Explanatory Memorandum
(Circulated by the authority of the Treasurer, the Hon John Dawkins, M.P.)Clauses involved in the proposed amendments
General
Clause 1: stipulates the short title of the Act as being the Taxation Laws Amendment Act (No. 5) 1992.
Clause 2: stipulates the commencement day of the provisions of the Bill:
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- subclauses 14(2), 15(2), 16(2), and 17(2) which deal with amending the zone rebate are to commence on 1 July 1993;
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- Part 5 which deals with amending the Petroleum Resource Rent Tax Assessment Act 1987 is to commence retrospectively on 1 July 1991; and
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- every other provision of the Bill is to commence on the day the Act receives royal assent.
Clause 3: defines "Principle Act" as meaning the Income Tax Assessment Act 1936 .
Capital Gains Tax
Clause 4: substitutes the heading to Division 1 of Part IIIA of the Act as a result of the insertion of proposed Subdivision A (Clause 5).
Clause 5: proposes to insert new Subdivision A into Division 1 of Part IIIA of the Act, to provide for the object, simplified outline and example of the basic operation of the capital gains tax provisions. An index will also be inserted, showing the major concepts relevant to the operation of the capital gains tax provisions.
Gifts
Contributions to registered political parties
Clause 6: relocates and renumbers subsection 51(7A) of the Act so that it now appears and operates as subsection 78(1B).
Australia-United States Coral Sea Commemorative Council Incorporated
Clause 7(b): proposes to insert new subparagraph 78(1)(a)(cviii) into the Act, to ensure that gifts made to the Australia-United States Coral Sea Commemorative Council Incorporated are tax deductible.
Clause 7(d): proposes to insert new subsection 78(6AL) into the Act, to limit the deductibility of gifts made under subparagraph 78(1)(a)(cviii) to those gifts that are made on or after 26 November 1991 and on or before 30 June 1992.
Gifts to gift funds of environmental organisations
Subclause 7(a): subparagraph 78(1)(a)(cvii) amended so "register" is omitted and substituted by "Register of Cultural Organisations".
Subclause 7(b): inserts new subparagraph 78(1)(a)(cviv) which will allow deductions for gifts made to gift funds which are listed on the Register of Environmental Organisations.
Subclause 7(c): a deduction will only be allowed as from the year commencing 1 July 1993 for gifts to organisations listed under subparagraphs 78(1)(a)(xliv), (xlvii), (lxxiii), (lxxiv) and (civ) where two new requirements are met.
Clause 8: section 78AA amended by omitting "Tourism" from the definitions of "Arts Department" and "Arts Minister".
Clause 9: inserts section 78AB which sets out the eligibility criteria for the admission of environmental organisations and their gift funds to the Register; and also the Register's administrative arrangements.
Provisional Tax
Clause 10: proposes to amend subsection 221YA(1) of the Act to ensure that the provisional tax uplift factor is 8% in relation to the 1992-93 year of income and 10% in relation to later years of income.
Clause 11: proposes to amend paragraphs 221YCAA(2)(m) and (q) of the Act to ensure that credits for TFN tax deducted from investment income are taken into account in ascertaining provisional tax on the same basis as foreign tax credits.
Paragraph (a) of Clause 12: proposes to amend subsections 221YDB(1), (1AAA), (1AA) and (1ABA) of the Act to ensure that taxpayers varying their provisional tax liability are not subject to additional tax unless they underestimate their taxable income by more than 15%.
Paragraph (b) of Clause 12: proposes to amend subsections 221YDB(1AAA) and (1ABA) of the Act to ensure that taxpayers varying their provisional tax liability are not subject to additional tax unless they overestimate their PAYE tax instalment deductions by more than 15%.
Clause 13: proposes that the above clauses apply when ascertaining provisional tax for the 1992-93 and all later years of income.
Zone and related rebates
Clause 14: proposes to amend subsection 23AB(7); firstly by replacing the current dollar amount of $270 with $304 (an increase of 12.5% for the 1992-93 year), and secondly by replacing the dollar amount of $304 with $338 (an increase of 25% in the current amount for subsequent years).
Clause 15: proposes to amend section 79A; firstly by replacing the current dollar amounts of $938, $270 and $45 in paragraphs 2(a), (d) and (e) with $1056, $304 and $51 respectively (an increase of 12.5% for the 1992-93 year), and secondly by replacing the dollar amounts of $1056, $304 and $51 with the amounts of $1173, $338 and $57 (an increase of 25% in the current amounts for subsequent years).
Clause 16: proposes to amend section 79B; firstly by replacing the current dollar amount of $270 with $304 (an increase of 12.5% for the 1992-93 year), and secondly by replacing the dollar amount of $304 with $338 (an increase of 25% in the current amount for subsequent years).
Clause 17: proposes that:
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- subclauses 14(1), 15(1) and 16(1), which will implement the 12.5% increase in the current dollar amounts, will apply to assessments in respect of the 1992-93 year of income; and
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- subclauses 14(2), 15(2) and 16(2), which will implement the 25% increase in the current dollar amounts, will apply to assessments in respect of the 1993-94 and subsequent years of income.
Deductible losses on disposal of traditional securities
Clause 18: proposes to amend section 23E of the Act by omitting the reference to subsection 160ZB(6) which is being deleted by the Bill.
Clause 19: proposes to amend section 70B by inserting:
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- subsection 70B(4), to deny a deduction under the section for losses of capital in circumstances where a reason for the disposal of a traditional security was a belief or apprehension that the issuer would be unable or unwilling to meet its payment obligations under the security.
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- subsection 70B(5), to make clear that the forgiveness or waiver of a debt is not a disposal of a traditional security.
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- subsection 70B(6), so that subsection 70B(5) applies only for the purpose of section 70B.
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- subsection 70B(7), which defines 'issuer', 'marketable security' and 'securities market'.
Clause 20: to omit subsection 160ZB(6).
Clause 21: specifies that the limitation on deductions under section 70B being made by the Bill apply only to disposals or redemptions of traditional securities on or after 1 July 1992.
Clause 22: specifies that subsection 70B(5) cannot be called in aid to determine what "disposal" or "redemption" mean in relation to transactions before 1 July 1992.
Reduced accelerated write-down for horse breeding stock
Clause 23:
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- repeals existing section 32 which provides for the valuation of live stock on hand at the end of a year of income; and
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- inserts new sections 32 and 32A to provide the valuation options for:
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- livestock other than horse breeding stock; and
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- horse breeding stock;
- acquired on or after 19 August 1992 that are on hand at the end of the year of income.
Clause 24: provides that new sections 32 and 32A will apply to live stock acquired on or after 19 August 1992 and that the previous section 32 will apply to live stock acquired before 19 August 1992 as if the section had not been repealed.
Environment protection expenditure
Clause 25: inserts new Subdivision CA (which contains new sections 82BH to 82BR) into Division 3 to provide deductions for environment protection expenditure.
Clause 26: amends the definition of "building" in subsection 124ZF(1) in Division 10D to include an earthwork for environment purposes.
Clause 27: inserts new section 124ZFC in Division 10D to allow amortisation of environment earthworks.
Research and Development expenditure
Clause 28: amends section 73B of the Act to:
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- remove the reference to the factor of 1.25 in the definition of "deduction acceleration factor";
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- delete the transitional arrangements for qualifying plant first used prior to 1 July 1993;
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- remove the $10 million limit applying to pilot plant;
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- clarify that a deduction is not allowable to a registered eligible company for its R & D activities that are not approved under section 39P of the Industry Research and Development Act 1986 (the IR & D Act); and
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- provide that deductions for expenditure on R & D activities will not be allowable under section 73B of the ACT where the Industry Research and Development Board issues a certificate under section 39MA of the IR & D Act.
Clause 29: removes the reference to 1.25 from the calculation of clawback on expenditure incurred on or after 21 November 1987.
Clause 30: inserts section 73BC so that where expenditure is incurred to a government body or its associates and a guaranteed return is involved in the finance arrangement then a deduction is not allowable under section 73B of the Act.
Clause 31: amends section 170 of the Act to allow assessment to be amended at any time to give effect to new section 73CB.
Clause 32: is the application provision for the amendments to:
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- subsection 73B(10) (to deny a deduction for R & D expenditure on basis of a certificate issued the Industry Research and Development Board) which will apply from the date of introduction of the Bill;
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- section 73CB which will apply on or after 19 August 1992 to companies making an application, being registered or entering or varying a finance scheme on or after 19 August 1992.
(Industry Research and Development Act 1986)
Clause 90: specifies the legislation being amended to be the Industry Research and Development Act 1986 (the IR & D Act).
Clause 91: defines " finance scheme guidelines" to be those made under section 39EA of the IR & D Act.
Clause 92 : extends the functions of the Industry Research and Development Board (the Board) to include those conferred on it by the finance scheme guidelines.
Clause 93 : extends the duties of the chairman under the IR & D Act to include duties that may be conferred by the finance schemes guidelines.
Clause 94 : any directions given by the Minister to the Board relating to the policies and practices of the Board under the IR & D Act are to include the finance scheme guidelines.
Clause 95 : extends the Board's power to delegate its powers and functions under the Act to powers and functions conferred on it by the finance scheme guidelines.
Clause 96 : is an interpretative provision to extend a reference to the IR & D Act in respect of the formation of, and delegation by the Board to Committees to include a reference to the finance scheme guidelines.
Clause 97 : is an interpretative provision to extend a reference to the IR & D Act in respect of delegation by a Committee to include a reference to the finance scheme guidelines.
Clause 98 : amends section 39A of the IR & D Act by including definitions of "finance", "finance scheme" " ineligible finance scheme" and "scheme".
Clause 99 : inserts section 39EA requiring the Board to formulate written guidelines on whether or not finance schemes in relation to research and development activities will be ineligible finance schemes and specifies some of the matters to be considered by the Board in making the finance scheme guidelines.
Clause 100 : inserts section 39MA which enables the Board to issue a certificate in relation to particular research and development activities where it is of the opinion that an ineligible finance scheme exists in relation to those research and development activities.
Clause 101: inserts section 39P(3)(d) to refer to the absence of an ineligible finance scheme as one of the grounds on which the Board is able to jointly register companies for the tax concession.
Clause 102 : inserts section 39S(1A) to allow for internal review of a Board decision under the finance scheme guidelines
Clause 103 : enables companies to seek a review of a decision by the Board in relation to ineligible finance schemes by the Administrative Appeals Tribunal
Clause 104 : where the Board makes a decision in relation to ineligible finance schemes it is required to give notice in writing to the company or companies and that notice must include a statement to the effect that the company may seek a reconsideration by the Board or appeal to the Administrative Appeals Tribunal.
Clause 105 : defines the circumstances in which the new provisions will apply to companies in the "interim period"; such that, where a company was either registered under either section 39J or section 39P or had sought or been given an "advance eligibility ruling" from the Board during the interim period then the new provisions do not apply.
Clause 106 : amends section 39P to clarify that joint registration is in relation to particular project or projects carried on in a particular year or years.
Clause 107 : provides that the amendments apply to applications made under section 39P of the IR & D Act after the date the Bill is introduced.
Deductibility of interest on borrowings to finance superannuation contributions and life insurance premiums
Clause 33: proposes to insert new section 67AAA into the Act to deny an income tax deduction for interest and other borrowing expenses incurred on moneys borrowed to finance personal superannuation contributions and certain life insurance premiums
Clause 34: sets out the application date for the amendments made in clause 33.
Amendments to extend the meaning of Crown leases for the purposes of the depreciation provisions
Clause 35: extends the meaning of "Crown lease" for depreciation purposes [amendments to section 54AA]. The amendments ensure that taxpayers can obtain depreciation deductions for plant they install on land over which they hold a lease, easement or other right, power or privilege that was granted by a Government or a tax-exempt authority of a government.
Clause 36: specifies that the depreciation Crown lease amendments in clause 35 are to apply from the same as the existing Crown lease provisions.
Crown lessees to be eligible lessees entitled to deductions for capital expenditure on buildings and structural improvements
Clause 37: extends the meaning of eligible lessee within Division 10D to include persons who hold a Crown lease; the meaning of "Crown lease" is the same as for the plant depreciation provisions.
Clause 38: has the effect that the amendments made by clause 37 apply to buildings (including structural improvements) commenced to be constructed after 26 February 1992.
Development allowance on property installed on leased Crown land
Clause 39: inserts two new subsections in the interpretation provisions of the development allowance legislation.
New subsection 82AQ(3A): provides that, where a taxpayer is a lessee of land under a Crown lease and, for depreciation purposes, is treated by virtue of section 54AA as the owner of a unit of property affixed to that land, that taxpayer will be treated as the owner of such property for the purpose of the development allowance.
Terms used in the new subsection 82AQ(3A) are defined in new subsection 82AQ(3B) as having the same meaning as in section 54AA. The extended term "Crown lease" ( as proposed in Clause 35) and the term "lessee" (proposed to be inserted by Clause 35), in section 54AA, will apply to the extended development allowance provision.
Clause 40: ensures the amendment proposed in Clause 39 applies to expenditure incurred by a taxpayer under contracts entered into, or in respect of construction which commenced, after 26 February 1992, in accordance with the original development allowance provisions.
Research and development rollover relief
Clause 41: inserts new subsection 59(2AB) which deals with instances where both the research and development (R & D) and the plant depreciation provisions have applied to property in the hands of two or more taxpayers and either R & D or depreciation rollover relief has applied on the transfer of that property between those taxpayers.
It treats so much of the cost of such property as has been deductible under the R & D rules as deductions allowed under the plant depreciation rules for the purposes of calculating balancing adjustments on a non rollover disposal of the property.
Clause 42: inserts the following new sections:
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- new section 73E setting out the rules for R & D rollover relief for disposals of plant.
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- new section 73F which sets out the rules for R & D rollover relief for disposals of buildings.
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- new section 73G setting out the rules for R & D rollover relief for disposals of industrial property.
Clause 43: amends subsection 262A(4AC) [which deals with record keeping under the various capital allowance provisions] to include a reference to the new R & D rollover relief provisions.
Clause 44: specifies, in effect, that new subsection 59(2AB) applies to disposals occurring after 6 December 1990. It also specifies that CGT derived R & D rollover relief applies to disposals occurring after [date of introduction].
Clause 45: provides optional R & D rollover relief for disposals that occurred after 6 December 1990 and on or before [date of introduction] .
Amendments to capital allowance rollover relief
Clause 46: inserts new subsection 58(7A) to ensure that rollover relief is available for successive disposals of depreciable plant occurring in a single year.
Clause 47: inserts new subsection 73AA(7) to ensure that rollover relief is available for successive disposals of buildings used in scientific research occurring in a single year.
Clause 48: inserts new subsection 122JAA(22A) to ensure that rollover relief is available for successive disposals of mining property occur in a single year.
Clause 49: inserts new subsection 122JG(12A) to ensure that rollover relief is available for successive disposals of quarrying property occurring in a single year.
Clause 50: inserts new subsection 123BBA(16) to ensure that rollover relief is available for successive disposals of property used in the transport of minerals occurring in a single year.
Clause 51: inserts new subsection 123BF(9) to ensure that rollover relief is available for successive disposals of property used in the transport of quarrying materials occurring in a single year.
Clause 52: inserts new subsection 124AMAA(18A) to ensure that rollover relief is available for successive disposals of petroleum mining property occurring in a single year.
Clause 53: inserts new subsection 124GA(5) to ensure that rollover relief is available for successive disposals of property used as access roads in timber operation occurring in a single year.
Clause 54: inserts new subsection 124JD(5) to ensure that rollover relief is available for successive disposals of timber mill buildings occurring in a single year.
Clause 55: inserts new subsection 124PA(6) to ensure that rollover relief is available for successive disposals of industrial property occurring in a single year.
Clause 56: specifies that the above amendments to the various capital allowance rollover relief provisions applies to disposals occurring after 19 December 1991.
Clause 57: specifies that the above amendments also apply to transitional measures for intra company group disposals occurring after 6 December 1990 and before 20 December 1991 where an election is made for capital allowance rollover relief to apply.
Clause 58: relocates subsection 262A(4A) of the Act so that it appears after subsection 262A(4).
Royalty Withholding Tax
Clause 59: amends section 6 of the Act to extend the definition of 'royalties' to include television and radio broadcasting by means of satellite and cable.
Clause 60: deletes certain references in section 6C of the Act which are no longer necessary.
Clause 61: amends section 103 of the Act to reflect the fact that section 136A (which dealt with film and video royalties) is being repealed.
Clause 62: amends the heading to Division 11A of Part III of the Act to make it clear that it applies to royalties.
Clause 63: expands the scope of the term 'income' in section 128A of the Act to include royalties.
Clause 64: inserts new subsections in section 128B of the Act to include royalties as income to which the section applies and to make royalties liable to withholding tax.
Clause 65: repeals Division 13A of Part III of the Act which deals with film and video royalties. Film and video royalties are to be subject to the same provisions as other types of royalties.
Clause 66, 67, and 68: removes references to royalties from sections 221YHZA, 221YHZB and 221YHZC of the Act as they will no longer provide the collection mechanism for royalty payments.
Clause 69: amends section 221YK of the Act to treat royalties as having been paid where amounts are accumulated, reinvested etc but not actually paid over to the taxpayer.
Clause 70: inserts new subsections in section 221YL of the Act to ensure that the payers of royalties have similar responsibilities to borrowers making interest withholding tax deductions.
Clause 71: extends section 221YM of the Act to royalties. The section allows the Tax Office, in special circumstances, to provide an exemption from deducting withholding tax or a variation in the amount to be deducted.
Clause 72: amends section 221YN of the Act to submit payers of royalties to the same compliance requirements as payers of dividends and interest in relation to payment remittances to the Tax Office.
Clause 73 : amends section 221YQ of the Act regarding liabilities of persons failing to make deduction of withholding tax from royalties.
Clause 74: amends section 221YRA of the Act to prevent a deduction being allowed to the payer of the royalty until the withholding tax has been deducted and remitted to the Tax Office.
Clause 75: amends section 221YS of the Act to allow a credit to the person receiving the royalty equal to the amount of the withholding tax.
Clause 76: amends section 221YU of the Act to make a trustee in control of the property of the payer of the royalty to be liable to deduct and remit any withholding tax to the Tax Office.
Clause 77: extends the scope of section 221YV of the Act to royalties. The section is designed to protect a person who has made a deduction from legal action by a non-resident for payment in full of the royalty.
Clause 78 : removes a reference to a royalty payment from section 255 of the Act. The reference is no longer required.
Clause 79: amends section 389 of the Act to remove the reference to section 136A of the Act. That section is being repealed.
Clause 80: repeals the Income Tax (Film Royalties) Act 1977 as that Act will no longer be relevant.
Clause 81: specifies that the changes made in the method of taxing royalties will first apply to the 1993-94 year of income.
Foreign Source Income Amendments
Amendment to limit the clawback provision in subsection 47A(13) and subsection 47A(14)
Clause 82: proposes to insert new paragraph (ba) into subsection 47A(13). This will ensure that the provision in subsection 47A(13) which creates a tax liability will not apply where shares or units, the acquisition of which was treated as the transfer of a benefit for the purposes of section 47A, are redeemed or bought back by the recipient of that benefit for full consideration.
The clause will also insert paragraph (ca) into subsection 47A(14). The amendment will limit the clawback provision in subsection 47A(14) so that it will not apply to an acquisition of shares on the payment of calls made before 13 September 1990 unless the Commissioner of Taxation is of the opinion that this had the effect of enabling any taxpayer to avoid tax.
Further, the clause will insert a definition of "arm's length value" into subsection 47A(21).
Subclause 85(1): provides that the amendment proposed by clause 82 will apply in relation to dividends deemed to have been paid after 3 June 1990 (i.e., the commencement of section 47A). The retrospective operation of the amendment will be to the benefit of the taxpayer.
Offset of Carry Forward Primary Production Losses Against Foreign Income
Clause 83: proposes to insert new subsections (5A), (5B), (5C), and (5D) into section 80AA of the Act to enable taxpayers who have carry forward domestic primary production losses to choose whether to offset those losses against their assessable foreign income.
Clause 84: amends the definition of "net foreign income" in subsection 160AF(8) so that a taxpayer's assessable foreign income is to be reduced by, amongst other things, any amount which is the subject of an election by the taxpayer under proposed subsection 80AA(5B) when calculating the taxpayer's "net foreign income".
Subclause 85(2): provides that the amendments proposed by clauses 83 and 84 will apply to assessments for the 1991-92 and subsequent years of income. The retrospective operation of the amendment will be to the benefit of the taxpayer.
Amendments to the Taxation Administration Act 1953
Method of payment of taxation and child support liabilities
Clause 117: proposes to insert new section 16A into the Taxation Administration Act 1953 (the Act). The new section will enable Regulations to be made under the Act in relation to the payment of taxation and child support liabilities.
Amendments relating to taxation offences
Clause 118: proposes to insert new section 8HA into the Taxation Administration Act 1953 (the Act) to provide penalties for persons convicted of an offence under sections 8C (failure to comply with taxation law requirements), 8D (failure to answer questions when attending before the Commissioner) and 8H (failure to comply with an order to comply). The new penalties parallel those currently imposed under section 8W for persons convicted of an offence for the making of a false or misleading statement.
Clause 119: proposes to ensure that a matter dealt with under section 19B of the Crimes Act 1914 will be treated as a conviction for penalty purposes under section 8W of the Act.
Clause 120: proposes to amend section 8ZA of the Act to prevent a second summary offence becoming an indictable offence where a person is convicted of the first summary offence before the same court in the same sitting.
Clause 121: proposes to formalise an amendment to subsection 8ZB(2) of the Act which was indirectly made when the Crimes Act 1914 was amended by Act No.4 of 1990 but has not been formally made to the Act.
Petroleum Resource Rent Tax Technical Amendments
(Petroleum Resource Rent Tax Assessment Act 1987)
Clause 2(3): commencement of amendments on 1 July 1991
Clause 108: identifies the Principal Act being amended, the Petroleum Resource Rent Tax Assessment Act 1987 .
Clause 109: amends section 48 of Principal Act to enable transfer of all expenditure with transfer of entire interest in project.
Clause 110: amends clause 1 of Schedule to Principal Act to ensure that defined term "incurred exploration expenditure amount" includes all expenditure transferred under the amendment in Clause 109, and to insert term "finishing day", the day on which the production licence of a petroleum project, or an exploration permit or retention lease ceases to be in force.
Clause 111: consequential amendment to clause 6 of Schedule to the Principal Act, reflecting the possible transfer of expenditure from a project after the finishing day.
Clause 112: consequential amendment to clause 10 of Schedule to the Principal Act, reflecting the possible transfer of expenditure from a project after the finishing day.
Clause 113: consequential amendment to clause 13 of Schedule to the Principal Act, reflecting the possible transfer of expenditure from an exploration permit or retention lease after the finishing day.
Clause 114: amends clause 22 of Schedule to Principal Act to enable transfer of expenditure of a person, although the transfer is after the finishing day.
Clause 115: amends clause 31 of Schedule to Principal Act to enable transfer of expenditure of a group company, although the transfer is after the finishing day.