 1959 so that an FMD becomes unclaimed moneys only if the FMD has not been operated on for a period of at least seven years and the authorised deposit-taking institution (which is the FMD provider) is unable to contact the FMD owner after making reasonable efforts.
Date of effect: The amendment to allow FMD owners affected by applicable natural disasters to access their FMDs within 12 months of making a deposit applies from 1 July 2010. This measure is retrospective to enable FMD owners who were affected by applicable natural disasters in the 2010-11 income year to benefit from the amendments.
The amendment relating to reporting requirements apply from 1 July 2012. The amendment allowing owners to have FMDs with more than one FMD provider applies in relation to agreements made before, on or after 1 July 2012.
The amendment relating to the unclaimed moneys provision applies in relation to statements to be delivered within three months after 31 December 2012 and within three months after the end of each later calendar year.
Proposal announced: The amendments were announced as part of the 2011-12 Budget.
Financial impact: Only the amendment to allow FMD owners who are affected by applicable natural disasters to access their FMDs within 12 months will have an ongoing unquantifiable revenue impact.
Compliance cost impact: These amendments are expected to have a medium overall compliance cost impact.
There will be an impact on FMD owners affected by applicable natural disasters as the conditions prescribed by the Income Tax (Farm Management Deposits) Regulations 1998 must all be met before access within 12 months of the deposit is allowed.
There will be an impact on FMD providers by requiring more frequent reporting and requiring FMD providers that are authorised deposit-taking institutions to make reasonable efforts to contact FMD owners before FMDs become unclaimed moneys.
Extend the temporary loss relief for merging superannuation funds by three months
Schedule 6 to this Bill amends the Tax Laws Amendment (2009 Measures No. 6) Act 2010 to extend the end date of the temporary loss relief for complying superannuation fund mergers by three months - from 30 June 2011 to 30 September 2011. This will provide additional time for mergers to be completed and still meet the eligibility requirements of the loss relief. The requirement that affected mergers are completed in a single income year of the transferring fund is also relaxed to permit funds to benefit from the extension.
Date of effect: The measure commences on Royal Assent and applies in respect of transfer events in the period 1 July 2010 to 30 September 2011 for the purpose of determining eligibility for the temporary loss relief. The measure benefits affected taxpayers by extending the period of the temporary loss relief.
Proposal announced: This measure was announced in the Assistant Treasurer and Minister for Financial Services and Superannuation's Media Release No. 066 of 3 May 2011.
Financial impact: This measure has an unquantifiable but small revenue impact.
Compliance cost impact: As the measure extends the period of operation of an existing temporary measure, its compliance cost impact is expected to be small.
Penalty notice validation
Schedule 7 to this Bill ensures the ongoing validity of certain director penalty notices, notwithstanding the New South Wales Court of Appeal (NSWCA) decision in Soong v Deputy Commissioner of Taxation  NSWCA 26 ( Soong ).
Date of effect: These amendments apply from 10 December 2007.
This application date ensures that all director penalty notices issued by the Commissioner of Taxation, which relied on the earlier NSWCA decision in Deputy Commissioner of Taxation v Meredith  NSWCA 354 ( Meredith ), continue to remain valid.
Technically, these amendments will have an adverse impact on those directors who would otherwise seek to challenge the validity of their director penalty notices in light of the NSWCA's later decision in Soong .
Substantively though, no taxpayers will be adversely affected because these amendments merely restore the precedential view on the issue during this period (as enunciated in Meredith ).
Proposal announced: This measure has not previously been announced.
Financial impact: Nil.
Compliance cost impact: Negligible.
Public ancillary funds
Schedule 8 to this Bill amends the Income Tax Assessment Act 1997 , the Taxation Administration Act 1953 and the A New Tax System (Australian Business Number) Act 1999 to improve the integrity of public ancillary funds. These amendments among other things:
- rename the funds as public ancillary funds (their more commonly used name);
- give the Treasurer the power to make legislative guidelines about the establishment and maintenance of public ancillary funds; and
- give the Commissioner of Taxation (Commissioner) the power to impose administrative penalties on trustees that fail to comply with the guidelines and to remove or suspend trustees of non-complying funds.
Date of effect: These amendments will apply from 1 January 2012.
Proposal announced: These amendments were announced in the then Assistant Treasurer and Minister for Financial Services and Superannuation's Media Release No. 093 of 11 May 2010 and in the 2010-11 Budget.
Financial impact: These amendments are expected to result in a revenue gain of $3 million over the forward estimates period as a result of improved compliance.
Compliance cost impact: Low.
Film tax offsets
Schedule 9 to this Bill amends Division 376 of the Income Tax Assessment Act 1997 to make a number of changes to the film tax offsets.
Changes affecting the producer offset include:
- amending the qualifying expenditure threshold for feature films, single episode dramas and documentary programs to $500,000;
- disallowing eligibility for those documentaries which receive financial assistance under the Producer Equity Program;
- allowing additional screen production costs to be claimed as qualifying expenditure;
- allowing television series to benefit for their first 65 broadcast hours;
- allowing films with qualifying expenditure of less than $15 million to use actual exchange rates rather than existing averaging rules;
- removing the 20 per cent cap on development expenditure or remuneration provided to the principal director, producers and principal cast associated with the documentary;
- allowing certain distribution and marketing costs to be included in qualifying expenditure;
- allowing short-form animated documentaries access to the offset; and
- excluding goods and services tax (GST) from an amount of expenditure for the purpose of applying the offset.
Changes affecting the location and post, digital and visual effects offsets include:
- increasing the rate of the location offset from 15 per cent to 16.5 per cent;
- increasing the post, digital and visual effects offset from 15 per cent to 30 per cent;
- permitting some additional screen production costs to be claimed as qualifying expenditure; and
- excluding GST from an amount of expenditure for the purpose of applying these offsets.
Date of effect: The amendments as they relate to the producer offset apply to:
- films for which production assistance (other than development assistance) has been approved by the film authority on or after 1 July 2011; or
- in any other case, films for which production expenditure is first incurred in, or in relation to, pre-production of the film on or after 1 July 2011.
The amendments as they relate to the location offset apply retrospectively to films commencing principal photography or production of the animated image on or after 10 May 2011.
The amendments as they relate to the post, digital and visual effects offset apply retrospectively to post, digital and visual effects production that commence on or after 1 July 2011.
Consistent with the 2011-12 Budget, the net retrospective application dates benefit affected taxpayers.
Proposal announced: This measure was announced in the 2011-12 Budget and in the Minister for the Arts' Media Release No. SC056/2011 of 10 May 2011.
Financial impact: This measure is estimated to increase expenditure on the film tax offsets by $8 million over the forward estimates.
Compliance cost impact: This measure is expected to reduce compliance costs for affected taxpayers.