Supplementary Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)
Chapter 1 - Gains and losses
1.1 The proposed amendment to the Bill will remove an apparent discretion inadvertently given to the Commissioner of Taxation in relation to consideration given for the transfer of revenue losses between related companies. The amendment is technical in nature and will ensure the amended provision, which will be included in the Income Tax Assessment Act 1997 (the 1997 Act), operates as a matter of fact, as intended, rather than on the basis of the opinion of the Commissioner.
1.2 The amendment will apply to the 1997-98 year of income and later years of income.
1.3 Schedule 14 of the Bill introduced parallel amendments to the Income Tax Assessment Act 1936 (the 1936 Act) and the 1997 Act relating to revenue and capital gains and losses. One of the amendments will ensure that consideration given for the transfer of a capital or revenue loss between related companies will not give rise to a capital gain or loss to the transferor or transferee company.
1.4 New subsection 170-25(1) of the Bill, which amends the 1997 Act, deals with the Taxation consequences for a transferor company which receives consideration from a transferee company for the transfer of the whole or part of a revenue loss.
1.5 Paragraph 170-25(1)(a) provides that where a transferor company receives consideration from a transferee company, only so much of the consideration as, in the opinion of the Commissioner, is given for the amount of the loss is neither assessable income or exempt income of the payee company.
1.6 The apparent discretion conferred on the Commissioner of Taxation by the words in italics above was inadvertently included in paragraph 170-25(1)(a). In substance, the extent to which a payment is given for the amount of a revenue loss transferred is a question of fact, not a matter of discretion for the Commissioner. The words of the law should reflect this.
1.7 Consequently amended paragraph 170-25(1)(a) will remove the apparent discretion given to the Commissioner of Taxation.