House of Representatives

Explanatory Memorandum

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

Glossary

The following abbreviations and acronyms are used throughout this explanatory memorandum.

General outline and financial impact

Consolidation: available fraction for loss utilisation purposes

Schedule 1 to this Bill amends the consolidation provisions in the Income Tax Assessment Act 1997 to ensure the method for calculating the rate at which the head company of a consolidated group can recoup a joining entity's losses operates as intended.

Date of effect : This amendment applies from 1 July 2002.

Proposal announced : This measure was announced in the 2005-06 Budget on 10 May 2005.

Financial impact : This measure will have these revenue implications:

Compliance cost impact : Nil.

Extension of mutuality principle

Schedule 2 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to ensure certain not-for-profit entities are not subject to tax on income as a result of the Federal Court of Australia decision in Coleambally Irrigation Mutual Co-Operative Ltd v Commissioner of Taxation
[2004] FCAFC 250 (7 September 2004) (Coleambally). The amendments effectively restore the longstanding benefits of the mutuality principle to those not-for-profit entities affected by the Coleambally decision.

Date of effect : This measure takes effect from 1 July 2000.

Proposal announced : This measure was announced in the Minister for Revenue and Assistant Treasurer's Press Release No. 46 of 30 May 2005.

Financial impact : This measure is not expected to have a financial impact as it is intended to maintain the long-held existing practice.

Compliance cost impact : This measure is not expected to have any compliance cost impact as it is intended to maintain the long-held existing practice.

Child care tax offset

Schedule 3 to this Bill amends Subdivision 61-IA of the Income Tax Assessment Act 1997 to ensure eligibility for the child care tax offset is consistent with the work/training/study requirements prior to the Family and Community Services Legislation Amendment (Welfare to Work) Bill 2005 receiving Royal Assent.

Date of effect : This amendment will apply in relation to assessments for income years that start on or after 1 July 2007, that is, for child care fees incurred in the child care base year (2006-07), and claimed in the income tax return for the child care offset year (2007-08).

Proposal announced : This measure was announced in the Treasurer's Press Release No. 64 of 23 June 2005.

Financial impact : Nil.

Compliance cost impact : Nil.

Medical expenses offset - exclusion of solely cosmetic procedures

Schedule 4 to this Bill amends the Income Tax Assessment Act 1936 to exclude procedures that are solely cosmetic from the medical expenses offset.

Date of effect : This measure applies to the 2005-06 income year and later income years.

Proposal announced : This measure was announced in the 2005-06 Budget and in the Treasurer's Press Release No. 47 of 10 May 2005.

Financial impact : This measure will have these revenue implications:

Compliance cost impact : There may be a minimal increase in compliance costs for taxpayers in identifying procedures that are no longer eligible.

Deductible gift recipients

Schedule 5 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to update the lists of deductible gift recipients (DGRs) and extend the period for which deductions are allowed for gifts to a certain fund that has time-limited DGR status.

Date of effect : Deductions for gifts to the following organisations that are listed as DGRs under this Schedule, apply as follows:

•

International Specialised Skills Institute Incorporated from 12 August 2005;

•

Yachad Accelerated Learning Project Limited from 30 June 2005 until 30 June 2006;

•

C E W Bean Foundation from 15 November 2005 until 14 November 2007;

•

The Vietnam War Memorial of Victoria Incorporated from 1 January 2005 until 31 December 2005;

•

Australian Red Cross Society-US 2005 Hurricane Relief Appeal from 1 September 2005 until 31 August 2006;

•

The Salvation Army Hurricane Katrina Relief Appeal from 2 September 2005 until 1 September 2006; and

•

Xanana Vocational Education Trust from 21 July 2005 until 20 July 2007.

In addition, this Schedule extends the DGR listing of the City of Onkaparinga Memorial Gardens Association Incorporated to 30 June 2005.

Proposal announced : The deductibility of gifts to the Australian Red Cross Society-US 2005 Hurricane Relief Appeal was announced in the Minister for Revenue and Assistant Treasurer's Press Release No. 074 of 2 September 2005.

The deductibility of gifts to The Salvation Army Hurricane Katrina Relief Appeal was announced in the Minister for Revenue and Assistant Treasurer's Press Release No. 078 of 7 September 2005.

Financial impact : This measure will have these revenue implications:

The cost to revenue of the DGR listing of Yachad Accelerated Learning Project Limited alone is estimated to be $1.2 million in 2006-07.

Compliance cost impact : Nil.

Chapter 1 - Consolidation: available fraction for loss utilisation purposes

Outline of chapter

1.1 Schedule 1 to this Bill amends the consolidation provisions in the Income Tax Assessment Act 1997 (ITAA 1997) to ensure the method for calculating the rate at which the head company of a consolidated group can recoup a joining entity's losses operates as intended.

Context of amendments

1.2 On entering consolidation, a joining entity's losses may be transferred to the head company and deducted against the consolidated group's income in future years provided that the normal company loss recoupment tests are satisfied.

1.3 The rate at which the head company of a consolidated group can recoup a joining entity's losses is limited by the available fraction for a bundle of losses of the joining entity. The available fraction is worked out under subsections 707-320(1) and (2) and broadly represents the proportion that the joining entity's market value bears to the market value of the group. Currently, the available fraction for a bundle of losses worked out under subsections 707-320(1) and (2) must be rounded to three decimal places, rounding up if the fourth decimal place is five or more.

1.4 If the available fraction worked out under subsections 707-320(1) and (2) is less than 0.0005, the current rounding rules will result in an available fraction of nil. This may occur if the market value of the joining entity is small relative to the market value of the consolidated group. If the available fraction for a bundle of losses is nil, the head company is effectively prevented from being able to deduct the losses of the joining entity.

1.5 The available fraction was intended to limit the rate of utilisation of losses but not to deny them altogether. This amendment will ensure that the available fraction rules operate as intended.

Summary of new law

1.6 The rounding rules for the available fraction of a joining entity's bundle of losses will be modified to allow rounding to the first non-zero digit if rounding to three decimal places would result in an available fraction of nil.

Comparison of key features of new law and current law

Detailed explanation of new law

1.7 The rounding rules in section 707-320 are amended so that:

•

where rounding to three decimal places does not result in an available fraction of nil, the available fraction will still be rounded to three decimal places, rounding up if the fourth decimal place is five or more; or

•

where rounding to three decimal places does result in an available fraction of nil, the available fraction will be rounded to the first non-zero digit, rounding up if the next digit is five or more.

[Schedule 1, item 1, subsections 707-320(4) and (4A )]

Example 1.1

If the available fraction for a joining entity's bundle of losses worked out under subsections 707-320(1) and (2) is 0.0257, then the available fraction will be rounded to 0.026 - that is, to three decimal places.

Example 1.2

If the available fraction for a joining entity's bundle of losses worked out under subsections 707-320(1) and (2) is 0.000428, then the available fraction will be rounded to 0.0004 - that is, to the first non-zero digit.

Example 1.3

If the available fraction for a joining entity's bundle of losses worked out under subsections 707-320(1) and (2) is 0.0000652, then the available fraction will be rounded to 0.00007 - that is, to the first non-zero digit.

Application and transitional provisions

1.8 This amendment will apply from 1 July 2002, the commencement of the consolidation regime. This amendment removes an unintended consequence and will be advantageous to taxpayers. [Schedule 1, item 2]

Chapter 2 - Extension of mutuality principle

Outline of chapter

2.1 Schedule 2 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to ensure certain not-for-profit entities are not subject to tax on income as a result of the Federal Court of Australia (the Federal Court) decision in Coleambally Irrigation Mutual Co-Operative Ltd v Commissioner of Taxation
[2004] FCAFC 250 (7 September 2004) (Coleambally). The amendments effectively restore the longstanding benefits of the mutuality principle to those not-for-profit entities affected by the Coleambally decision.

2.2 Under the mutuality principle, a long established principle in tax law, membership subscriptions and receipts from other mutual dealings with members are not usually included in taxable income. Not-for-profit entities that benefit from the mutuality principle include clubs, professional associations and some friendly societies.

2.3 The Federal Court decision in Coleambally held that the principle of mutuality does not apply where the members of an entity are prevented from obtaining the value of the entity's assets. This, in effect, excludes the application of the mutuality principle to not-for-profit entities.

Context of amendments

2.4 Mutuality is a legal principle based on the proposition that a taxpayer cannot derive income from itself. Under the mutuality principle, if members contribute to a common fund created and controlled by them for a common purpose, and those contributing members are essentially the same as those who participate in the fund, then the member contributions and receipts from member dealings are not taxable income. Under the principle of mutuality, all or essentially all, the contributors to a common fund must be entitled to participate in any surplus of the common fund.^[F1]

2.5 However, in order to qualify as a not-for-profit entity under state and territory legislation, an entity's constituent documents must prohibit the distribution of surplus funds to members, either on a winding up or during operation of the entity.

2.6 The Australian Taxation Office's (ATO) longstanding practice has been to treat the mutuality principle as applying to not-for-profit community organisations (eg, licensed clubs, clubs for particular activities such as motorcycle clubs, craft clubs and animal breeding societies, professional associations, medical defence organisations and friendly societies to the extent that their receipts do not relate to life insurance), despite the inclusion of clauses that prohibit the distribution of surplus funds to members.

2.7 The application of this ATO practice was called into question by the Coleambally decision of the Federal Court. The Federal Court found that the clauses that prevented a cooperative from distributing its surplus funds to members precluded the mutuality principle from applying. The Federal Court held that the clauses broke the connection between those who contribute to the fund and those who participate in the fund. In effect, this means that not-for-profit entities are not covered by the mutuality principle. The ATO estimates that some 200,000 to 300,000 not-for-profit entities would be affected.

Summary of new law

2.8 These amendments ensure that not-for-profit entities are not subject to income tax on ordinary income from their members solely because they are prohibited from distributing surplus funds to members. Ordinary income of a not-for-profit entity from members that, but for clauses prohibiting distribution of funds to members, would have been mutual receipts is non-assessable non-exempt income.

Comparison of key features of new law and current law

Detailed explanation of new law

2.9 Contrary to the ATO's longstanding practice, the Federal Court decision in Coleambally held that the principle of mutuality does not apply where the members of an entity are prevented from obtaining the value of the entity's assets, effectively excluding the application of the principle to not-for-profit entities (such as those listed in paragraph 2.6). These are entities that have been established by members for a common purpose and not for the purpose of profit.

2.10 Mutual receipts are those receipts arising out of mutual dealings.^[F2] The receipts that are to be considered mutual include those receipts from members in respect of:

•

dealings for membership; or

•

goods and services provided by the entity in mutual dealings in pursuance of one of its purposes.

2.11 If the only thing preventing an amount of ordinary income from being a mutual receipt is the fact that the entity's constituent document prevents the entity from making any distribution whether in money, property or otherwise to its members, then the amount is non-assessable non-exempt income. [Schedule 2, item 3, section 59-35]

2.12 Income that is already statutory income is not affected. Such amounts do not become non-assessable non-exempt income. An example of such a statutory income provision is section 119 of Division 9 of Part III of the Income Tax Assessment Act 1936 - Co-operative and Mutual Companies.

Application and transitional provisions

2.13 These amendments have no adverse effect on taxpayers and simply reinstate the previously accepted treatment prior to the Coleambally decision that income received by not-for-profit entities, such as from membership subscriptions, was treated as mutual receipts and not as assessable income. The amendments provide that these amounts are treated as non-assessable non-exempt income.

2.14 These amendments are retrospective to 1 July 2000 as they are designed to ensure the taxation status of not-for-profit entities is not adversely affected by the Federal Court's decision in Coleambally, and will cover the ATO's four-year time limit for the amendment of assessments.

Consequential amendments

2.15 Section 11-55 lists the provisions in the ITAA 1997 which make amounts non-assessable non-exempt income. A new table item is included to indicate the provision which affects amounts that would be mutual receipts but for the distribution prohibition. [Schedule 2, item 1 , ' mutual receipts' in the table]

2.16 Section 25-75 allows an entity to deduct rates and land taxes if its premises are used in producing mutual receipts. In order to restore the tax treatment of not-for-profit entities affected by the Coleambally decision, this section is extended to the use of premises in producing amounts that would be mutual receipts but for the distribution prohibition. [Schedule 2, item 2, paragraphs 25-75(1 )( e) and (f )]

Chapter 3 - Child care tax offset

Outline of chapter

3.1 Schedule 3 to this Bill amends Subdivision 61-IA of the Income Tax Assessment Act 1997 (ITAA 1997) to ensure eligibility for the child care tax offset is consistent with the work/training/study requirements prior to the Family and Community Services Legislation Amendment (Welfare to Work) Bill 2005 receiving Royal Assent.

3.2 The Family and Community Services Legislation Amendment (Welfare to Work) Bill 2005 introduces a 15 hours per week activity requirement (or 30 hours over 2 weeks) to meet the child care benefit work/training/study test. This requirement will not affect eligibility for the child care tax offset.

3.3 All references to legislative provisions in this chapter are references to the ITAA 1997 unless otherwise stated.

Context of amendments

3.4 Eligibility for the offset is dependent on the taxpayer's entitlement to child care benefit for approved care. Taxpayers need to have been entitled to child care benefit provided in a week in which either a limit of 50 hours, or more than 50 hours, or a 24 hour care limit applies.

3.5 Prior to the Family and Community Services Legislation Amendment (Welfare to Work) Bill 2005, to be entitled to child care benefit for up to 50 hours per week, the taxpayer and their partner needed to meet the child care benefit work/training/study test at some time in the week, or have an exemption from meeting the test, or be covered under other provisions where there is no requirement to meet the test.

3.6 The Government has introduced changes to the child care benefit work/training/study test as part of the Welfare to Work package. These changes will take effect from the first week commencing after 1 July 2006 and are contained in the Family and Community Services Legislation Amendment (Welfare to Work) Bill 2005.

3.7 From the first week commencing after 1 July 2006, to satisfy the child care benefit work/training/study test, the taxpayer and the taxpayer's partner will each need to demonstrate they have ongoing work, or work-related commitments of 15 hours per week (or 30 hours over a 2 week period) to qualify for up to 50 hours of child care benefit for approved care.

3.8 Eligibility for the offset will not depend on taxpayers meeting the additional hourly requirements of the child care benefit work/training/study test.

3.9 Taxpayers who meet the new 50 hours, or more than 50 hours, limit in that week or a 24 hour care limit under the Family and Community Services Legislation Amendment (Welfare to Work) Bill 2005 will still be eligible for the offset.

3.10 Under the Family and Community Services Legislation Amendment (Welfare to Work) Bill 2005 families will be eligible for up to 24 hours of child care benefit per child per week without having to meet the child care benefit work/training/study test. This is different to the 24 hour care limit which allows families in exceptional circumstances to access child care benefits for 24 hour care sessions.

Summary of new law

3.11 Taxpayers will continue to be eligible for the offset if they work, train or study at some time during the week and would have met the child care benefit 50 hours limit except for the 15 hours per week activity requirement (or 30 hours over a 2 week period).

3.12 This amendment will ensure eligibility for the offset is consistent with the work/training/study requirements prior to the Family and Community Services Legislation Amendment (Welfare to Work) Bill 2005 receiving Royal Assent.

3.13 This will apply in relation to assessments for income years that start on or after 1 July 2007, that is, for child care fees incurred in the child care base year (2006-07), and claimed in the income tax return for the child care offset year (2007-08).

Comparison of key features of new law and current law

Detailed explanation of new law

3.14 Schedule 3 to this Bill amends paragraph 61-470(2)(c) by inserting subsection 61-470(4). This provides the offset for taxpayers who would have had a 50 hours limit except for paragraph 17A(1)(b) of the Family Assistance Act 1999. That is, they have undertaken work, study or training at some time in the week.

Example 3.1

Sharon and Barry have a child Daryl in approved care for three days per week in 2005-06. Each session runs for 10 hours per day, a total of 30 hours a week. Sharon only works for one day per week (eight hours) and does not study or train. Barry works full-time.

In 2005-06, Sharon receives child care benefit for Daryl through fee reduction from her child care service. Sharon is entitled to child care benefit up to a limit of 50 hours a week and is therefore eligible for the child care tax offset.

Sharon has the same circumstances in 2006-07 but will not be entitled to child care benefit up to a limit of 50 hours a week because she does not meet the new work/training/study test for approved care. However, Sharon is eligible for a maximum of 24 hours of child care benefit per week, despite having Daryl in care for 30 hours per week, because she does not engage in work, training or studying for 15 hours a week (or 30 hours over 2 weeks) and therefore does not meet the child care benefit work/training/study test.

However, because of this amendment Sharon continues to be entitled to the child care tax offset for the out-of-pocket costs of the 30 hours of approved child care she pays each week up to a maximum of $4,000 per year. This is because she would have met the 50 hours child care benefit limit but for the 15 hours per week requirements (or 30 hours over 2 weeks).

Application and transitional provisions

3.15 These amendments made by Schedule 3 apply in relation to assessments for income years that start on or after 1 July 2007, that is, for child care fees incurred in the child care base year (2006-07), and claimed in the income tax return for the child care offset year (2007-08).

Chapter 4 - Medical expenses offset - exclusion of solely cosmetic procedures

Outline of chapter

4.1 Schedule 4 to this Bill amends the Income Tax Assessment Act 1936 (ITAA 1936) to exclude solely cosmetic procedures from the medical expenses offset (MEO).

Context of amendments

4.2 In the 2005-06 Budget the Government announced that it would amend the ITAA 1936 to exclude solely cosmetic procedures from the MEO with effect from the 2005-06 income year.

4.3 Under section 159P of the ITAA 1936, a tax offset is available at the rate of 20 per cent of any net medical expenses exceeding $1,500 in an income year.

4.4 To qualify for the offset, the medical expenses must be paid by a resident taxpayer, in respect of himself/herself or a resident dependant.

4.5 Medical expenses do not qualify for the offset to the extent that they are reimbursed, or are eligible to be reimbursed.

4.6 Prior to this amendment the definition of eligible medical expenses was widely defined, thereby enabling taxpayers to claim an offset in respect of procedures that were solely cosmetic.

4.7 This amendment ensures that expenses relating to procedures that are, or are considered to be, solely cosmetic are ineligible medical expenses and therefore not claimable under the MEO.

4.8 This amendment only applies to procedures that are cosmetic in nature and are subsequently identified to be solely cosmetic (as provided by the legislation). Procedures that are not solely cosmetic are not affected by this amendment.

4.9 In this chapter the term 'operation' is used interchangeably with 'procedure'.

Summary of new law

4.10 This amendment, dealing with 'ineligible medical expenses', specifically excludes the following types of payments from the MEO:

•

payments to a legally qualified medical practitioner, nurse or chemist, or a public or private hospital, in respect of a cosmetic operation that is not a professional service for which a Medicare benefit is payable under Part II of the Health Insurance Act 1973; or

•

payments to a legally qualified dentist for dental services, or treatment, that is solely cosmetic.

[Schedule 4, item 2, subsection 159P(4), paragraphs (a) and (b) definition of 'ineligible medical expenses']

4.11 Schedule 4 to this Bill also makes a minor amendment to subsection 159P(1) of the ITAA 1936.

Comparison of key features of new law and current law

Detailed explanation of new law

4.12 Schedule 4 to this Bill excludes solely cosmetic procedures from the MEO. [Schedule 4, item 2, subsection 159P(4) definition of 'ineligible medical expenses']

4.13 This will mean that solely cosmetic procedures will no longer be considered eligible expenses under the MEO.

4.14 The term 'medical expenses' was widely defined for the purpose of the MEO to cover payments to doctors, nurses, chemists, dentists, opticians and optometrists. Prior to this amendment the definition of eligible medical expenses enabled taxpayers to claim an offset in respect of procedures that were solely cosmetic.

4.15 This amendment therefore restricts access to the MEO in respect of solely cosmetic procedures.

4.16 Specifically, this amendment restricts access for solely cosmetic procedures expenses under two broad categories: general medical expenses; and general dental expenses.

General medical expenses

4.17 Expenses which are cosmetic in nature and do not attract a Medicare benefit are considered 'ineligible medical expenses' and are excluded from the MEO. [Schedule 4, item 2, subsection 159P(4), paragraph (a) definition of 'ineligible medical expenses']

4.18 In determining whether a procedure is cosmetic in nature, the ordinary definition of 'cosmetic' applies.

4.19 The Macquarie dictionary defines cosmetic as:

•

'serving to beautify; imparting or improving beauty, especially of the complexion'; or

•

'designed to effect a superficial alteration while keeping the basis unchanged'.

4.20 Where a procedure has been identified to be cosmetic (by the ordinary definition) the legislation imposes a link to the payment of Medicare benefits under Part II of the Health Insurance Act 1973 to distinguish whether a procedure is solely cosmetic.

4.21 The link to the payment of Medicare benefits effectively deems a cosmetic procedure to be solely cosmetic where no Medicare benefit is payable in respect of that procedure. Alternatively, if that same procedure does have a Medicare benefit payable, it will not be considered to be solely cosmetic and therefore will continue to be an eligible expense in respect of the MEO.

4.22 It is important to note that this link to Medicare benefits does not relate to all procedures under the MEO. The link is only relevant in relation to certain cosmetic procedures (see paragraph 4.16).

Example 4.1

In 2005 Glen had several courses of botox injections at a net cost of $2,000 to remove wrinkle lines from his forehead.

As this procedure is cosmetic in nature by the ordinary definition, to determine whether Glen is eligible to claim the MEO, Glen needs to establish whether this procedure attracts a Medicare benefit. Glen could do this by asking his doctor, speaking to Medicare, or consulting the Medicare Benefits Schedule (this would generally be clear where no Medicare benefit is received by the taxpayer).

As botox injections to remove wrinkle lines do not attract a Medicare benefit, this procedure is therefore deemed to be solely cosmetic and is subsequently an ineligible medical expense for the purposes of the MEO.

Example 4.2

Nicole had rhinoplasty in August 2005 to remove a bump in her nose. For this procedure Nicole incurred a net cost of $8,600.

By the ordinary definition, this procedure is cosmetic in nature and it does not attract any Medicare benefits. Therefore, this procedure is an ineligible medical expense for the purposes of the MEO.

Alternatively, if Nicole had a similar procedure carried out to correct a breathing difficulty, while this might still be a cosmetic procedure by the ordinary definition, it would be an eligible medical expense as a Medicare benefit would be payable.

Example 4.3

Sue underwent laser vision correction surgery on both eyes at a net cost of $4,000. The issue of whether laser eye surgery is cosmetic by the ordinary definition (using the Macquarie Dictionary) was considered in the Australian Taxation Office's Interpretive Decision - GST and laser vision correction surgery (ATO ID 2004/51 available on www.ato.gov.au).

In this Interpretive Decision it was considered that laser eye surgery is not cosmetic by the ordinary definition for the purposes of the GST legalisation. Specifically the Interpretive Decision states that "Laser eye surgery performed to correct a patient's vision, changes the function, but not the appearance of the eye. - Therefore, the medical service is performed for medical reasons, not for cosmetic reasons -".

On this basis, laser vision correction surgery is not considered cosmetic and is therefore not affected by this amendment. That is, the procedure continues to attract the MEO.

Example 4.4

Lucy underwent reconstructive surgery following earlier surgery to remove breast cancer. As a Medicare benefit is payable, the cost of reconstructive surgery is an eligible expense in respect of the MEO.

General dental expenses

4.23 Expenses paid to a legally qualified dentist for dental services, or treatments that are solely cosmetic are excluded from the MEO. [Schedule 4, item 2, subsection 159P(4), paragraph (b) definition of 'ineligible medical expenses']

4.24 As dental expenses generally do not attract Medicare benefits the legislation does not establish a link to Medicare benefits. Instead, to determine whether a procedure is solely cosmetic the ordinary definition of 'cosmetic' applies (see paragraph 4.19). Similarly, in conjunction with the ordinary definition of 'cosmetic' the ordinary definition of 'solely' also applies to define a solely cosmetic procedure.

Example 4.5

Amanda had braces fitted at a net cost of $5,000. As braces are fitted for many reasons that are not solely cosmetic, such as to fix the problem of crowed teeth, missing teeth, misaligned jaws or bites, braces are not considered to be solely cosmetic. Therefore, braces continue to be an eligible expense and Amanda is able to claim the MEO.

Example 4.6

Kris had three courses of teeth bleaching at a cost of $1,200 to remove extrinsic staining (eg, coffee staining). Kris had naturally white teeth with no intrinsic or extrinsic staining and had teeth bleaching for the sole purpose of making his teeth whiter. By the ordinary definition of solely and cosmetic, this procedure is solely cosmetic and therefore is an ineligible medical expense in respect of the MEO.

Example 4.7

James had a jewel inserted in his tooth by his dentist. As this procedure is solely cosmetic it is an ineligible medical expense for the purpose of the MEO.

Application and transitional provisions

4.25 The amendments made by Schedule 4 to this Bill apply to assessments for income years commencing on or after 1 July 2005 as announced in the 2005-06 Budget. As this offset is claimable on assessment, taxpayers will not be adversely affected by the date of commencement.

Chapter 5 - Deductible gift recipients

Outline of chapter

5.1 Schedule 5 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to update the lists of deductible gift recipients (DGRs) and extend the period for which deductions are allowed for gifts to a fund that has time-limited DGR status.

Context of amendments

5.2 The income tax law allows taxpayers to claim income tax deductions for gifts of $2 or more to DGRs. To be a DGR, an organisation must fall within a category of organisations set out in Division 30 of the ITAA 1997, or be listed under that Division.

5.3 These amendments in Schedule 5 will assist relevant funds and organisations to attract public support for their activities.

Summary of new law

5.4 These amendments add certain organisations to the list of specifically listed DGRs and extend the period for which deductions are allowed for gifts to a fund that has time-limited DGR status. The extension will support the completion of work of the relevant organisation.

Detailed explanation of new law

5.5 Schedule 1 lists the organisations in Table 5.1 as DGRs. [Schedule 5, items 1 to 10]

5.6 The International Specialised Skills Institute Incorporated runs a scholarship programme which assists eligible recipients of the programme to travel overseas to acquire and develop specialised skills relevant to their area of expertise and to bring these skills back to Australia. The programme covers industry sectors such as engineering, construction and food trades. [Schedule 5, items 1 and 7]

5.7 The purpose of the Yachad Accelerated Learning Project Limited is to improve the educational outcomes of Indigenous students through training Australian teachers using programmes developed through the Hebrew University of Jerusalem. The project seeks to improve teaching and learning outcomes through a greater understanding of the culture and learning styles of Indigenous students from rural and remote communities. [Schedule 5, items 1 and 10]

5.8 C E W Bean Foundation seeks to construct a memorial in the grounds of the Australian War Memorial and develop an honour roll to commemorate war correspondents that have been killed in conflict since 1885. The Foundation also promotes the work of war correspondents including the collection, preservation and exhibition of this work and the commissioning of books and lectures. [Schedule 5, items 3 and 6]

5.9 The Vietnam War Memorial of Victoria Incorporated was established to assist the construction of a memorial in the Dandenong region of Victoria to commemorate Australian and Vietnamese soldiers who fought on the same side in the Vietnam War. [Schedule 5, items 3 and 9]

5.10 The Australian Red Cross Society-US 2005 Hurricane Relief Appeal and The Salvation Army Hurricane Katrina Relief Appeal were established to collect donations to assist the disaster relief efforts in the aftermath of Hurricane Katrina that devastated southern areas of the United States of America. [Schedule 5, items 4, 5 and 8]

5.11 Xanana Vocational Education Trust has as its principal purpose the development of vocational education and training in Timor Leste, by providing scholarships and subsidised education for youths across Timor Leste to encourage further education and training. [Schedule 5, items 4 and 10]

Extending periods for which gifts are deductible

5.12 Schedule 5 extends the period for which deductions are allowed for gifts to the organisation in Table 5.2. [Schedule 5, item 2]

5.13 The City of Onkaparinga Memorial Gardens Association Incorporated was established to develop a memorial Eternal Flame in the Onkaparinga Memorial Gardens, to commemorate the ninetieth anniversary of the Gallipoli landings, on 25 April 2005. The Eternal Flame forms the centrepiece of the Memorial. [Schedule 5, item 2]

Application and transitional provisions

5.14 These amendments to list and extend the organisations in Tables 5.1 and 5.2 apply from the dates of effect shown in those tables. [Schedule 5, items 1 to 10]

Index

Schedule 1: Consolidation: available fraction for loss utilisation purposes

Schedule 2 : Extension of mutuality principle

Schedule 3: Child care tax offset
Schedule 4: Medical expenses offset

Schedule 5: Specific gift recipients