Explanatory Memorandum
(Circulated by authority of the Minister for Housing and Assistant Treasurer the Hon Michael Sukkar MP)General outline and financial impact
Tax treatment of concessional loans involving tax exempt entities
Schedule 1 to the Bill amends Schedule 2D to the ITAA 1936 (which applies to tax exempt entities that become taxable) to:
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- specify the basis for working out the market value of TOFA assets and liabilities entered into on concessional terms held at the transition time for the purposes of applying the TOFA provisions; and
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- modify the operation of the TOFA balancing adjustment that is made when the entity ceases to have such a TOFA asset or liability.
Date of effect : The amendments apply from 7.30 pm, by legal time in the Australian Capital Territory, on 8 May 2018.
Proposal announced : This Schedule fully implements the measure 'Company tax - Improving the integrity of the tax treatment of concessional loans between tax exempt entities' from the 2018-19 Budget.
Financial impact : Nil.
Human rights implications : This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 8.
Compliance cost impact : Nil.
Enhancing the integrity of the small business CGT concessions in relation to partnerships
Schedule 2 to the Bill amends the tax law to prevent the small business CGT concessions in Division 152 of the ITAA 1997 from being available for assignments of the income of a partner and other rights or interests in the income or capital of a partnership that are not a membership interest in the partnership.
Date of effect : These amendments apply for CGT events occurring after 7.30pm legal time in the Australian Capital Territory on 8 May 2018.
Proposal announced : Schedule 2 to the Bill fully implements the measure 'Tax Integrity - enhancing the integrity of concessions in relation to partnerships' from the 2018-19 Budget.
Financial impact : As at the 2018-19 Budget, the measure was estimated to result in a small but unquantifiable gain to revenue over the forward estimates period.
Human rights implications : This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 8.
Compliance cost impact : This measure is estimated to have a minimal regulatory impact.
Limiting deductions for vacant land
Schedule 3 to the Bill amends the ITAA 1997 to deny deductions for losses or outgoings incurred that relate to holding vacant land. However, the amendments do not apply to any losses or outgoings relating to holding vacant land to the extent to which the land is:
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- used or held available for use by the entity in the course of carrying on a business in order to earn assessable income; or
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- used or held available for use in carrying on a business by:
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- an affiliate, spouse or child of the taxpayer; or
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- an entity that is connected with the taxpayer or of which the taxpayer is an affiliate.
The amendments also do not apply to taxpayers that are:
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- corporate tax entities, superannuation plans (other than self managed superannuation funds), managed investment trusts or public unit trusts; or
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- unit trusts or partnerships of which all the members are entities of the above types.
Date of effect : The amendments made by Schedule 3 apply to losses or outgoings incurred on or after 1 July 2019.
Proposal announced : This Schedule fully implements the measure announced in the 2018-19 Budget as 'Tax Integrity - deny deductions for vacant land'.
Financial impact : As at the 2018-19 Budget, the measure is estimated to result in the following gain to revenue over the forward estimates period:
| 2017-18 | 2018-19 | 2019-20 | 2020-21 | 2021-22 |
| - | - | - | $25m | $25m |
- Nil
Human rights implications : This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 8.
Compliance cost impact : This Schedule results in some transitional and ongoing compliance costs for affected entities.
Extending anti-avoidance rules for circular trust distributions
Schedule 4 to the Bill amends the ITAA 1936 to extend to family trusts the anti-avoidance rule that applies to other closely held trusts that undertake circular trust distributions. This allows income tax to be imposed on circular trust distributions at a rate of tax equal to the top marginal tax rate plus the rate of Medicare levy.
Date of effect : The amendments apply to income years starting on or after 1 July 2019.
Proposal announced : This Schedule implements the measure announced in the 2018-19 Budget as 'Tax Integrity - extending anti-avoidance rules for circular trust distributions'.
Financial impact : As at the 2018-19 Budget, the measure was estimated to result in the following gain to revenue over the forward estimates period:
| 2017-18 | 2018-19 | 2019-20 | 2020-21 | 2021-22 |
| - | - | - | $10m | $10m |
- Nil
Human rights implications : This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 8.
Compliance cost impact : This measure is expected to result in no change to the overall compliance cost impact, comprising no implementation impact and no ongoing compliance costs.
Disclosure of business tax debts
Schedule 5 to the Bill amends the TAA 1953 to allow taxation officers to disclose the business tax debt information of a taxpayer to credit reporting bureaus when certain conditions and safeguards are satisfied.
This will allow tax debts to be placed on a similar footing as other debts, strengthening the incentives for businesses to pay their debts in a timely manner and effectively engage with the ATO to avoid having their tax debt information disclosed.
The amendments will reduce unfair financial advantage obtained by businesses that do not pay their tax on time and contributes to more informed decision making within the business community by enabling credit providers to make a more complete assessment of the credit worthiness of a business.
Date of effect : The amendments apply in relation to disclosures of tax debt information on or after the day after the Act receives Royal Assent (whether the information was acquired before, on or after that day). However, a disclosure may only occur on or after the day a legislative instrument made by the Treasurer declaring the class of entity whose tax debt information may be disclosed comes into force.
Proposal announced : This measure implements the measure 'Tax integrity - improve the transparency of taxation debts' from the 2016-17 Mid-Year Economic and Fiscal Outlook and the amendment to that measure in the measure 'Tax integrity - disclosure of business tax debts - amendments' announced in the 2018-19 Mid-Year Economic and Fiscal Outlook.
Financial impact : The measure is estimated to result in a gain to the budget of $30 million in underlying cash balance terms over the forward estimates period. This includes an estimated increase in goods and services tax receipts of $10 million, paid to the States and Territories. There is no revenue impact in fiscal balance terms as the tax liabilities have already been recognised.
| 2017-18 | 2018-19 | 2019-20 | 2020-21 | 2021-22 |
| - | - | $15.0m | $7.5m | $7.5m |
- Nil
Human rights implications : Schedule 5 to the Bill raises human rights issues. See Statement of Compatibility with Human Rights -Chapter 8.
Compliance cost impact : Regulatory costs are expected to be minimal. While the ATO will develop internal system functionality to exchange data with credit reporting bureaus, any cost to credit reporting bureaus is expected to be minimal as infrastructure is already established. Any potential impact for business clients with tax-related debts is excluded from the Regulatory Burden Measurement framework as a cost of non-compliance.
Electronic invoicing implementation
Schedule 6 to the Bill amends the TAA to confer on the Commissioner functions and powers to develop and/or administer a framework or system for electronic invoicing.
Date of effect : The day after Royal Assent.
Proposal announced : Schedule 6 to the Bill implements the measure 'Electronic Invoicing Adoption' from the 2019-20 Budget.
Financial impact : Nil.
Human rights implications : Schedule 6 to the Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 8.
Compliance cost impact : Nil.
Salary sacrifice integrity
Schedule 7 to this Bill amends the SGAA to improve the integrity of the superannuation system by ensuring that an individual's salary sacrifice contributions cannot be used to reduce an employer's minimum superannuation guarantee (SG) contributions.
Date of effect : 1 July 2020.
Proposal announced : This measure was announced in the Minister for Revenue and Financial Services' media release of 14 July 2017: Government takes action to address superannuation guarantee non-compliance.
Financial impact : This measure has a small but unquantifiable impact on the fiscal and underlying cash balances.
Human rights implications : This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 8.
Compliance cost impact : Low.