Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 2 - Repeal of the Savings Tax Offset
Overview
2.1 Schedule 2 to the Bill will amend the Income Tax Assessment Act 1997 (the Act) to repeal the savings tax offset.
Summary of the amendments
2.2 The amendments will give effect to the Governments announcement in its tax reform policy document, Tax Reform: not a new tax, a new tax system : The Howard Governments Plan for a New Tax System , to close the savings tax offset.
2.3 Clause 2 of the Bill provides that this Act commences, or is taken to have commenced, after all of the GST-related Acts have received the Royal Assent. This reflects the integration of the measures that will give effect to the Governments plan for a new tax system.
2.4 The amendments in Schedule 2 will apply to assessments for the 1999-2000 income year and later income years. [Items 7 and 12]
Background to the legislation
2.5 The Government, as part of its tax reform plan, announced its intention to terminate the savings tax offset.
Explanation of the amendments
2.6 The savings tax offset measure is contained in Subdivision 61-A of the Act. The offset was to apply at a rate of 15% (7.5% in 1998-99 assessments) to undeducted superannuation contributions made by employees and the self-employed, and net personal income from savings and investment (including net business income), up to an annual cap of $3,000.
2.7 The Government decided that, in view of the major impact that the proposed across-the-board reductions in tax rates will have on incentives to work and save, and in view of the cut in marginal tax rates on saving, the savings tax offset will be terminated with effect from the 1999-2000 year of income.
2.8 Item 5 of Schedule 2 repeals Subdivision 61-A of the Act. Items 1, 2, 3, 4 and 6 make consequential amendments to the Act.
2.9 Items 8, 9, 10 and 11 of Schedule 2 make consequential amendments to the Income Tax Assessment Act 1936 .
2.10 The amendments made by items 8, 9, 10 and 11 of Schedule 2 will apply for the purposes of working out amounts of provisional tax (including instalments) payable for the 1999-2000 income year and later income years. [Schedule 2, item 12]
2.11 The effect of the proposed amendments is that taxpayers will no longer be able to claim the savings tax offset in their income tax returns after the 1998-99 year of income.
2.12 The compliance costs borne by the community are expected to be negligible.