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Income Tax Assessment Amendment Bill 1981

Income Tax Assessment Amendment Act 1981

Supplementary Explanatory Memorandum

circulated by authority of the minister for finance, senator the hon. dame margaret guilfoyle d.b.e.

Introductory note

This supplementary memorandum, which is to be read in conjunction with the Explanatory Memorandum on the Bill as originally introduced, explains the operation of amendments made to the Bill in the House of Representatives.

The principal effect of the amendments is to alter the time at which deductions conferred under the new film incentive scheme are to become available in relation to investments in films under contractual arrangements entered into on or before 27 May 1981, the day on which the Bill was introduced into the House.

Under the Bill as introduced into the House, deductions were in all instances to become available when the relevant film was completed and used to produce income. By virtue of the amendments, this basis of deduction is to apply for expenditure under contracts entered into on or after 28 May 1981.

Expenditure under contracts entered into on or after 1 October 1980, the date of commencement of the scheme, and on or before 27 May 1981 is to qualify for deduction in the year of expenditure, on the basis outlined in the ministerial statement of 18 December 1980.

It is not necessary that the amount contracted during this period be actually expended on or before 27 May 1981 for a deduction to be available on this basis. Thus, for example, an amount committed under a contract entered into during the transitional period, but which is not actually outlaid by the investor until the 1981-82 income year, will, on the basis set out in the December statement, qualify for deduction in that year irrespective of when the film is completed and marketed. If outlaid before the current income year comes to an end, of course, the deduction would be available in the assessment of 1980-81 income.

The following notes relate to those provisions proposed to be inserted in the Income Tax Assessment Act 1936 (the "Principal Act") by the Bill and that reflect the amendments made to the Bill in the House.

Notes on Clauses

Clause 7: Proposed sub-section 80AAA(12)

By amendments made in the House of Representatives, a revised sub-section 80AAA(12) is to be inserted by clause 7 of the Bill. The originally proposed sub-section (12) applied so that sub-section 80(6) of the Principal Act had its intended effect of preventing, with first effect for the 1980-81 income year, the carry-forward of losses generated under certain section 36A schemes of tax avoidance that are the subject of remedial legislation contained in the Income Tax Laws Amendment Bill 1981.

The revised sub-section 80AAA(12) will additionally ensure full effectiveness of the ban on the carry-forward of losses of the type that would not have been available for carry-forward if the general anti-avoidance amendments in proposed Part IVA to replace section 260 were not limited to schemes entered into or carried out after 27 May 1981.

Clause 13: Proposed section 124ZAF

Proposed section 124ZAF authorises the allowance of a deduction of 150% of eligible capital expenditure by a taxpayer in or as a contribution towards the production of a qualifying film.

By sub-section 124ZAF(1), deductions are to be available when the film is completed and used to produce income. Sub-section 124ZAF(2) applies in a case where an investor dies prior to the film being completed and used to produce income and authorises deductions in the assessment of the taxpayer in respect of the year of income in which he or she dies. The operation of these sub-sections is explained in detail in the Explanatory Memorandum on the Bill.

By the amendments made in the House, the operation of sub-sections 124ZAF(1) and (2) is to be restricted to expenditure under contracts entered into on or after 28 May 1981.

The amendments also inserted new proposed sub-sections 124ZAF (2A) to (2D) to authorise deductions in the year of expenditure for amounts expended pursuant to contracts entered into between 1 October 1980 and 27 May 1981.

By proposed sub-section (2A), a deduction will be available in the year of expenditure to the extent to which the Commissioner of Taxation is satisfied that a deduction would have become available, whether in that year or a later year, under the ongoing rules that are to apply to expenditure under contracts entered into on or after 28 May 1981.

By this sub-section, the Commissioner is effectively required to be satisfied that the film will be completed and marketed, and that the investor's contribution will be genuinely outlaid in the production of the film.

Proposed sub-section (2B) will require, as also outlined in the December statement, that moneys contributed to a production account be actually expended in the production of the film within twelve months after the end of the year of income in which the moneys were contributed.

In keeping with the December statement, and as a necessary safeguard, proposed sub-section (2C) ensures that the pre-payment of an expense will not satisfy the requirement just mentioned.

By proposed sub-section (2D) the Commissioner is to be authorised to alter the amount of any deduction previously allowed under the arrangements for pre-28 May 1981 contracts in the event that it becomes established that a greater or lesser deduction should have been allowed in the year of initial outlay.

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