House of Representatives

Taxation Laws Amendment Bill (No. 4) 1997

Additional Supplementary Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 1 - Measures to address tax avoidance through tax exempt entities distributing funds offshore

Overview

1.1 Amendments 1 to 13 will change the date of effect of these measures to 1 July 1997.

Background

1.2 The amendments to the Income Tax Assessment Act 1936 (the Act) in Schedule 5 of the Bill are designed to address tax avoidance arrangements which take advantage of the tax exempt status of funds established by will or instrument of trust for public charitable purposes ("charitable trusts"). They will also close off the possibility of certain organisations which also currently enjoy an income tax exemption from being used for tax avoidance purposes.

Purpose of the amendments

1.3 Since the Bill was introduced into Parliament there have been further representations in relation to the measures. These representations have been to the effect that certain charitable trusts will permanently lose their tax exempt status because they have directly distributed funds offshore, thereby ignoring the 1996-97 Budget announcement and the exposure draft of the legislation which provided that the date of effect would generally be 20 August 1996.

1.4 In order to accommodate charitable trusts who have continued to make distributions offshore subsequent to 20 August 1996, it is proposed that the date of effect for all the charitable trust and certain other tax exempt organisation measures be changed to 1 July 1997.

1.5 The change of date of effect will also give charitable trusts which have made distributions offshore since 1 July 1997 the opportunity of ensuring that their overseas remittances consist only of donations, thereby retaining their tax exempt status in their current income year.

Replacement flow charts

1.6 Flow charts 2, 3 and 4 have been affected by these amendments and, accordingly, replacements for these charts are also attached.

Date of effect

1.7 These measures will take effect from 1 July 1997.

Explanation of the amendments

1.8 Amendment 1 will replace the words "7.30 pm by legal time in the Australian Capital Territory on 20 August 1996" with "1 July 1997" in subparagraph 23(j)(ii) in item 5 .

1.9 Amendments 2 and 3 will replace the words "20 August 1996" with "1 July 1997" in new subsubparagraph 23(j)(iia)(A) in item 6 .

1.10 Amendment 4 will replace the words "20 August 1996" with "1July 1997" in new subsubparagraph 23(j)(iia)(C) in item 6 .

1.11 Amendment 5 will replace the words "20 August 1996" with "1July 1997" in new subsubparagraph 23(j)(iia)(D) in item 6 .

1.12 Amendments 6, 7 and 8 will replace the words "20 August 1996" with "1 July 1997" in new subsection 23AAAA(3) in item 8 .

1.13 Amendment 9 will replace the words "7.30 pm by legal time in the Australian Capital Territory on 20 August 1996 (the 1996 Budget time)" with "1 July 1997" in new subsection 23AAAB(1) in item 8 .

1.14 Amendment 10 will replace the words "20 February 1997" with "1July 1997" in new subsection 23AAAB(1) in item 8

1.15 Amendment 11 will replace the words "after 1996 Budget time" with "the start of 1 July 1997" in new subsection 23AAAB(1) in item 8

1.16 Amendment 12 will replace the words "1996 Budget time" with "1 July 1997" in new subsection 23AAAB(1) in item 8

1.17 Amendment 13 will replace item 11 so that amendments made by items 1 to 4 and 6 to 10 of this Schedule apply in relation to income derived on or after 1 July 1997.

Flow Chart 2

Flow Chart 3

Flow Chart 4

Flow Chart 4 (Continued)


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