Explanatory Memorandum
(Circulated by authority of the Assistant Treasurer and Minister for Financial Services, the Hon Stephen Jones MP)Chapter 9 Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023
Schedule 1 - $20,000 instant asset write-off for small business entities
Overview
9.1 Schedule 1 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
9.2 Schedule 1 to the Bill amends the IT(TP) Act to temporarily increase the instant asset write-off threshold (the threshold below which amounts can be immediately deducted under the simplified depreciation rules) from $1,000 to $20,000. This increased threshold will allow small businesses (with an aggregated annual turnover of less than $10 million) to immediately deduct the full cost of eligible depreciating assets costing less than $20,000 that are first used or installed ready for use for a taxable purpose between 1 July 2023 and 30 June 2024.
Human rights implications
9.3 Schedule 1 to the Bill does not engage any of the applicable rights or freedoms.
Conclusion
9.4 Schedule 1 to the Bill is compatible with human rights as it does not raise any human rights issues.
Schedule 2 - Small business energy incentive
Overview
9.5 Schedule 2 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
9.6 Schedule 3 to the Bill amends the IT(TP) Act to provide small and medium businesses (with an aggregated annual turnover of less than $50 million) with access to a bonus deduction equal to 20 per cent of the cost of eligible assets or improvements to existing assets that support electrification or more efficient energy use.
9.7 This is a temporary measure to support small and medium businesses to electrify, improve their energy efficiency and save on their energy bills. The bonus deduction applies to the cost of eligible assets and improvements up to a maximum amount of $100,000, with the maximum bonus deduction being $20,000.
Human rights implications
9.8 Schedule 2 to the Bill does not engage any of the applicable rights or freedoms.
Conclusion
9.9 Schedule 2 to the Bill is compatible with human rights as it does not raise any human rights issues.
Schedule 3 - Deductible gift recipients—specific listings
Overview
9.10 Schedule 3 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
9.11 Schedule 3 to the Bill creates a new class of community charities that may apply for DGR endorsement by the Commissioner. The class consists of community charity trusts and community charity corporations.
9.12 Part 1 of Schedule 3 to the Bill specifies the class of community charities in Subdivision 30-B of the ITAA. This new class listing does not confer DGR status in and of itself. Rather, it allows entities in the specified class to apply for DGR endorsement under Division 426 in Schedule 1 to the TAA.
9.13 The new listing item applies only to community charities that meet certain conditions, as discussed below. The conditions relate to entity purposes, registration under the Australian Charities and Not-for-profits Commission Act 2012, financial obligations set out in entity governing rules, and compliance with the community charity guidelines.
9.14 Part 2 of Schedule 3 to the Bill amends Subdivision 426-D in Schedule 1 to the TAA in order to:
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- empower the Minister to make a declaration setting out community charity trusts by name;
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- create a ministerial obligation to make guidelines;
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- require the Australian Business Register to show community charity trust status;
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- impose civil liability for misrepresenting endorsement status;
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- empower the Commissioner to suspend, remove and replace trustees of community charity trusts; and
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- limit certain transfers between community charity trusts and other entities.
9.15 Part 2 of Schedule 3 to the Bill also creates a new Subdivision in Schedule 1 to the TAA in order to achieve the same suite of objectives listed above in relation to community charity corporations (other than the suspension, removal and replacement of trustees, which is not relevant to corporations).
Human rights implications
9.16 Schedule 3 to the Bill engages the right to a fair trial or the presumption of innocence in Articles 14 and 15 of the ICCPR. Article 14(2) of the ICCPR recognises that all people have the right to be presumed innocent until proven guilty according to the law. Articles 14 and 15 apply only in relation to the rights of natural persons, not legal persons such as companies.
9.17 However, Schedule 3 to the Bill only engages those rights under the ICCPR by extending existing offence provisions in the TAA to the new class of DGRs created by this Schedule. Those offence provisions are proportionate to the wrongdoing in question, and no modifications to the offences themselves have been made.
9.18 Schedule 3 to the Bill also extends an existing administrative penalty provision in Schedule 1 to the TAA to apply to community charity trusts, without changing the settings of the existing enforcement regime. Existing penalty amounts are set out in legislative guidelines. Those guidelines are the models for new community charity guidelines, which will also set penalty amounts. This allows penalty quanta to be appropriately tailored to the nature and size of the breach as well as the level of culpability.
9.19 A new administrative penalty provision in respect of community charity corporations is modelled on the above-mentioned existing provision of the TAA. The community charity guidelines will also set amounts for the purposes of this new provision. This is appropriate for the reason set out above.
9.20 Other existing administrative penalty provisions in the TAA may apply to entities endorsed under the new pathways set out in Schedule 3 to the Bill. Proportionality criteria were considered when setting penalty amounts for those provisions.
Conclusion
9.21 Schedule 3 to the Bill is compatible with human rights as it does not raise any human rights issues.
Schedule 4 - Deductible gift recipients—specific listings
Overview
9.22 Schedule 4 to the Bill amends the ITAA 1997 to:
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- list Justice Reform Initiative Limited and Transparency International Australia as DGRs; and
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- extend the DGR listing of the Victorian Pride Centre Ltd and the Australian Sports Foundation Charitable Fund.
Human rights implications
9.23 Schedule 4 to the Bill does not engage any of the applicable rights or freedoms.
Conclusion
9.24 Schedule 4 to the Bill is compatible with human rights as it does not raise any human rights issues.
Schedule 5 - Exemption for Global Infrastructure Hub Ltd
Overview
9.25 Schedule 5 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
9.26 Schedule 5 to the Bill amends the ITAA 1997 to continue to provide the GI Hub with an exemption from the liability to pay income tax on its ordinary and statutory income.
9.27 The GI Hub was established by G20 Leaders at the 2014 Brisbane Summit, with a mandate to advance international efforts to lift infrastructure investment. In October 2021, G20 decided to extend the GI Hub's mandate for a further period to 2024. As a result, the GI Hub's tax-exempt status under Division 50 of the ITAA 1997 will be continued for a further year to 30 June 2024.
Human rights implications
9.28 Schedule 5 to the Bill does not engage any of the applicable rights or freedoms.
Conclusion
Schedule 6 - Income tax amendments for updates to accounting standards for general insurance contracts
Overview
9.29 Schedule 6 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
9.30 Schedule 6 to the Bill amends the income tax law with respect to general insurance to provide broad alignment with the new accounting standard, AASB 17. The amendments reduce the income tax compliance burden on the general insurance industry caused by the misalignment between the income tax law and the adoption of the new AASB 17.
9.31 The main changes under the amendments include:
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- Subdivision 321-A – 'outstanding claims liabilities' is updated to 'adjusted liability for incurred claims';
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- Subdivision 321-B – 'unearned premium reserve' is updated to 'adjusted liability for remaining coverage'; and
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- The respective method statements are updated to broadly align with AASB 17.
Human rights implications
9.32 Schedule 6 to the Bill does not engage any of the applicable rights or freedoms.
Conclusion
9.33 Schedule 6 to the Bill is compatible with human rights as it does not raise any human rights issues.
Schedule 7 - Non-arm's length expenses of superannuation funds
Overview
9.34 Schedule 7 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
9.35 Schedule 7 to the Bill makes changes to the rules for non-arm's length expenses for superannuation entities.
9.36 These changes improve the operation of the rules in relation to expenses that are incurred on non-arm's length basis.
9.37 The non-arm's length expense rules prevent complying superannuation entities inflating their earnings by entering into schemes involving non-arm's length expenditure (including where expenses are not incurred). They ensure income derived from a transaction involving non-arm's length expenses that is not on unrelated party, commercial terms does not receive concessional treatment in superannuation.
9.38 Schedule 7 to the Bill exempts large APRA-regulated funds and exempt public sector superannuation funds from the rules related to non-arm's length expenses, although these funds are still subject to rules for income derived on a non-arm's length basis.
9.39 For SMSFs and small APRA-regulated funds these amendments will apply different treatment depending on the type of expense that is incurred on a non-arm's length basis.
9.40 Expenses are be classified as either specific expenses or general expenses. A general expense is an expense that is not related to gaining or producing income from a specific asset of the fund and a specific expense is any other expense. An expense incurred in gaining or producing income as the beneficiary of the fixed entitlement to a trusts' income or capital is always a specific expense.
9.41 For specific expenses the existing treatment continues to apply, and the amount of income that is taxed as non-arm's length income is the amount of income earned from the scheme in which the parties were not dealing at arm's length.
9.42 For general expenses the amount of income that is taxed as non-arm's length income is limited to twice the difference between the amount of the expense that would have been expected to have been incurred and the amount of the expense actually incurred. With a non-arm's length general expense the amount actually incurred cannot be deducted against the non-arm's length component because it has already been recognised under this approach. It can still be deducted against the low tax component of a fund.
9.43 There is an overall cap on the non-arm's length component of a small fund as the total of the fund's income for the year less any assessable contributions and any deductions against those contributions.
9.44 These changes apply to the 2018-19 income year and later income years and to expenses incurred or expected to have been incurred on or after 1 July 2018. This retrospectivity ensures that the benefits of the amendments apply from the date the non-arm's length expenses rules were first introduced as was requested by stakeholders.
9.45 As these changes are to the benefit of taxpayers compared with the 2018-19 amendments this retrospectivity does not disadvantage any taxpayers.
9.46 Accepting the concerns raised by stakeholders as outlined in para 7.10 about the potential for harsh consequences as a result of the amendments made by Treasury Laws Amendment (2018 Superannuation Measures No.1) Act 2019 making these changes retrospective ensures there is no period where those harsh consequences apply and provides consistency by ensuring the new approach to non-arm's length expenses applies instead.
Human rights implications
9.47 Schedule 7 to the Bill does not engage any of the applicable rights or freedoms.
Conclusion
9.48 Schedule 7 to the Bill is compatible with human rights as it does not raise any human rights issues.
Schedule 8 - AFCA scheme
Overview
9.49 Schedule 8 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
9.50 AFCA is authorised under the Corporations Act as the dispute resolution scheme overseen by ASIC for the purpose of resolving financial services disputes in Australia. AFCA's jurisdiction to receive and resolve certain complaints had been negatively impacted by the MetLife decision.
9.51 Schedule 8 to the Bill amends the Corporations Act to restore AFCA's jurisdiction to validly receive and resolve complaints which relate to superannuation, irrespective of whether the complaint falls within the definition of a 'superannuation complaint' in the Corporations Act.
9.52 By restoring AFCA's jurisdiction to deal with superannuation-related complaints, these amendments are consistent with the policy approach prior to the decision of MetLife and AFCA's practice of receiving and resolving (including by determination) superannuation-related complaints before the MetLife decision was handed down.
9.53 The amendments contained in Schedule 8 to the Bill ensure complainants have access to free and independent dispute resolution for their superannuation-related complaints, notwithstanding the impact of the MetLife decision.
9.54 The amendments apply to complaints made to AFCA before, on or after the date of commencement. This ensures that complainants have access to free and independent dispute resolution no matter when the person with the superannuation-related complaint applied to AFCA to resolve the dispute.
Human rights implications
9.55 Schedule 8 to the Bill promotes the right to a fair hearing by allowing individuals to bring complaints relating to superannuation to AFCA.
Right to a fair hearing
9.56 Schedule 8 to the Bill engages a person's right to equality before courts and tribunals and protects their entitlement to a fair and public hearing under Article 14(1) of the ICCPR. Article 14 of the ICCPR provides that everyone shall be entitled to a fair and public hearing by a competent, independent and impartial tribunal established by law.
9.57 Schedule 8 to the Bill promotes the right to a fair hearing by rectifying the exclusion of a class of complainants who were not able to apply to the AFCA scheme for dispute resolution due to the MetLife decision. As a result, the AFCA scheme continues to be available to people with superannuation-related complaints.
Conclusion
9.58 Schedule 8 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 as it promotes the right to a fair hearing.