House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Housing and Assistant Treasurer, the Hon Michael Sukkar MP.)

Glossary

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

General outline and financial impact

Schedule 1 - Making tax free certain small business grants relating to the coronavirus recovery

Schedule 1 to the Bill amends the income tax law to make payments received by eligible businesses under certain grant programs administered by a State or Territory Government (or a State or Territory authority) non-assessable non-exempt income so that these payments are not subject to income tax by the Commonwealth.

To obtain this concessional treatment, among other things, the payment must be made under a grant program that is declared by the Minister to be eligible and is, in effect, responding to the economic impacts of the Coronavirus. Accordingly, Schedule 1 to the Bill gives the Minister power to declare certain grant programs as eligible for non-assessable non-exempt income tax treatment under an instrument-making power.

Date of effect: The changes to the income tax law apply to the 2020-21 income year and later income years.

Proposal announced: Schedule 1 to the Bill implements the measure 'Making Victoria's business support grants non-assessable, non-exempt income for tax purposes' from the 2020-21 Budget.

Financial impact: The introduction of the instrument-making power does not have any financial implications. However, financial implications may arise each time the power is exercised and will be reflected in the subsequent fiscal update.

Human rights implications: Schedule 1 does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 4.

Compliance cost impact: This measure is expected to have no more than a minor regulatory impact.

Schedule 2 - Payment of amounts to KiwiSaver scheme provider

Schedule 2 to the Bill amends the SUMLM Act and the ITAA 1997 to facilitate the payment of money held by the Commissioner under the SUMLM Act directly to New Zealand KiwiSaver schemes.

Date of effect: Schedule 2, Part 1 of the Bill commences on a single day to be fixed by Proclamation. However, if Part 1 does not commence within the period of 12 months beginning on the day the Bill receives Royal Assent, the Part commences on the day after the end of that period.

Schedule 2, Part 2 commences on the later of the commencement of Schedule 2, Part 1 and immediately after the commencement of Schedule 1 to the Treasury Laws Amendment (Reuniting More Superannuation) Act 2020. However, Part 2 does not commence at all if Schedule 1 of the Treasury Laws Amendment (Reuniting More Superannuation) Act 2020 does not commence.

Proposal announced: Schedule 2 to the Bill fully implements the measure Cutting Red Tape - lost and unclaimed superannuation from the 2015-16 Budget.

Financial impact: Schedule 2 to the Bill is estimated to have a negligible impact on the underlying cash balance over the forward estimates period.

Human rights implications: Schedule 2 does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 4.

Compliance cost impact: Negligible.

Schedule 3 - Deductible gift recipients

Schedule 3 to the Bill amends the ITAA 1997 to make Neighbourhood Watch Australasia a deductible gift recipient under the income tax law.

Date of effect: The amendments apply to gifts made on or after 1 July 2019.

Proposal announced: Schedule 3 partially implements the measure 'Philanthropy - updates to the list of specifically listed deductible gift recipients' from the 2019-20 MYEFO.

Financial impact: The component of the MYEFO measure being implemented by this Schedule was estimated to have a negligible cost to revenue over the forward estimates period at the time of the 2019-20 MYEFO.

Human rights implications: Schedule 3 does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 4.

Compliance cost impact: Nil.

Chapter 1 - Making tax free certain small business grants relating to the Coronavirus recovery

Outline of chapter

1.1 Schedule 1 to the Bill amends the income tax law to make payments received by eligible businesses under certain grant programs administered by a State or Territory Government (or a State or Territory authority) non-assessable non-exempt income so that these payments are not subject to income tax by the Commonwealth.

1.2 To obtain this concessional treatment, among other things, the payment must be made under a grant program that is declared by the Minister to be eligible and is, in effect, responding to the economic impacts of the Coronavirus. Accordingly, Schedule 1 to the Bill gives the Minister power to declare certain grant programs as eligible for non-assessable non-exempt income tax treatment under an instrument-making power.

Context of amendments

1.3 As part of the response to the Coronavirus pandemic, State and Territory governments are providing grants to certain businesses to help them manage the impacts of the pandemic on their business - such as businesses subject to public health directives whose trading have been restricted. For example, the Victorian Government has provided financial support to businesses that are significantly impacted by Coronavirus related restrictions in Victoria through various grant programs given the exceptional circumstances these businesses face.

1.4 Under the income tax law, these State and Territory based grants are generally considered to be taxable income by the Commonwealth.

1.5 Treating certain State and Territory based grants as non-assessable non-exempt income for tax purposes ensures these payments are not subject to income tax by the Commonwealth. This concessional treatment will further support and aid the economic recovery of affected businesses.

Summary of new law

1.6 Schedule 1 to the Bill amends the income tax law to make payments received by eligible businesses under certain grant programs administered by a State or Territory (or a State or Territory authority) non-assessable non-exempt income so that these payments are not subject to income tax by the Commonwealth.

1.7 To obtain this concessional treatment, among other things, the payment must be made under a grant program that is declared by the Minister to be eligible and is, in effect, responding to the economic impacts of the Coronavirus. Accordingly, Schedule 1 to the Bill gives the Minister power to declare certain grant programs as eligible for non-assessable non-exempt income tax treatment under an instrument-making power.

Comparison of key features of new law and current law

Detailed explanation of new law

1.8 Schedule 1 to the Bill amends the income tax law to make payments received by eligible businesses under certain grant programs administered by a State or Territory (or a State or Territory authority) non-assessable non-exempt income so that these payments are not subject to income tax by the Commonwealth.

1.9 Entities are eligible for this concessional tax treatment if:

•

the entity carries on a business and has an aggregated turnover of less than $50 million;

•

the payment was made under a grant program administered by a State or Territory (or a State or Territory authority) that is declared to be an eligible grant program by the Minister; and

•

the payment was received in the 2020-21 financial year.

[Schedule 1, item 2, subsections 59-97(1) and (2)]

1.10 The Minister must, by legislative instrument, declare a grant program to be an eligible grant program if the Minister is satisfied that:

•

the program was first publicly announced on or after 13 September 2020 by the relevant State, Territory or authority;

•

the program is responding the economic impacts of the Coronavirus;

•

the program is directed at supporting businesses subject to certain restrictions regarding their operations (including being subject to a public health directive that applies to the geographical area in which they operate); and

•

the State, Territory or authority has requested the Minister to make this declaration.

[Schedule 1, item 2, subsection 59-97(3)]

1.11 To meet the eligibility criteria regarding the purpose and effect of the grant program, the program does not need to explicitly address the criteria. The Minister must only be satisfied of these circumstances.

1.12 These eligibility requirements ensure that only payments made under grant programs that are directly concerned with managing the impacts of the Coronavirus for affected businesses will obtain concessional tax treatment.

1.13 The concessional tax treatment ensures that eligible businesses obtain an additional boost to their cash flow, further supporting their economic recovery. This is because, in addition to the payments not being subject to income tax (by being treated as non-assessable non-exempt income), businesses will continue to be able to claim deductions for eligible expenses made with the grant payments.

1.14 The list of non-assessable non-exempt income provisions of the ITAA 1997 has also been updated. [Schedule 1, item 1, section 11-55]

Application and transitional provisions

1.15 The amendments made to the ITAA 1997 to give effect to the concessional tax treatment of certain small business grants apply to the 2020-21 income year and later income years. [Schedule 1, item 3]

1.16 The provisions in Schedule 1 to the Bill commence on the day after the Bill receives Royal Assent. [Clause 2 to the Bill]

Chapter 2 - Payment of amounts to KiwiSaver scheme provider

Outline of chapter

2.1 Schedule 2 to the Bill amends the SUMLM Act and the ITAA 1997 to facilitate the payment of money held by the Commissioner under the SUMLM Act directly to New Zealand KiwiSaver schemes.

Context of amendments

2.2 The Australian and the New Zealand Governments signed the Arrangement between the Government of Australia and the Government of New Zealand on Trans-Tasman Retirement Savings Portability (the Arrangement) in 2009.

2.3 The Arrangement establishes a scheme which enables Australians and New Zealanders to transfer their retirement savings between Australia and New Zealand.

2.4 Currently, under the Arrangement and associated legislation, retirement savings can only be transferred between Australian complying superannuation funds and New Zealand KiwiSaver schemes. A KiwiSaver scheme is part of New Zealand's retirement saving scheme which is broadly analogous to a complying superannuation fund in Australia's superannuation system.

2.5 As such, New Zealand residents who have superannuation money held by the Commissioner in respect of them under the SUMLM Act are unable to have the money paid directly to their New Zealand KiwiSaver account. Rather, individuals must transfer their superannuation money from the Commissioner to an Australian complying superannuation fund and then request the fund to transfer the money to a KiwiSaver scheme provider (who will then credit the amount to their KiwiSaver account).

2.6 The current mechanism to transfer superannuation money to KiwiSaver scheme providers is inefficient and causes both individuals and the superannuation system to incur unnecessary costs.

2.7 The amendments made by schedule 2 to the Bill provide that the Commissioner can, if directed by the person, pay amounts held in respect of the person under the SUMLM Act directly to a KiwiSaver scheme provider.

Summary of new law

2.8 Schedule 2 to the Bill amends the SUMLM Act to allow individuals to direct the Commissioner to pay amounts the Commissioner holds in respect of them under the SUMLM Act directly to KiwiSaver scheme providers.

2.9 Further, where the Commissioner makes a payment to a KiwiSaver scheme provider, the Commissioner may also be required to pay an amount of interest.

2.10 Schedule 2, Part 1 of the Bill commences on a single day to be fixed by Proclamation. However, if Part 1 does not commence within the period of 12 months beginning on the day the Bill receives Royal Assent, the Part commences on the day after the end of that period.

2.11 The period of 12 months is necessary and appropriate in these circumstances to ensure sufficient time for corresponding legislation to be passed by the New Zealand Parliament and for the Arrangement between the Government of Australia and the Government of New Zealand on Trans-Tasman Retirement Savings Portability, which Schedule 2 to the Bill will give effect to, to be amended.

Detailed explanation of new law

Allowing the Commissioner to pay lost and unclaimed superannuation money to KiwiSaver scheme providers

2.12 The definitions of KiwiSaver scheme and KiwiSaver scheme provider are inserted into the SUMLM Act with their meanings both provided by subsection 995-1(1) of the ITAA 1997. [Schedule 2, item 9, section 8 of the SUMLM Act]

2.13 Schedule 2 to the Bill inserts new paragraphs into the various payment provisions throughout the SUMLM Act. These paragraphs require the Commissioner to pay relevant amounts they hold in respect of a person to a single KiwiSaver scheme provider if the Commissioner is satisfied, upon application in the approved form or on the Commissioner's own initiative, that the person has directed the Commissioner to do so and the matters prescribed by the regulations are satisfied. [Schedule 2, items 10, 16, 20, 27 and 36, sections 17(2)(a), 20H(2)(b), 20QF(2)(a), 24G(2)(a) and 21E(2)(a) of the SUMLM Act]

2.14 Schedule 2 to the Bill also amends various provisions throughout the SUMLM Act which deal with the circumstances in which the Commissioner must pay amounts they hold in respect of a person under the SUMLM Act directly to the person. The amendments ensure that the Commissioner is not required to pay the amount to the person if the Commissioner is already required to pay the amount to a KiwiSaver scheme provider. [Schedule 2, items 21, 28, and 37, sections 20QF(3)(a), 24G(2A)(a) and 21E(3)(a) of the SUMLM Act]

Overpayments

2.15 Schedule 2 to the Bill amends various provisions throughout the SUMLM Act which allow the Commissioner to recover amounts which exceed the amount properly payable under the relevant payment provision. The amendments provide that these provisions do not apply to amounts paid to KiwiSaver scheme providers. [Schedule 2, items 14, 18, 25, 32 and 41 sections 18B(1)(a), 20L(1)(a), 20QK(1)(a), 24K(1)(a) and 21G(1)(a) of the SUMLM Act]

Requirement to return payments

2.16 Schedule 2 to the Bill amends various provisions throughout the SUMLM Act which require superannuation providers to repay amounts they receive under the SUMLM Act if they do not credit the amount to the relevant person's account within a certain time. The amendments ensure that these provisions do not apply to payments to KiwiSaver scheme providers under the SUMLM Act. [Schedule 2, items 15, 19, 26, 33 and 42, sections 18C(1)(a), 20M(1)(a), 20QL(1)(a), 24L(1)(a) and 21H(1)(a) of the SUMLM Act]

Interest on payments

2.17 Where the Commissioner makes a payment to a KiwiSaver scheme provider, the Commissioner may be required to pay interest on such amounts worked out in accordance with the regulations. [Schedule 2, items 11, 12, 13, 17, 22, 23, 24, 29, 30, 31, 38, 39 and 40, sections 17(2AB)(a), 17(2AB)(b), 17(2AB), 20H(2AA), 20QF(5)(a), 20QF(5)(b), 20QF(5), 24G(3A)(a), 24G(3A)(b), 24G(3A), 21E(5)(a), 21E(5)(b), 21E(5) of the SUMLM Act]

Consequential amendments

2.18 Consistent with payments made from complying superannuation funds to KiwiSaver scheme providers, the ITAA 1997 is amended to provide that payments made by the Commissioner to a KiwiSaver scheme provider under the SUMLM Act are non-assessable non-exempt income of the individual in respect whom the payment was made. [Schedule 2, items 1-6, sections 11-55 (table item headed "superannuation"), 312-1, 312-5, 312-15 (heading) and 312-20 of the ITAA 1997]

Application and transitional provisions

2.19 The amendments made by schedule 2 to the Bill apply in relation to payments made by the Commissioner on or after commencement of this schedule, regardless of when the amounts attributable to the payments were received by the Commissioner. [Schedule 2, items 34 and 43]

Chapter 3 - Deductible gift recipients

Outline of chapter

3.1 Schedule 3 to the Bill makes Neighbourhood Watch Australasia a deductible gift recipient.

Context of amendments

3.2 The income tax law allows income tax deductions for taxpayers who make gifts of $2 or more to a deductible gift recipient. Deductible gift recipients are entities that fall within one of the general categories set out in Division 30 of the ITAA 1997 or are specifically listed by name in that Division. Legislative references in this Chapter are to the ITAA 1997 unless otherwise specified.

3.3 Deductible gift recipient status helps eligible organisations attract public financial support for their activities.

3.4 Neighbourhood Watch Australasia is a registered charity that promotes community safety through education, awareness and resources to prevent crime, create social cohesion and engagement. Neighbourhood Watch Australasia works in partnership with police and the community with the objective of improving safety and security.

Summary of new law

3.5 Schedule 3 to the Bill amends the ITAA 1997 to make Neighbourhood Watch Australasia a deductible gift recipient under the income tax law.

Detailed explanation of new law

3.6 Taxpayers may claim an income tax deduction for gifts made to Neighbourhood Watch Australasia provided the gift complies with the existing requirements of the income tax law. This amendment ensures that Neighbourhood Watch Australasia receives appropriate support through the Commonwealth tax system for supporting the creation of safer, connected and inclusive communities. [Schedule 3, item 1, table item 4.2.48 in the table in subsection 30-45(2)]

Consequential amendments

3.7 Schedule 3 also amends the index for Division 30 of the ITAA 1997 to reflect the new listing. [Schedule 3, item 2, table item 79A in the table in section 30-315]

Application and transitional provisions

3.8 The amendments commence on the first day of the quarter following Royal Assent. [Clause 2]

3.9 The listing of Neighbourhood Watch Australasia applies to gifts made to it after 30 June 2019. [Schedule 3, item 1, column 3 of the table item 4.2.48 in subsection 30-45(2)]

3.10 The amendments apply retrospectively. This ensures that a gift made to the entity after 30 June 2019 qualifies for an income tax deduction provided the gift complies with all requirements of the income tax law. The changes are wholly beneficial both to taxpayers making a gift of $2 or more to the entity, and to the entity that receives the gift.

Chapter 4 - Statement of Compatibility with Human Rights

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

Schedule 1 - Making tax free certain small business grants relating to the Coronavirus recovery

4.1 Schedule 1 to the Bill is compatible with human rights and freedoms recognised or declared in the international instruments listed in sections 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview

4.2 Schedule 1 to the Bill amends the income tax law to make payments received by eligible businesses under certain grant programs administered by a State or Territory (or a State or Territory authority) non-assessable non-exempt income so that these payments are not subject to income tax by the Commonwealth.

4.3 To obtain this concessional treatment, among other things, the payment must be made under a grant program that is declared by the Minister to be eligible and is, in effect, responding to the economic impacts of the Coronavirus. Accordingly, Schedule 1 to the Bill gives the Minister power to declare certain grant programs as eligible for non-assessable non-exempt income tax treatment under an instrument-making power.

Human rights implications

4.4 Schedule 1 to the Bill does not engage any of the applicable rights or freedoms.

Conclusion

4.5 Schedule 1 to the Bill is compatible with human rights as it does not raise any human rights issues.

Schedule 2 - Payment of amounts to KiwiSaver scheme provider

4.6 Schedule 2 to the Bill 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

4.7 Schedule 2 to the Bill amends the SUMLM Act to allow individuals to direct the Commissioner to pay amounts the Commissioner holds in respect of the person under the SUMLM Act to the person's KiwiSaver scheme provider.

4.8 Further, where the Commissioner makes a payment to a KiwiSaver scheme provider, the Commissioner may also be required to pay an amount of interest.

Human rights implications

4.9 Schedule 2 to the Bill does not engage any of the applicable rights or freedoms.

Conclusion

4.10 Schedule 2 to the Bill is compatible with human rights as it does not raise any human rights issues.

Schedule 3 - Deductible gift recipients

4.11 Schedule 3 to the Bill 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

4.12 Schedule 3 to the Bill amends the ITAA 1997 to make Neighbourhood Watch Australasia a deductible gift recipient under the income tax law

Human rights implications

4.13 Schedule 3 to the Bill does not engage any of the applicable rights or freedoms.

Conclusion

4.14 Schedule 3 to the Bill is compatible with human rights as it does not raise any human rights issues.