Supplementary Explanatory Memorandum and Correction to the Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 2 - Income tax-related transactions
Outline of chapter
2.1 Part 3 of Schedule 1 to the bill amends the A New Tax System (Goods and Services Tax) Act 1999 to ensure that companies are able to transfer tax losses, net capital losses and excess foreign tax credits without attracting goods and services tax (GST). The amendments will:
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- ensure that the provisions apply even where entities are no longer members of the same wholly-owned group at the time of the transfer; and
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- apply the measure from 1 July 2000.
Explanation of amendments
Entities no longer members of the same wholly-owned group
2.2 The bill applies to transfers of certain income tax amounts made by a member of a wholly-owned group to another member of the wholly-owned group. However, in some circumstances a transfer may occur in relation to the 2001-2002 income year between companies that satisfy the transfer requirements within the income tax legislation, but are no longer members of the same wholly-owned group at the time the transfer agreement is entered into and the supply occurs. In these situations, the transfer would inadvertently be subject to GST. The time delay occurs because entities are not required to make the transfer agreements until the date of lodgement of their tax returns which may be some months after the end of the income tax year.
2.3 The amendments will ensure that entities are able to transfer tax losses, net capital losses and excess foreign tax credits without attracting GST, even where they are no longer members of the same wholly-owned group at the time of the transfer. The amendments will also remove definitions that are no longer required. [Amendments 1 to 6]
2.4 As introduced, the measure relating to income tax-related transactions applies prospectively (i.e. to transfers relating to the 2001-2002 income year and later income years). Representations have been received from industry requesting that the measure apply from the start date of GST. Because it was never the Governments intention that GST would apply to transfers of tax losses, net capital losses and foreign tax credits, the bill is being amended to apply the measure from 1 July 2000. [Amendments 1, 2 and 7]
2.5 Amendments 1 and 2 remove the requirement that the transfer relate to the 2001-2002 or later income year. Amendment 7 ensures that the amendments apply, and are taken to have applied, in relation to net amounts for tax periods starting (or that started) on or after 1 July 2000.