House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

Glossary

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

General outline and financial impact

Conservation tillage refundable tax offset: amendment to the definition of 'eligible no-till seeder'

Schedule 1to this Bill amends the definition of 'eligible no-till seeder' in section 385-235 of the Income Tax Assessment Act 1997 (ITAA 1997) to ensure that an eligible no-till seeder can comprise just the tool, or the combination of the cart and the tool.

This measure is favourable to taxpayers carrying on a primary production business.

Date of effect: This measure applies to an eligible no-till seeder which the taxpayer starts to use or has installed ready for use to carry on a primary production business between 1 July 2012 and 30 June 2015. The refundable tax offset is claimable in the taxpayer's income tax return for the 2012-13, 2013-14 or 2014-15 income years. This is consistent with the existing conservation tillage refundable tax offset provisions.

The measure may have a retrospective impact but are of a beneficial nature to affected entities.

Proposal announced: This measure was announced in the Assistant Treasurer's Media Release No. 058 of 29 June 2012.

Financial impact: The financial impact of this measure is not zero, but rounded to zero, in each of the income years from 2012-13 to 2015-16.

Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 1, paragraphs 1.13 to 1.19.

Compliance cost impact: Nil.

Phase out the mature age worker tax offset

Schedule 2 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to phase out the mature age worker tax offset from 1 July 2012 for taxpayers born on or after 1 July 1957.

Date of effect: The measure was announced on 8 May 2012 to take effect on 1 July 2012.

Proposal announced: This measure was announced in the 2012-13 Budget.

Financial impact: This measure provides savings of $255 million over the forward estimates period.

Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 2, paragraphs 2.12 to 2.15.

Compliance cost impact: Nil.

Compliance regime for gaseous fuels and blending exemptions

Schedule 3 to this Bill amends the Excise Act 1901 and the Excise Tariff Act 1921 to provide a robust and more sustainable compliance regime for liquid petroleum gas (LPG), liquefied natural gas (LNG) and compressed natural gas (CNG). It also makes some minor and consequential changes to legislation to ensure the gaseous fuels legislation works as intended.

Schedule 4 to this Bill amends the Excise Act 1901 to clarify when the Commissioner of Taxation, may, by legislative instrument, specify circumstances when the creation of certain fuel blends is not considered to be excise manufacture.

Date of effect: The amendments to the Excise Act 1901 apply in relation to gaseous fuels sold or supplied after the date of Royal Assent.

Proposal announced: These amendments are technical in nature and ensure that the 2011 Alternative Fuels legislation works as intended. They have not been announced.

Financial impact: Nil

Human rights implications: These Schedules do not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 3, paragraphs 3.41 to 3.48.

Compliance cost impact: No significant impact.

Deductible gift recipients

Schedule 5 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to update the list of deductible gift recipients (DGRs) by adding one entity - The Diamond Jubilee Trust Australia - as a DGR.

Date of effect: The listing of The Diamond Jubilee Trust Australia applies to gifts made after 31 October 2012 and before 1 July 2015.

Proposal announced: This proposal was announced on 7 September 2012.

Financial impact: Nil.

Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 4, paragraphs 4.10 to 4.14.

Compliance cost impact: None.

Wine equalisation tax

Schedule 6 to this Bill amends the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act) to ensure that a wine producer will not be entitled to the wine equalisation tax (WET) producer rebate on other wine they use in manufacture, except where the producer of the other wine (or supplier) notifies the subsequent producer.

The amendments implement a voluntary notice system such that a producer of the other wine (or supplier) may notify the subsequent producer that the producer of other wine is entitled to rebate on a specified amount of the other wine, or that the producer is not entitled to the rebate on the other wine.

The amendments also make minor technical amendments to the WET Act. The amendments update references to offences and penalties under the Act to ensure that these provisions accord with current drafting practice.

Date of effect: The WET producer rebate amendments apply to assessable dealings on or after 1 December 2012 or the day on which this Bill receives the Royal Assent, whichever is later. The technical amendments are taken to have effect on the day this Bill receives Royal Assent.

Proposal announced: The measure was announced in the 2012-13 Budget, and was to commence on 1 July 2012. Its deferral from the original start date was announced in the Assistant Treasurer's Media Release No. 57 of 29 June 2012, to allow for continued consultation with the wine industry.

Financial impact: The measure is estimated to result in a gain to Budget revenue over the forward estimates period of $35 million, assuming a start date of 1 December 2012, comprising:

Human rights implications: This Schedule may raise human rights issues because it contains an offence of strict liability, which may raise concerns with respect to the presumption of innocence. See Statement of Compatibility with Human Rights - Chapter 5, paragraphs 5.42 to 5.50.

Compliance cost impact: Low. The measure is generally limited in scope to wholesale sales of wine intended for further manufacture. The system of voluntary notices is intended to minimise the burden imposed on small and medium sized wineries.

Chapter 1 - Conservation tillage refundable tax offset: amendment to the definition of 'eligible no-till seeder'

Outline of chapter

1.1 Schedule 1 to this Bill amends the definition of 'eligible no-till seeder' in section 385-235 of the Income Tax Assessment Act 1997 (ITAA 1997) to ensure that an eligible no-till seeder can comprise just the tool, or the combination of the cart and the tool.

Context of amendments

1.2 The conservation tillage refundable tax offset was introduced as part of the Clean Energy (Consequential Amendments) Act 2011 and took effect from 1 July 2012. It allows primary producers to claim a 15 per cent refundable tax offset on the purchase of new, eligible conservation tillage equipment installed ready for use between 1 July 2012 and 30 June 2015. The tax offset is designed to encourage the take up of conservation tillage farming practices to reduce soil disturbance and erosion and improve water retention in the soil. It forms part of the Carbon Farming Futures program which provides support for action on the ground to reduce emissions, increase soil carbon and improve productivity.

1.3 Eligibility for the tax offset requires, amongst other things, the purchase of a new eligible no-till seeder which, under the current law, is a no-till seeder comprising both the cart and the tool. The tool component of a no-till seeder delivers the benefits of conservation tillage practices, while the cart simply carries the seed and fertiliser. In practice, many primary producers retain their existing cart (also known as an air cart) when upgrading to a new tool (also known as a seeder bar).

1.4 Expanding the definition of an eligible no-till seeder to include just the tool will facilitate primary producers' access to the tax offset and consequently encourage the adoption of conservation tillage techniques.

1.5 On 29 June 2012, the Assistant Treasurer announced the Government's intention to amend the eligibility requirements to allow primary producers who purchase just the tool to access the tax offset (Media Release No. 058).

Summary of new law

1.6 The definition of an eligible no-till seeder is amended to ensure that an eligible no-till seeder can comprise just the tool or the combination of the cart and the tool.

Comparison of key features of new law and current law

Detailed explanation of new law

1.7 The eligibility requirements for the conservation tillage refundable tax offset are set out in section 385-175 of the ITAA 1997. Amongst other things, a taxpayer is entitled to the tax offset for an income year in respect of a depreciating asset if the asset is an eligible no-till seeder.

1.8 An eligible no-till seeder is 'a no-till seeder (comprising the tool, or the combination of the cart and tool)' that has certain features. [Schedule 1, item 1]

1.9 An 'eligible no-till seeder' can comprise either the tool alone or the combination of the cart and tool (but not the cart alone). It is the tool component which delivers the benefits of conservation tillage.

1.10 The other elements of the definition of 'eligible no-till seeder' are set out in paragraphs 385-235(a) to (g). (These detail the essential disc or tine features of a no-till seeder.)

Application and transitional provisions

1.11 This amendment commences on the day the Bill receives the Royal Assent.

1.12 The amendment applies to an eligible no-till seeder which the taxpayer starts to use to carry on a primary production business, or which the taxpayer has installed ready for use to carry on a primary production business, between 1 July 2012 and 30 June 2015. The refundable tax offset is claimable in the taxpayer's income tax return for the 2012-13, 2013-14 or 2014-15 income years. This is consistent with the existing conservation tillage refundable tax offset provisions. [Schedule 1, item 2]

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Conservation tillage refundable tax offset: amendment to the definition of 'eligible no-till seeder'

1.13 This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview

1.14 This Schedule amends the Income Tax Assessment Act 1997 (ITAA 1997) to expand the application of the conservation tillage refundable tax offset (tax offset).

1.15 As part of the Government's Clean Energy Future Plan, the Clean Energy (Consequential Amendments) Act 2011 amended the ITAA 1997 to support action to reduce greenhouse gases in the farming industry by providing a tax offset to encourage no-till farming practices.

1.16 Under the existing law, to be eligible for the tax offset, a taxpayer is required, among other things, to have an eligible no-till seeder, comprising 'the combination of a cart and tool' (section 385-285 of the ITAA 1997). As it is the tool component which delivers the benefits of conservation tillage practices, item 1 of this Schedule amends the definition of 'eligible no-till seeder' to ensure that an eligible no-till seeder can comprise 'the tool, or the combination of cart and tool'. This means that, provided other existing criteria are met, a taxpayer carrying on a primary production business may be eligible to claim a 15 per cent conservation tillage refundable tax offset whether they purchase just the conservation tillage tool or a combination of the cart and the tool.

1.17 Item 2 applies the amendments to the 2012-13, 2013-14 and 2014-15 income years. This enables the benefit conferred by item 1 to be immediately available to eligible taxpayers. While the Schedule operates retrospectively, the measure operates to the benefit of affected taxpayers.

Human rights implications

1.18 This Schedule engages and promotes the right to health in Article 12 of the International Covenant of Economic, Social and Cultural Rights. The UN Committee on Economic, Social and Cultural Rights has interpreted Article 12 to extend to the underlying determinants of health, including a healthy environment. No-till farming practices aim to reduce soil disturbance and erosion, increase nutrient availability and reduce water loss. These environmental benefits may lead to greater food production capacity.

Conclusion

1.19 This Schedule is compatible with human rights. It promotes the right to health.

Chapter 2 - Phase out of the mature age worker tax offset

Outline of chapter

2.1 Schedule 2 amends the Income Tax Assessment Act 1997 (ITAA 1997) to phase out the mature age worker tax offset (MAWTO) from 1 July 2012 for taxpayers born on or after 1 July 1957. Those currently eligible because they were aged 55 years or older on 30 June 2012 are unaffected by the changes and remain eligible.

Context of amendments

2.2 The MAWTO is a non-refundable tax offset available to an Australian resident individual who is aged 55 years or older in the year of income and who has worked during the year.

2.3 The MAWTO phases in from the first dollar of 'net income from working', that is income from working less any relevant deductions, at the rate of five cents per dollar, with the full $500 offset being available to all mature age workers when their net income from working reaches $10,000. The offset is reduced at the rate of five cents per dollar for each dollar above $53,000, resulting in the offset being completely phased out by $63,000.

2.4 Net income from working consists of the sum of:

•

personal services income (including salary and wages);

•

assessable income from a business;

•

assessable farm management repayment amounts;

•

reportable fringe benefits; and

•

reportable superannuation contributions;

less the sum of the taxpayer's deductible expenses relating to their assessable personal services or business income.

2.5 The MAWTO is a high cost method of facilitating mature age workforce participation. The Government will be investing in better targeted workforce participation programs.

2.6 By phasing out the MAWTO, the Government will be maintaining the MAWTO for people who have already built this benefit into their household budgets.

Summary of new law

2.7 Schedule 2 introduces a new eligibility requirement for the MAWTO by restricting access to the MAWTO to those who are already age eligible, that is, those born on or before 30 June 1957.

Comparison of key features of new law and current law

Detailed explanation of new law

2.8 Section 61-550 of ITAA 1997 explains when a taxpayer is eligible for the MAWTO. The explanation is changed to state that only taxpayers born on or before 30 June 1957 and who have worked during the relevant income year will be eligible for the MAWTO. [Schedule 2, item 1, section 61-550]

2.9 Section 61-555 sets out that the object of Subdivision 61-D is to provide an incentive to work for those aged 55 or over. This is amended to restrict eligibility to those taxpayers born on or before 30 June 1957. [Schedule 2, item 2, section 61-555]

2.10 From 1 July 2012, entitlement to the MAWTO is restricted to taxpayers born on or before 30 June 1957. Age eligibility for the MAWTO will be maintained for those taxpayers who are aged 55 years or older on 30 June 2012. [Schedule 2, item 3, section 61-560]

Application and transitional provisions

2.11 These amendments apply on or after 1 July 2012. [Schedule 2, item 4]

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Phase out of the mature age worker tax offset

2.12 This schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview

2.13 This schedule amends the Income Tax Assessment Act 1997 to phase out the mature age worker tax offset from 1 July 2012 for taxpayers born on or after 1 July 1957.

Human rights implications

2.14 This schedule does not engage any of the applicable rights or freedoms.

Conclusion

2.15 This schedule is compatible with human rights as it does not raise any human rights issues.

Chapter 3 - Compliance regime for gaseous fuels and blending exemptions

Outline of chapter

3.1 Schedule 3 to this Bill amends the Excise Act 1901 (Excise Act), the Fuel Tax Act 2006 (Fuel Tax Act) and the Taxation Administration Act 1953 (TAA 1953) to provide a robust and sustainable compliance regime for liquefied petroleum gas (LPG), liquefied natural gas (LNG), and compressed natural gas (CNG). As well, this Schedule makes some minor and consequential changes to legislation to ensure that gaseous fuels legislation works as intended.

3.2 Schedule 4 to this Bill amends the Excise Act to broaden and clarify when the Commissioner of Taxation (Commissioner) may, by legislative instrument, specify circumstances when the creation of certain fuel blends is not considered to be excise manufacture with its requirement for excise licensing of the manufacturing premises. It also amends the Excise Tariff Act 1921 (Excise Tariff Act) to remove references to the rules that currently provide exemptions.

Context of amendments

Compliance regime

3.3 The Taxation of Alternative Fuels legislation package of four Bills received Royal Assent on 29 June 2011 and brought the transport use of LPG, LNG and CNG into the excise and excise-equivalent customs duty regime (otherwise referred to as the fuel tax regime).

3.4 The existing liquid fuels regime applies fuel tax to all liquid fuel 'entered for home consumption' (that is, when entering the Australian market), which effectively means when it leaves licensed premises or is delivered under a periodic settlement permission. Fuel tax on fuel used for non-road transport purposes, or in any qualifying transport use, is subsequently removed by use of fuel tax credits. A major component of this regime is licensing of premises that produce, import or store untaxed liquid fuels. This ensures the integrity of the excise regime because untaxed liquid fuels generally do not appear in the marketplace.

3.5 In response to industry concerns about the compliance costs of extending this regime to include non-transport LPG, LNG and CNG, the Government provided automatic exemptions from duty for non-transport LPG and LNG and duty exemption for non-transport CNG.

3.6 As a result, the Australian market now contains both taxed and untaxed gaseous fuel, including on unlicenced premises. This presents different challenges for ensuring the integrity of the excise regime.

3.7 To maintain the integrity of this new system, measures similar to those in the liquid fuels regime are required, but are extended to unlicensed premises because these premises can hold untaxed gaseous fuel. This context underpins the amendments requiring provision of notices when supplying untaxed fuel, keeping and producing records of untaxed fuel stocks and uses, and access provision for Australian Taxation Office(ATO) and Australian Customs and Border Protection Services (Customs)officers to licensed and unlicensed premises. Bringing the gaseous fuels into the fuel tax regime has also been phased in over the period to 1 July 2015 to minimise compliance costs.

3.8 Industry was consulted extensively on the introduction of the system of automatic remissions for non-transport LPG and LNG and on the exemption of non-transport CNG. Industry is aware that the compliance regime for gaseous would have to reflect the new arrangements, especially the issue of dealing with diversion of untaxed fuel into taxable uses.

3.9 The compliance regime includes penalty and offence provisions, requirements for record keeping as well as powers for ATO and Customs officers to access records and enter premises to confirm that gaseous fuels supplied for non-transport purposes have not been sold or used for transport purposes.

3.10 This regime will have lower added compliance costs for the gaseous fuels industry than applying fuel tax to all gaseous fuels that enter the Australian market (with subsequent fuel tax credits where appropriate) because businesses that currently comply with their excise and excise-equivalent duty obligations should already be keeping the required records.

Fuel blending exemptions

3.11 Subsections 77H(2A) and 77H(2B) of the Excise Act provide an exemption for the blending of some 'relevant fuels', as defined in subsection 77H(5) in specified circumstances. Where an exemption applies, the blending will not be treated as excise manufacture and will therefore not require the premises at which the blending takes place to be licensed.

3.12 Subsection 77H(4)of the Excise Act provides the Commissioner with the power to specify circumstances by legislative instrument where the blending of fuels is not to be classed as excise manufacture and therefore, there is no requirement for the premises where the blending occurs to be licensed. The circumstances in which the Commissioner can exercise this power are uncertain. The clarification of the Commissioner's power to provide an exemption by use of a legislative instrument rather than in primary legislation would provide a more flexible and robust arrangement. It removes the need for specific exemptions and deals more easily with the possible emergence of other fuel blends, where the blending was not intended to be classed as excise manufacture.

Summary of new law

3.13 The measure sets out the elements of a compliance regime necessary to accommodate the modifications to the traditional excise-equivalent customs duties and excise duty made by the Taxation of Alternative Fuels legislation package in response to industry concerns about compliance costs. These elements include record keeping obligations, access powers and extended penalty provisions that apply to all gaseous fuels, as well as powers that enable the recovery of unpaid duty applying to gaseous fuels subject to remission or exemption and used for transport purposes.

3.14 In addition, this measure provides for the better integration of LPG, LNG, and CNG within the fuel tax system by introducing or amending definitions and broadening references to include all the gaseous fuels.

3.15 The measure also removes certain specific blending exemption rules and clarifies when the Commissioner may, by legislative instrument, specify circumstances when the creation of certain blends is not to be treated as excise manufacture.

Comparison of key features of new law and current law

Detailed explanation of new law

Definitions

3.16 The definition of 'excisable LPG use' is repealed and replaced with 'dutiable fuel use', which is a more general term. The definition of dutiable fuel use ensures that the penalty provisions can be applied to all gaseous fuels, not only LPG. [Schedule 3, item 2, subsection 4(1)]

3.17 A definition 'fuel tax relief' is also inserted, which is a more general term than 'remission'. The term refers to gaseous fuels to which a remission, rebate or refund has applied under the excise or customs legislation, or alternatively, where an exemption from duty has applied for CNG for non-transport use or LPG or LNG for certain uses in the manufacturing process on licensed premises. The new definition enables the penalty, record keeping and access provisions to apply to all gaseous fuels. [Schedule 3, item 4, subsection 4(1), item 11]

3.18 The phrase 'short for liquefied petroleum gas' is inserted after LPG in order to make the meaning of the abbreviated term 'LPG' clear. The Excise Tariff Act defines and refers to the term 'liquefied petroleum gas' while the Excise Act uses the term LPG. Accordingly, this change makes clear that LPG and liquefied petroleum gas refer to the same thing. [Schedule 3, item 5, subsection 4(1)]

Gaseous fuels used in a forklift truck

3.19 A vehicle that is designed to be used as a forklift primarily off public roads is treated as a kind of motor vehicle for the purpose of the alternative fuels legislation but this does not align with how these vehicles are treated in practice. The treatment of forklift trucks is clarified to ensure that these vehicles are not treated as motor vehicles so that the use of fuels in a forklift truck is treated as non-transport use of gaseous fuel. This treatment is consistent with other excise legislation and other tax laws where they are not treated as motor vehicles. [Schedule 3, item 7, subsection 4(6)] and item 9

Fuel used in the process of manufacturing fuels

3.20 LPG or LNG used in an internal combustion engine as part of the process of manufacturing petroleum condensate, stabilised crude petroleum, LPG, LNG or other hydrocarbons is subject to excise duty. This is consistent with the treatment of liquid fuels used in internal combustion engines in the manufacture of fuels. [Schedule 3, item 10, section 77HB]

Notice requirements for supplies of LPG subject to fuel tax relief

3.21 Section 77L of the Excise Act previously imposed obligations to give notices when LPG was supplied for non-transport use in certain circumstances. This requirement is extended to include other forms of fuel tax relief and an obligation to give a notice not only by parties holding manufacturing and/or storage licences but also entities holding settlement permissions, issued under section 61C of the Excise Actor section 69 of the Customs Act 1901. The LPG notice requirement is extended to circumstances where a notice was not received by a supplier but they should reasonably have known that a notice should have been provided to them. As noted in paragraph 3.17, a definition of fuel tax relief has been added to apply where gaseous fuels have been supplied or manufactured for a non-transport use. [Schedule 3, items 12 and 13, subsections 77L(1) and (2)]

Record keeping requirements for suppliers and users of LPG

3.22 Records must be kept by all suppliers of LPG for non-transport use, including licensed parties, holders of settlement permissions and all persons who acquire LPG subject to fuel tax relief who carry on an enterprise (within the meaning of the A New Tax System (Goods and Services Tax) Act 1999) and receive the LPG into a tank of greater than 210 kilograms capacity. The records must be in English or easily accessible and convertible into English and able to be used to ascertain whether fuel tax relief applied to the LPG that was sold or otherwise supplied or acquired. The records must be retained for a period of five years. Not keeping, retaining or producing records is a strict liability offence. [Schedule 3, item 14, section 77LA]

3.23 This requirement is broadly based on section 382-5 of Schedule 1 of the TAA 1953, which imposes a record keeping obligation and makes failure to do so an offence of strict liability. It is also similar to section 50 of the Excise Act, which imposes obligations on a licensed person to keep records and produce them when demanded, making this an offence of strict liability.

Access to premises

3.24 Licensed parties who deal with gaseous fuels have record keeping and record production obligations imposed on them by section 50 of the Excise Act and by various parts of Parts IVA and V of the Customs Act 1901. These obligations are complemented by providing for access under section 86 of the Excise Act and section 91 of the Customs Act 1901 to licensed premises for the purposes of accounting for amounts payable for excisable and customable goods. Rights of access provide the means for ensuring compliance with record keeping and payment of duty.

3.25 ATO and Customs officers are entitled to access, at reasonable times, premises and land occupied by a person who is required to keep records under the gaseous fuels record keeping provisions. This includes licensed and unlicensed distributors of gaseous fuel that sell the product for non-transport use and businesses and other entities that carry on an enterprise that acquires gaseous fuels for non-transport use in tanks of more than 210 kilograms capacity. Officers are entitled to remain on the premises and land and have full access at reasonable times to documents and property, including goods. They may inspect, examine and make copies of documents. They may also examine, and determine the physical characteristics of goods, including taking samples. Officers must provide identification when requested to do so by the occupier. This is consistent with the access powers for officers provided for in the TAA 1953. [Schedule 3, item 14, section 77LB]

3.26 Guidance issues by the Attorney-General's Department (AGD) on the application of strict liability has been considered on whether the application of strict liability is justified. The conclusion is that strict liability is appropriate for this case for the following reasons.

•

Keeping and producing records is a fundamental part of the measure, and the use of strict liability is considered necessary to protect the revenue under the gaseous fuels compliance regime. The absence of records would make enforcement of the regime very difficult. This is recognised in the Excise Act, the Customs Act 1901, and the TAA 1953referred to above, which all have similar record keeping and record production requirements.

•

The records offences relate to facts which are within the gaseous fuel supplier's knowledge and to which they have ready access.

•

The offence is not punishable by imprisonment and the offence is less than the 60 penalty units, as recommended by the AGD for strict liability offences.

Accounting for gaseous fuel and recovery of excise

3.27 An amount equal to the prevailing duty (whether excise duty, customs duty or both) that would have been payable can be recovered by the Commissioner where the person using or supplying the fuel for a non-transport use is unable to satisfy the Commissioner that the fuel is to be or was used for a non-transport use, or that the fuel tax relief did not apply at the time the gaseous fuel was supplied or used. The Commissioner can recover on behalf of the Commonwealth an amount equal to the duty that would have been payable on the gaseous fuel for transport use at the time the Commissioner demands the amount in writing. The Bill provides that a demand by the Commissioner for the amount is not a legislative instrument. This reflects that a demand does not fall within the scope of section 5 of the Legislative Instruments Act 2003as it applies the law to a particular case rather than determining the law. [Schedule 3, item 14, section 77LC]

Penalties for using gaseous fuels subject to excise relief in dutiable uses

3.28 The section of the legislation that formerly provided for an offence of using excise-free LPG for an excisable purpose and specified penalties is repealed and replaced with a new section that applies to all gaseous fuels. The new section widens excisable use to dutiable use, and makes it clear that using gaseous fuel for a dutiable fuel use, where fuel tax relief applied to the fuel at the time of use, will require users to pay an amount equal to two times the duty that would have been payable had fuel tax relief not applied to the fuel. The Commissioner may remit all or part of this amount. [Schedule 3, item 15, sections 77M and 77N]

3.29 The Commissioner will have the power to remit, in whole or part, penalties imposed under section 77M. This is consistent with the Commissioner's powers to remit administrative penalties imposed under income tax and indirect tax legislation. The Commissioner will exercise this power where it is appropriate, in the particular circumstances, for the penalty to be remitted.

Legal professional privilege

3.30 The record keeping requirements and the ability to demand access to records may compromise legal professional privilege regarding client confidentiality. To ensure this does not occur, the Bill provides that these powers do not affect legal professional privilege. [Schedule 3, item 15, section 77P]

Supply of gaseous fuels for a dutiable use

3.31 Section 117BA of the Excise Act makes it an offence to unlawfully sell LPG that is subject to a remission for an excisable use and specifies penalties for this offence. This section has been replaced by one that extends coverage to the supply of gaseous fuel subject to fuel tax relief for a dutiable use and specifies the penalties for this offence as two years imprisonment or the greater of 500 penalty units and five times the amount of duty avoided. These penalties are consistent with section 117B of the Excise Act, which applies to parties that sell excisable goods on which duty has not been paid. [Schedule 3, item 16, section 117BA]

Possessing gaseous fuel that is used for a dutiable fuel use

3.32 The Bill also makes it an offence to possess gaseous fuel subject to fuel tax relief where the person who has custody or control of the fuel either knows or is reckless as to whether the gaseous fuel will be used for a dutiable fuel use. The penalty for this offence is the greater of 500 penalty units and five times the amount of duty avoided. These penalties are consistent with section 117 of the Excise Act. [Schedule 3, item 16, section 117BB]

Fuel blending exemptions

3.33 In general, in the Excise Act, blending of excisable fuel products is treated as excise manufacture with the manufactured product subject to excise. Such blending can only occur at licensed premises. However, section 77H and subsections 77H(2A) and 77H(2B) of the Excise Act provides exemptions from these requirements. Paragraph 77H(1)(a) provides an exemption where duty (excise or customs) has been paid at the same rate on all the constituents of the blend(LPG and LNG for non-transport use receive automatic remissions of fuel tax at the time of entry to the market or delivery when non-transport use can be identified. CNG receives an exemption from duty when it is manufactured for a non-transport use. As a result, the possibility of diversion of untaxed non-transport gaseous fuel into dutiable transport uses occurs at any point in the gaseous fuel, non-transport use supply chain. Paragraph 77H(1)(b) provides an exemption where a determination is made under the Fuel Tax Act. Subsection 77H(2A) provides an exemption where gaseous fuels not subject to any remission, gasoline for use in an aircraft or kerosene for use in an aircraft are blended with the same fuel and relevant duty (even if the amounts differ) has been paid on all components of the blend. Subsection 77H(2B) exempts the blending of quantities of LPG or quantities of LNG where each quantity is either subject to a remission (either part or full)on the grounds that it is not intended for use in an internal combustion engine in a motor vehicle or a vessel, or not subject to duty because it was manufactured, produced or imported before 1 December 2011.

3.34 The blending exemption for certain blends of 'relevant fuels' in paragraphs 77H(2A) and 77H(2B) and the definition of 'relevant fuel' in subsection 77H(5) are repealed [Schedule 4, items 1 and 5] . These exemptions will instead be able to be specified by the Commissioner by legislative instrument. This power is currently available to the Commissioner under subsections 77H(3) and (4). However, the extent to which blends can be covered by a legislative instrument is uncertain. These amendments clarify (by way of a note) that the provisions have a more general operation and are not restricted to incidental blending where small amounts are added to larger amounts. In addition, a note has been added to the definition of 'eligible goods' in subsection 77H(5), which clarifies that the Commissioner can make a legislative instrument where the blend of fuel includes imported fuels. [Schedule 4, items 2 to 4]

Application and transitional provisions

3.35 The amendments in Schedule 3 Part 1 to this Bill come into effect in relation to gaseous fuel sold or supplied after this item commences. [Schedule 3, item 19]

Consequential amendments

3.36 Because this measure inserts additional definitions into the Excise Act, amendments are required to other provisions to modify their application:

•

The definition of 'apply' is amended to broaden its application from LPG to include CNG and LNG, and to include forms of fuel tax relief in addition to remissions, such as an exemption for CNG for non-transport purposes [ Schedule 3, item 1, subsection 4(1 )].

•

The definition of 'excisable LPG' use is repealed as it will be covered by the new definition 'dutiable fuel use', which is a more general term. The definition of dutiable fuel use ensures that the penalty provisions can be applied to all gaseous fuels, not only LPG [ Schedule 3, item 3 ].

•

The definition of LPG remission is repealed as it is included in the definition of fuel tax relief [ Schedule 3, item 6 ].

•

Section 4(5) is amended so that the term 'LPG' is replaced with the broader term 'gaseous fuels' while the term 'excise duty' is replaced with 'excise duty or duty of Customs'. This makes it clear that the later payment of duty on any gaseous fuel to which fuel tax relief applied previously results in the fuel being treated as not being subject to relief from duty. This ensures that the penalty and record keeping provisions only apply as intended to cases in which no duty has ultimately been paid [ Schedule 3, item7, subsection 4(5 )].

3.37 Paragraph 162C(1)(c) of the Excise Act is amended to replace the reference to section 77M with 77LC or 77M to reflect the changes to section 77M and the inclusion of section 77N. [Schedule 3, items17 and 18]

3.38 Section 41-10(4) of the Fuel Tax Act is repealed and replaced with a rule that allows the Commissioner to prescribe by regulation the kind of motor vehicle or vessel using LPG that is not denied a fuel tax credit under paragraph 41-10(3)( c). [Schedule 3, Part 2, item 20, subsection 41-10(4) of the Fuel Tax Act]

3.39 The penalties provisions are included in the table in Division 250 of Schedule 1 of the TAA 1953 that cross references tax related liabilities in a range of tax legislation. [Schedule 3, Part 2, item 21, table items 24CA and 24CB of the TAA 1953]

3.40 An amendment is made to remove references to sections 77H(2A) and (2B) in paragraph (g) of the cell at table item 10 in the Schedule to the Excise Act as these sections in the Excise Act have been repealed. [Schedule 4, item 6]

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Compliance regime for gaseous fuels and blending exemptions

3.41 These Schedules are compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview

3.42 Schedule 3 provides a robust and more sustainable compliance regime for LPG, LNG and CNG. It also makes some minor and consequential changes to legislation to ensure the gaseous fuels legislation works as intended.

3.43 The amendments in Schedule 3 introduce an offence of strict liability where a person is required to keep, retain and produce records and does not do so.

3.44 Schedule 4 clarifies when the Commissioner may, by legislative instrument, specify circumstances when the creation of certain fuel blends is not intended to be considered as excise manufacture for the purpose of the excise legislation.

Human rights implications

3.45 Schedule 3 may raise human rights issues because it contains an offence of strict liability in relation to keeping, retaining and producing records, which may raise concerns with respect to the presumption of innocence. The reasons for inserting an offence of strict liability has been assessed in light of guidelines provided by the Attorney General's Department and is consistent with those guidelines.

3.46 The strict liability offence is regulatory in nature and it is justifiable to expect individuals who participate in a regulated activity to be deemed to have accepted certain conditions and to show why they are not at fault for infringements. Moreover, the reverse burden of proof relates to facts which are within the defendant's own knowledge and to which they have ready access and, finally, the penalty falls at the lower end of the scale.

3.47 The remainder of Schedules 3 and 4 do not engage any other applicable rights or freedoms.

Conclusion

3.48 These Schedules are compatible with human rights.

Chapter 4 - Deductible gift recipients

Outline of chapter

4.1 Schedule 5 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to update the list of deductible gift recipients (DGRs) by adding one entity as a DGR.

4.2 All references to legislative provisions in this chapter are to the ITAA 1997.

Context of amendments

4.3 The income tax law allows income tax deductions for taxpayers who make gifts of $2 or more to DGRs. To be a DGR, an organisation must fall within one of the general categories set out in Division 30 or be specifically listed by name in that Division.

4.4 DGR status assists eligible funds and organisations to attract public support for their activities.

4.5 The Diamond Jubilee Trust Australia has been established to raise funds in Australia for the commemoration of Her Majesty Queen Elizabeth II's Diamond Jubilee. It will collect funds for the purpose of delivering charitable projects for the support and advancement of individuals of all ages, with a focus on the poor and disadvantaged, through supporting the work of the Queen Elizabeth Diamond Jubilee Trust in the UK.

4.6 The listing is time limited, and will allow The Diamond Jubilee Trust Australia to collect tax deductible donations after 31 October 2012 and before 1 July 2015. This is to reflect the period of fundraising for Her Majesty's Diamond Jubilee.

Summary of new law

4.7 The amendment adds The Diamond Jubilee Trust Australia as a DGR to Division 30 of the ITAA 1997 for a time limited period.

Detailed explanation of new law

The Diamond Jubilee Trust Australia (ACN 159 853 460)

4.8 Taxpayers may claim a deduction for gifts made to The Diamond Jubilee Trust Australia after 31 October 2012 and before 1 July 2015. [Schedule 5, item 1, item 9 . 2 . 2 in the table in subsection 30-80(2) of the ITAA 1997]

Consequential amendments

4.9 Changes have been made to update the index in Division 30 of the ITAA 1997 to add The Diamond Jubilee Trust Australia. [Schedule 5, item 2, item 44AAAA in subsection 30-315]

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Deductible gift recipients

4.10 This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview

4.11 This Schedule adds The Diamond Jubilee Trust Australia as a DGR to Division 30 of the ITAA 1997 for a time limited period.

Human rights implications

4.12 This Schedule does not engage any of the applicable rights or freedoms.

Conclusion

4.13 This Schedule is compatible with human rights as it does not raise any human rights issues.

Chapter 5 - Wine equalisation tax

Outline of chapter

5.1 Schedule 6 to this Bill amends the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act) to ensure that a wine producer is not entitled to the wine equalisation tax (WET) producer rebate on other wine (that is, wine acquired from a third party) they use in manufacture, except where the producer of the other wine (or supplier) notifies the subsequent producer.

5.2 The amendments implement a voluntary notice system such that a producer of the other wine (or supplier) may notify the subsequent producer that the producer of other wine is entitled to rebate on a specified amount of the other wine, or that the producer is not entitled to the rebate on the other wine.

5.3 The amendments introduce an offence of strict liability where a person gives a notice that is false or misleading.

5.4 The amendments also make minor technical amendments to the WET Act. The amendments update references to offences and penalties under the Act to ensure that these provisions accord with current drafting practice.

5.5 The amendments commence on the day of Royal Assent.

5.6 All references to legislative provisions in this chapter are references to the WET Act, unless otherwise stated.

Context of amendments

5.7 Schedule 6 to this Bill implements the Government's 2012-13 Budget announcement to protect the integrity of the WET rebate, and was originally announced to commence on 1 July 2012. Its deferral from the original start date was announced in the Assistant Treasurer's Media Release No. 57 of 29 June 2012, to allow for continued consultation with the wine industry.

5.8 The WET rebate scheme entitles a wine producer (or group of producers) to a rebate for certain dealings in wine, at a rate of 29 per cent, up to a maximum of $500,000 per financial year.

5.9 Currently, it is possible for different wine producers to be eligible for multiple WET rebates for the same quantity of wine. This outcome typically arises when one producer acquires wine from another producer and then blends or further manufactures the wine.

5.10 Where wine is blended to create a commercially distinct product, potentially both the producer of the wine constituting the blend and the producer of the blended wine are able to claim a WET rebate. Under the quoting arrangements, the payment of WET is generally deferred until the last wholesale sale. However, the producer of the constituent wine and the producer of the blended wine are entitled to the WET rebate equal to the WET amount that would have been payable on the sale, had the purchaser not quoted. Therefore, the producer of the blended wine would be entitled to the WET rebate on the total value of the blended wine. This presents a situation where multiple producers may claim rebates on the same quantity of wine.

5.11 The further manufacture of wine involves one wine producer selling unfinished wine (for example, raw wine that has undergone primary fermentation) to another wine producer. The subsequent wine producer then undertakes the further manufacture of wine. Under current legislation, assuming both manufacturing processes meet the legislative definition of 'manufacture', both wine producers may be entitled to the producer rebate.

5.12 The amendments will ensure that wine producers will not be able to claim multiple rebates for the same quantity of wine.

5.13 The amendments are in response to concerns raised by the wine industry and the Australian National Audit Office.

Summary of new law

5.14 This Schedule amends the WET Act to reduce entitlement to the producer's rebate, if the producer's wine was manufactured using other wine, except where the producer of the other wine (or supplier) provides a notice.

5.15 The amendments implement a voluntary notice system such that a producer of the other wine (or supplier) may notify the subsequent producer that the producer of other wine is entitled to rebate on a specified amount of the other wine, or that the producer is not entitled to the rebate on the other wine.

5.16 The amendments apply special rules to a New Zealand participant that has not yet been entitled to the producer rebate, for the purposes of determining the amount of the earlier producer rebate.

5.17 The amendments apply to assessable dealings on or after 1 December 2012, or the day on which this Bill receives the Royal Assent, whichever is later.

Comparison of key features of new law and current law

Detailed explanation of new law

5.18 Schedule 6 to this Bill amends the WET Act to ensure the WET producer rebate generally cannot be claimed more than once on a single quantity of wine.

5.19 The amendments implement a voluntary notice system such that a producer of wine (the 'first producer') may notify a subsequent producer who purchases that wine that the first producer is either not entitled to the rebate on the wine or is entitled to rebate on a specified amount of wine.

5.20 Where no notice is given, the WET producer rebate for the producer who purchases the wine is reduced by the amount attributable to the purchased wine.

Earlier producer rebates

5.21 Division 19 of the WET Act governs entitlement to a WET rebate and the amount of the rebate.

5.22 Section 19-15 provides for calculation of the amount of WET rebate that a wine producer or group of producers may claim in a financial year. The amount of a rebate a producer may claim is reduced by the sum of any earlier producer rebates relating to the wine. [Schedule 6, item 1, subsection 19-17(1)]

5.23 The amendments introduce the term earlier producer rebate . [Schedule 6, items 1 and 3, subsection 19-17(2) and section 33-1]

5.24 Where a producer is notified of the amount of the producer's rebate for other wine that was used in manufacture, the 'earlier producer rebate' is so much of the amount of the producer rebate relating to the other wine so used. [Schedule 6, item 1, paragraph 19-17(2)(a)]

5.25 Where a producer is not notified, the earlier producer rebate is the amount equal to what would have been the producer's rebate for the other wine, as relates to the other wine so used, if the producer had been entitled to the full producer rebate on the other wine. [Schedule 6, item 1, paragraph 19-17(2)(b)]

5.26 Where a producer is notified that the producer of the other wine is not entitled to a producer rebate for the other wine, there is no earlier producer rebate. That is, a producer will be treated as being entitled to the rebate relating to the other wine used in the manufacture of the producer's wine. [Schedule 6, item 1, subsection 19-17(2)]

New Zealand producers

5.27 Subsection 19-5(2) requires that wine tax must be paid on the wine before a New Zealand participant becomes entitled to the rebate. As such, a New Zealand participant may not be entitled to the rebate at the time of the sale of the wine.

5.28 The amendments ensure that a New Zealand participant who is not entitled to the rebate because wine tax has not been paid on that wine, will be taken to be entitled to the rebate. The amount of the rebate is taken to be the amount equal to 29 per cent of the approved selling price for the other wine. [Schedule 6, item 1, subsection 19-17(5)]

5.29 Apart from the effect described above, the amendments do not affect a New Zealand participant's entitlement to the rebate. In particular, the amendments do not affect the operation of subsection 19-10(4). Subsection 19-10(4) restricts a New Zealand participant's entitlement to a WET rebate where there is a dealing in wine produced in New Zealand, and a producer rebate has previously been paid in respect of the wine.

Notices system

5.30 The amendments provide that a producer of the other wine may notify, using the approved form, that they are entitled to a producer rebate on a specified amount for the other wine; or they are not entitled to a producer rebate for the other wine. A supplier (who is not the producer) of the other wine may also notify. This is intended to cover situations where a wholesale distributor may pass on a notice received from a producer. [Schedule 6, item 1, subsection 19-17(3)]

5.31 The amendments establish an offence where a person gives a notice that contains a statement that is false or misleading, or omits a matter or thing, without which the statement is false or misleading. The penalty is 20 penalty units. [Schedule 6, item 2, subsection 19-28(1)]

5.32 The offence is an offence of strict liability. [Schedule 6, item 2, subsection 19-28(2)]

5.33 Guidance issued by the Attorney-General's Department (AGD) on the application of strict liability has been considered on whether the use of strict liability is justified. The conclusion is that strict liability is appropriate for this case for the following reasons.

•

The provision of notices is a fundamental part of the measure, and the use of strict liability is considered necessary to protect revenue from the wine equalisation tax regime.

•

The offence is regulatory, and is an offence that is only engaged where producers or suppliers choose to provide a notice.

•

Where a producer provides a notice, the offence relates to facts which are within the producer's knowledge or to which they have ready access. Where a supplier provides a notice, the defence of mistake of fact may cover situations where the supplier has been provided with a false or misleading notice.

•

The offence is not punishable by imprisonment and the offence is less than the 60 penalty units, as recommended by the AGD for strict liability offences.

5.34 The offence intends that producers have responsibility to be aware of whether or not they are entitled to a rebate for a particular sale of wine, where they choose to provide a notice of entitlement.

5.35 Where a wholesale sale of wine includes a sale of two or more types of wine, these amendments ensure that the sale is treated as if there were separate wholesale sales for each type of wine. [Schedule 6, item 1, subsection 19-17(4)]

5.36 For example, where a sale of wine involves the sale of a shiraz and chardonnay, and the producer chooses to notify for both, separate notices must be issued.

Technical amendments to the WET Act

5.37 The amendments update references to offences and penalties under the Act. This ensures that these provisions are updated to current drafting practice. [Schedule 6, items 5 to 11, subsections 13-15(4) and 27-5(2), and sections 13-35 and 19-30]

Commencement provisions

5.38 Schedule 6 to this Bill commences on the day of Royal Assent.

Application and transitional provisions

5.39 These amendments in Part 1 apply to assessable dealings on or after the day (the application day) that is the later of 1 December 2012 or the day of Royal Assent. [Schedule 6, item 4]

5.40 Where wine was manufactured using other wine that was supplied before the application day, the amendments apply as if the producer had been notified that the producer of the other wine is not entitled to a producer rebate for the other wine, and the offences relating to false and misleading statements did not apply. [Schedule 6, item 4]

5.41 The amendments in Part 2 apply from the day of Royal Assent.

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Wine equalisation tax rebate

5.42 This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview

5.43 Schedule 6 to this Bill amends the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act) to ensure that a wine producer will not be entitled to the wine equalisation tax (WET) producer rebate on other wine they use in manufacture, except where the producer of the other wine (or supplier) notifies the subsequent producer.

5.44 The amendments implement a voluntary notice system such that a producer of the other wine (or supplier) may notify the subsequent producer that the producer of other wine is entitled to rebate on a specified amount of the other wine, or that the producer is not entitled to the rebate on the other wine.

5.45 The amendments introduce an offence of strict liability where a person gives a notice that is false or misleading.

Human rights implications

5.46 This Schedule may raise human rights issues because it contains an offence of strict liability, which may raise concerns with respect to the presumption of innocence. The reasons for inserting an offence of strict liability has been assessed in light of guidelines provided by the Attorney-General's Department and are consistent with those guidelines.

5.47 The offence intends that producers have responsibility to be aware of whether or not they are entitled to a rebate for a particular sale of wine, where they choose to provide a notice of entitlement.

5.48 The reasons for establishing a strict liability offence is that it is considered as necessary for protecting the revenue within the wine equalisation tax regime. Furthermore, the relevant matters are regulatory, the offence relates to facts which are within the producer's knowledge or to which they have ready access, and the penalty is below the 60 penalty units, as recommended by the Attorney General's Department.

5.49 The mistake of fact defence may cover situations where a supplier passes on a notice from a producer which is false or misleading.

Conclusion

5.50 This Schedule is compatible with human rights because the aim of revenue protection is legitimate. To the extent that this Schedule may limit those rights, those limitations are reasonable, necessary and proportionate to the aim.

Index

Schedule 1: Conservation tillage refundable tax offset: amendment to the definition of 'eligible no-till seeder'

Schedule 2: Phase out of the mature age worker tax offset

Schedule 3: Compliance regime for gaseous fuels

Schedule 4: Blending exemptions

Schedule 5: Deductible gift recipients

Schedule 6: Wine equalisation tax