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House of Representatives

Taxation Laws (Technical Amendments) Bill 1998

Explanatory Memorandum

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

Glossary

In this Explanatory Memorandum, the following Bills and Acts are referred to by the abbreviations indicated:

Income Tax Assessment Act 1936 ITAA 1936
Income Tax Assessment Act 1997 ITAA 1997
Fringe Benefits Tax Assessment Act 1986 FBTAA 1986
Taxation Administration Act 1953 TAA 1953

General outline and financial impact

This Bill makes a number of minor amendments and technical corrections to the ITAA 1936, the ITAA 1997 the FBTAA 1986 and other tax-related legislation. The technical corrections are dealt with in Chapter 2.

Self-assessment measures

Amends the ITAA 1936 so that:

·
the interest payable on distributions received by companies and superannuation funds from non-resident trust estates, that are not taxed at a comparable rate in foreign countries, is subject to the self-assessment process;
·
various elections no longer have to be in writing and given to the Commissioner; and
·
the Commissioner can amend an assessment outside the usual time period, to give effect to a private ruling.

Date of effect: The change to allow the Commissioner to amend an assessment to give effect to a private ruling will apply to any ruling issued on or after 1 July 1992. The other amendments will apply from the date of Royal Assent.

Financial impact: The cost to revenue as a result of the Commissioner being able to amend an assessment to give effect to a private ruling is unquantifiable, but it is not expected to be significant. The other measures will have no financial impact.

Compliance cost impact: There will be a reduction in compliance costs where taxpayers no longer have to prepare written notices of elections. The self-assessment of the interest charge will have no effect on compliance costs as it is consistent with current administrative practice. The changes to the rulings system will have no effect on compliance costs.

Company current year loss rules - film losses

Amends the company current year loss provisions in the ITAA 1997 to ensure that the film component of a company's tax loss for an income year is calculated in the same way it is calculated under the ITAA1936.

The amendment will also apply for the purpose of the proposed trust loss rules contained in Taxation Laws Amendment (Trust Loss and Other Deductions) Bill 1997. The Bill will repeal the existing provision in these rules which calculates the film component of a tax loss for an income year.

Date of effect: From the 1997-98 income year.

Financial impact: Nil.

Compliance cost impact: Nil.

Amendments to the FBTAA 1986 and related amendments to the ITAA 1936

Amends the FBTAA 1986 to make corrections to provisions dealing with the retention of statutory evidentiary records.

Amendments will also be made to Division 4A of Part III of the ITAA 1936 which sets out the rules for calculating the amount of the deduction for car parking expenses incurred by self-employed persons.

Date of effect: One of the minor amendments to the FBTAA 1986 will apply to fringe benefit tax (FBT) assessments for the 1995-96 FBT year and later FBT years. The other minor amendment to the FBTAA 1986 will apply to FBT assessments for the 1998-99 FBT year and later FBT years. Two of the minor amendments to the ITAA 1936 will apply to expenses incurred on and from 12December1995. The other minor amendments to the ITAA 1936 will apply from the date of Royal Assent.

Financial impact: The amendments to the FBTAA1986 will have no revenue impact. The amendments to the ITAA1936 will result in a negligible loss to the revenue.

Compliance cost impact: The amendments to the FBTAA1986 make the law easier to understand, resulting in a small reduction in compliance costs. The amendments to the ITAA 1936 will have minimal impact on compliance costs.

Superannuation

Amends the ITAA 1936 to ensure that the rollover of the post-June 1994 invalidity component of an eligible termination payment to purchase an annuity or superannuation pension does not change the 'tax free' status of the component.

Amends the TAA 1953 to permit regulations to provide that a decision by the Commissioner of Taxation is reviewable by the Administrative Appeals Tribunal under Part IVC of the TAA 1953.

Date of effect: Royal Assent.

Financial impact: The cost to revenue is expected to be minimal.

Compliance cost impact: Compliance costs are expected to be minimal.

Bankrupt estates - treatment of registered trustee in bankruptcy

Amends the trust provisions in the ITAA 1936 to ensure that bankrupt estates administered by a registered trustee will be given the same tax treatment as estates administered by the Official Receiver.

Date of effect: From the 1996-97 year of income.

Financial impact: Nil.

Compliance cost impact: Nil.

Public trading trusts - eligible investment business; meaning of security

Amends the definition of 'eligible investment business' in Division 6C of Part III of the ITAA 1936 (Income of Certain Public Trading Trusts) to ensure that the definition specifically includes secured loans. The amendment reflects the underlying policy of the original legislation, namely, not to apply company tax arrangements to unit trusts of the more traditional kind that invest in property, equities or securities.

Date of effect: The amendment is to apply from 16 December 1985, the date on which Division 6C commenced operation.

Financial impact: Nil.

Compliance cost impact: There will be a minimal reduction in compliance costs.

Demutualisation of insurance companies

Amends the demutualisation provisions in the ITAA 1936 to put beyond any doubt that the franking surplus of a demutualising life or general insurance company, a mutual affiliate company, or wholly-owned subsidiary is to be reduced to nil.

Date of effect: The amendment will have effect from the date the original provisions took effect, that is, 7.30 pm AEST on 9 May 1995.

Financial impact: Nil.

Compliance cost impact: Nil.

Spouse rebate

Amends the ITAA 1936 to ensure that the spouse rebate is reduced by a taxpayer's entitlements to certain benefits paid by the Department of Social Security.

Date of effect: The amendment will apply to assessments for the first whole year of income that begins after the date of commencement of the amending Act and later years of income.

Financial impact: This amendment will rectify an anomaly in the existing law and will result in a minimal gain to revenue.

Compliance cost impact: The compliance costs to taxpayers of this change are minimal and are limited to learning about the change.

Foreign source income measures

Foreign tax credit for Australian tax paid by a FIF

Amends the ITAA 1936 to provide a foreign tax credit for Australian tax paid by a foreign investment fund (FIF).

Date of effect: This amendment will apply from 1 January 1993 (the date of commencement of the FIF measures).

Financial impact: The cost to revenue is expected to be minimal.

Compliance cost impact: Compliance costs are expected to be minimal.

Definition of associates - section 318 of the ITAA 1936

Amends the definition of associate in section 318 of the ITAA 1936 to correct a drafting error in Taxation Laws Amendment (Foreign Income) Act 1990.

Date of effect: Royal Assent.

Financial impact: Nil.

Compliance cost impact: Nil.

Franking rebates for life assurance companies, superannuation funds, registered organisations and pooled superannuation trusts

Amends the franking rebate provisions in the ITAA 1936 to ensure that life assurance companies, superannuation funds, registered organisations and pooled superannuation trusts holding shares indirectly through a trust or partnership receive the same franking benefits as those who hold the shares directly.

Date of effect: The amendments are to apply in relation to dividends paid on or after 1 July 1988.

Financial impact: Nil.

Compliance cost impact: Nil.

Capital gains tax roll-over relief for small business

Amends the capital gains tax (CGT) provisions in the ITAA 1936 to provide that where a beneficiary of a discretionary trust has an interest in a public entity and the trust deed provides that the entity is a potential beneficiary of the trust, then the entity will not be deemed to control the trust for the purposes of the $5 million threshold test.

As a result, the assets of that public entity will not be taken into account in determining whether the trust satisfies the $5 million threshold test.

Date of effect: The amendment will apply to disposals of assets from 1July 1997.

Financial impact: There should be no impact on revenue as the amendment merely ensures the CGT provisions operate as originally intended.

Compliance cost impact: There should be no impact on compliance costs as the amendment merely clarifies the operation of the provisions.

Reportable payments system

Amends the ITAA 1936 to clarify that a payment received by a person from the sale of a debt that would otherwise be a reportable payment is subject to the reportable payments system.

Date of effect: Royal Assent.

Financial impact: It is not expected that this clarification of the law will have any impact on revenue.

Compliance cost impact: A minimal compliance cost saving will result, as the law has been made easier to understand.

Provisional tax

Amends the ITAA 1936 so that provisional tax credits cannot be applied against provisional tax notified for a later year that is not due and payable.

Date of effect: The amendment commences on 1 July 1998.

Financial impact: This amendment will have minimal revenue implications. It simply involves a deferral of revenue until later in the same financial year.

Compliance cost impact: Nil.

Chapter 1 - Minor amendments

1.1 A number of minor amendments will be made to the ITAA 1936, the ITAA 1997 and other tax-related legislation to clarify certain provisions and to rectify defects in the existing law. This Chapter explains those minor amendments.

Self-assessment measures

Purpose of the amendments

1.2 The amendments will expand the scope of self-assessment to the interest payable under section 102AAM of the ITAA 1936 in respect of distributions from non-resident trust estates that are received by instalment taxpayers. The amendments will also rectify defects in the Taxation Laws Amendment (Self Assessment) Act 1992 (the Self Assessment Act) relating to the rulings system and further simplify the election requirements.

Date of effect

1.3 The amendments to the election provisions will apply to elections made by persons on or after the date of Royal Assent. This will apply to elections made after the date of Royal Assent in respect of any year of income [subitem 26(1) of Schedule 1].

1.4 The amendments to the assessment of the interest payable under section 102AAM and the inclusion of the amount of interest in the calculation of instalments payable under Division 1C of Part VI of the ITAA 1936, will apply in respect of assessments for 1997-98 and later years of income [subitem 26(2) of Schedule 1].

1.5 The amendment to section 170 of the ITAA 1936, to enable the amendment of an assessment to give effect to a ruling issued after the expiration of the period for amending the assessment, will apply to any private ruling issued under the TAA 1953 on or after 1 July 1992 [subitem 26(3) of Schedule 1] . This is the date when the private ruling system commenced.

1.6 Where this Act commences before Schedule 1 to the Taxation Laws Amendment Act (No. 6) 1997, item 17 of Schedule 1 to this Act will commence immediately after Schedule 1 to that Act commences [subclause 2(2)] .

1.7 Where Taxation Laws Amendment Act (No. 6) 1997 commences before this Act, item 18 of Schedule 1 to this Act will not commence [subclause 2(3)] .

1.8 Items 17 and 18 are designed to ensure that the necessary amendment is made, irrespective of when the Taxation Laws Amendment Act (No. 6) 1997 comes into effect.

1.9 All other amendments in Schedule 1 will apply from the date of Royal Assent [subclause 2(1)] .

Background to the legislation

1.10 In 1986, the ITAA 1936 was amended to allow the Commissioner of Taxation to accept at face value the information provided by a taxpayer in a tax return for the purpose of making an assessment. This meant that the Commissioner no longer had to examine taxpayer returns prior to issuing a notice of assessment. In 1990, further amendments were made to the ITAA 1936 to enable instalment taxpayers to self-assess the tax payable on their taxable income.

1.11 In 1992 the Self Assessment Act made a number of fundamental changes to the self-assessment system to give taxpayers greater certainty and fairness. In summary, these changes were:

·
allowing taxpayers to seek private binding rulings from the Commissioner;
·
the introduction of a new penalty system based on standards of behaviour;
·
the extension of the period for objecting to an assessment; and
·
the removal of the requirement for many elections and notifications to be in writing and given to the Commissioner.

1.12 Since the commencement of these changes a number of technical errors have become evident. There is a need to correct these defects and to make some further minor amendments to give effect to the principle of self-assessment. In particular, the section 102AAM interest payable by instalment taxpayers should be self-assessed.

Explanation of the amendments

Rulings

1.13 A private binding ruling is the Commissioner's opinion on the way in which the income tax law or the fringe benefits tax law would apply to a person in respect of a particular year of income in relation to an arrangement. A public ruling is the Commissioner's opinion on the way the income tax law or fringe benefits tax law would apply to a person or a class of persons in relation to an arrangement. Unlike a private ruling, a public ruling is not restricted to a particular year of income.

1.14 A definition of 'year of income' is currently in Part IVAAA of the TAA 1953 which deals with public rulings. An amendment is being made to move the definition of 'year of income' to Part IVAA of the TAA 1953 which deals with private rulings. The definition is also being amended to clarify that 'year of income' relating to rulings about franking deficit tax law has the same meaning as a franking year that is used in the franking of dividends provisions of the ITAA 1936. Similarly, the definition of 'year of income' is being clarified so that it has the same meaning as 'income year' used for income tax purposes in the ITAA 1997 [items 1 and 2 of Schedule 1] .

1.15 Taxpayers can apply for a private ruling up to four years after the last day allowed for lodging the return for the year of income to which the ruling relates. Where a private ruling is inconsistent with the way the matter was treated in the assessment for that year of income, the Commissioner will amend the assessment to give effect to the decision in the ruling. However, where the application for the private ruling is made within the 4 year period, but the Commissioner does not give a ruling within the period allowed under section 170 of the ITAA 1936 for amending the assessment, the Commissioner is not able to amend the assessment to give effect to the ruling. New subsection 170(6A) will change the amendment rules to enable the Commissioner to amend an assessment outside the usual time period so that he can give effect to a private ruling [item 15 of Schedule 1] .

Objections

1.16 Persons who want to object against a private ruling have until the later of 60 days after receipt of the ruling or 4 years from the last day allowed for lodging the return for the year of income to which the ruling relates. Where a taxpayer has lodged an objection and the Commissioner has not made a decision on the objection within 60 days, subsection 14ZYA(1) of the TAA 1953 provides that the person can request that the Commissioner make a decision. The current provision only gives this right to a person who objects within 60 days of receiving the ruling. Subsection 14ZYA(1) is to be amended to also give the right to a person who objects against the private ruling within 4 years from the last day allowed for lodging the relevant return [item 3 of Schedule 1] .

Elections

1.17 There are a number of provisions in the ITAA 1936 which allow a taxpayer to decide, by way of an election, what law is to apply to a particular set of facts. The Self Assessment Act amended a number of election and notification provisions to remove the requirement for elections and notifications to be in writing and given to the Commissioner. Some provisions still require the taxpayer to prepare a written notice that a particular provision is to be used in calculating taxable income and that the notice be given to the Commissioner.

1.18 The preparation and furnishing of written notices is no longer necessary in a self-assessment environment. The application of a particular provision will be evident in the calculation of taxable income by the taxpayer. This will be supported by a taxpayer's working papers and taxation records. The following provisions are being amended or repealed to give effect to the policy that an election does not have to be in writing or given to the Commissioner:

·
subsection 24P(6) concerning the disposal of certain Cocos (Keeling) Island assets [item 4 of Schedule 1] ;
·
subparagraph 54A(1)(a)(ii) concerning the effective life of depreciated property [item 5 of Schedule 1] ;
·
subsection 73B(19) concerning the exclusion of certain plant from the concessional taxation treatment for research and development expenditure [item 6 of Schedule 1] ;
·
subsection 371(8) and paragraph 371(9)(a) concerning attribution credits in respect of certain companies [items 22 and 23 of Schedule 1] ; and
·
subsections 421(1) and 438(3A) concerning the timing of rollover relief elections by controlled foreign companies and other entities [items 24 and 25 of Schedule 1] .

1.19 Section 82Z allows a deduction for a currency exchange loss incurred by a taxpayer. However, the loss is not allowable unless the taxpayer notifies the Commissioner of the details of the currency exchange contract. Subsection 82Z(2) is being repealed to remove the notification requirement from the law [item7 of Schedule 1] . As with elections, the deduction will be evident in the calculation of taxable income and supported by taxation records required to be kept under section 262A of the ITAA 1936.

1.20 There are a number of elections in the capital gains and losses provisions in Part IIIA of the ITAA 1936. These require an election to be in writing and given to the Commissioner. This Bill does not amend those election provisions because they are being amended as part of the Tax Law Improvement Project and will be incorporated into the ITAA 1997.

1.21 Some elections and notifications allow two or more taxpayers to decide on the taxation treatment of a particular matter. This often results in a taxpayer receiving the benefit of a deduction. For example, paragraph 80G(6)(c) relates to companies in the same group transferring losses within the group. An agreement to transfer a loss will give rise to a deduction that is a benefit to the company receiving the loss. When the Self Assessment Act removed the need for an election to be given to the Commissioner, the word 'agreement' was inserted into the ITAA 1936 to describe the nature of the arrangement between the taxpayers.

1.22 Part IVA of the ITAA 1936 contains the general anti-avoidance provisions. It can be argued that the type of agreements referred to above would be caught by Part IVA. Elections and notifications provided for under the ITAA 1936 are specifically excluded from the operation of the anti-avoidance provisions. Agreements provided for under the ITAA 1936 should also be excluded. Therefore, subsections 177C(2) and 177C(3) are being amended to exclude any agreements expressly provided for by the ITAA 1936 [items 16 and 18 of Schedule 1] .

1.23 Taxation Laws Amendment Bill (No.6) 1997 makes substantive amendments to Part IVA which include inserting new paragraph 177C(2)(c) into the Act. This new provision will also require amendment so that it is consistent with the above changes to subsections 177C(2) and 177C(3) [item 17 of Schedule 1] .

Section 102AAM interest

1.24 Section 102AAM of the ITAA 1936 imposes an interest charge on a resident taxpayer who receives a distribution from a non-resident trust estate. The charge applies to any distribution of profit or income which has accumulated in the trust estate and has not been taxed at a comparable rate in the foreign country. At present, the Commissioner is required by subsection 102AAM(12) to make an assessment of the interest payable by the taxpayer. The Commissioner is also required to serve on the taxpayer a notice of assessment of the interest payable. While this is consistent with the method of assessing an individual taxpayer, it is inconsistent with the self-assessment process that applies to an instalment taxpayer. (Subsection 221AZK(1) of the ITAA 1936 provides a list of instalment taxpayers.)

1.25 The ITAA 1936 is being amended so that the interest payable by an instalment taxpayer is self-assessed in the same way that income tax is self-assessed. With assessments of income tax, an instalment taxpayer is required to specify in the return the amount of taxable income and tax payable thereon. Upon lodgment of a return in which these amounts are specified, the Commissioner is deemed to have made an assessment, the assessment is deemed to be made on the day the return is lodged, and the return is deemed to be the notice of assessment.

1.26 Subsection 102AAM(12) is being amended so that the Commissioner is not required to assess the interest payable by instalment taxpayers. The method of assessing the interest payable by individuals will not change [items 8 and 9 of Schedule 1] .

1.27 New subsection 102AAM(13A) is being inserted into the ITAA 1936 to enable the self-assessment of interest payable by an instalment taxpayer [item 10 of Schedule 1] . An instalment taxpayer will be required to specify in their return the amount of interest payable [new paragraph 221AZS(c) - item 21 of Schedule 1] . When the taxpayer lodges a return, the Commissioner will be deemed to make an assessment of the interest payable that is specified in the return [new paragraph 102AAM(13A)(c) - item 10 of Schedule 1] . The assessment will be considered to have been made on the day the instalment taxpayer lodges the return [new paragraph 102AAM(13A)(d) - item 10 of Schedule 1] . The return will be considered to be the notice of assessment of interest payable, given to the instalment taxpayer by the Commissioner on the lodgment day [new paragraph 102AAM(13A)(e) - item 10 of Schedule 1] .

1.28 An amendment is also being made to subsection 102AAM(14) so that interest penalty under section 170AA will be payable on any amended assessment that increases the liability of interest payable under section 102AAM [item 11 of Schedule 1] .

1.29 Consequential amendments are required to include the interest payable under section 102AAM as part of the calculation of tax payable for the purpose of determining tax instalments under Division 1C of Part VI of the ITAA 1936 [item 12 of Schedule 1] . This will allow all amounts that are self-assessed upon lodgment of a return to be included in the calculation of the tax instalments payable during the year of income. It will also cause the assessed interest payable to be due on the final instalment day as set out in the table in section 221AZK.

1.30 This will be achieved by an amendment to include interest payable under section 102AAM in the definition of 'assessed tax' in paragraph 221AZK(3)(c) [item 19 of Schedule 1] . This definition is used to determine the final instalment payable by a taxpayer. Other instalments payable during the year of income are determined by an instalment taxpayer's 'likely tax' for the current year. The rules for calculating 'likely tax' are in section 221AZK and are based on the 'previous year's tax amount' or an 'earlier year's tax amount'. The definitions of these terms in subsection 221AZN(2) are being amended to include interest payable under section 102AAM [item 20 of Schedule 1] .

Franking tax shortfalls

1.31 A minor technical correction is necessary to make the penalty provisions that apply when there is a franking deficit more specific. The franking tax shortfall provisions only apply to companies, yet sections 160ARXB and 160ARXC refer to a taxpayer. The word 'company' will replace the reference to 'taxpayer' so that these franking tax shortfall provisions are consistent with the other franking deficit provisions [items 13 and 14 of Schedule 1] .

Company current year loss rules - film losses

Purpose of the amendment

1.32 The purpose of this amendment is to amend a technical defect in the ITAA 1997 which relates to the calculation of the film component of a company's tax loss for an income year.

Date of effect

1.33 This amendment will apply from the 1997-98 income year [item 5 of Schedule 4] .

Background to the legislation

1.34 A company is required to satisfy certain tests before a deduction is allowed for prior year or current year losses. For example, if a company wishes to deduct a tax loss incurred in an earlier income year it will need to satisfy a continuity of beneficial ownership test in both the income year and the recoupment year. If a company fails this test, it may nevertheless still be able to deduct the loss if it carries on the same business as it carried on at the time of change in ownership.

1.35 A company may be required to calculate its taxable income or tax loss for an income year in a special way if it fails the continuity of beneficial ownership test during the year and does not carry on the same business after the change in ownership. Under this system, the income year is divided into periods on the basis of when a specified event (eg. a change in beneficial ownership) occurs. In effect, a taxable income or tax loss is calculated separately for each period.

1.36 A tax loss calculated under the current year loss rules may be able to be carried forward for deduction in a later income year if it is the new owners of the company that have incurred the loss.

1.37 Under the loss rules, film losses are quarantined. For example, if a film loss is incurred by a company in an income year, it can be carried forward and deducted only against film income derived in a later income year. A film loss is calculated separately as the amount by which film deductions exceed film income and net exempt film income.

1.38 The ITAA 1997 contains the Tax Law Improvement Project rewrite of the company prior year and current year loss rules. Under the rewrite, a film loss is treated as a separate component of a tax loss. For the purpose of the current year loss rules, the film component of a company's tax loss is calculated for the whole of an income year, irrespective of any change in ownership. This is incorrect, as it allows a film loss incurred by the new owners of a company to be offset against film income derived by the previous owners.

1.39 The Taxation Laws Amendment (Trust Loss and Other Deductions) Bill 1997 (trust losses Bill) was introduced into Parliament on 1 October 1997. This Bill, which deals with trust losses, proposes to insert Schedule 2F into the ITAA 1936. The current year loss rules that apply to trusts are included at Division 268. A special rule for calculating a trust's film loss is contained in section 268-65 which provides that the film component of a tax loss has to be calculated separately for each period in an income year.

Explanation of the amendment

1.40 This Bill will insert new subsection 375-805(1A) into Subdivision 375-G of the ITAA 1997 to provide that, for the purpose of the company and trust current year loss rules, the film component of a tax loss of a company has to be calculated separately for each period in an income year [items 1 and 2 of Schedule 4] .

Consequential amendment

1.41 Item 28 of the trust losses Bill inserts a note after paragraph (a) of the definition of 'film component' of a tax loss contained in subsection 995-1(1) of the ITAA 1997. As a result of the amendment to Subdivision 375-G of the ITAA 1997, this note is no longer necessary. This Bill repeals the note to paragraph (a) [item 3 of Schedule 4] .

1.42 This Bill also repeals section 268-65 of proposed Schedule 2F to the ITAA 1936. This section is no longer necessary because of the amendment to section 375-805 [item 4 of Schedule 4] .

Commencement date

1.43 The amendment made by item 1 will commence when this Act commences [sub-clause 2(1)] .

1.44 The amendments made by items 2, 3 and 4 will commence when the trust losses measures commence [subclause 2(3)] .

Amendments to the FBTAA 1986 and related amendments to the ITAA 1936

Purpose of the amendments

1.45 Schedule 5 will make minor changes to the FBTAA 1986 and the ITAA 1936.

Date of effect

1.46 The amendment to the FBTAA 1986 made by item 12 apply to FBT assessments for the FBT year beginning on 1 April 1998 and later FBT years [subitem 20(1) of Schedule 5] . The amendment made by item 15 applies to FBT assessments for the FBT year beginning on 1 April 1995 and later FBT years [subitem 20(2) of Schedule 5].

1.47 The amendments to the ITAA 1936 made by items 17 and 19 apply to expenses incurred on and from 12December1995 [subclause 2(5)] .

Background to the legislation

FBTAA 1986 - retention of certain documents

1.48 Various documents are required under the FBT substantiation rules, depending on the type of fringe benefit and the method used for calculating the value of the fringe benefit. These documents are called statutory evidentiary documents and include declarations, car records, log book records and odometer records.

1.49 Section 123 deals with the retention of statutory evidentiary documents. Subsection 123(1) refers to a document 'given to the employer'. However, it does not refer to documents made by an employer such as a no-private-use declaration which an employer may make if the employer provides expense payment benefits and residual benefits that are not used by employees for private purposes. Benefits covered by such a declaration are exempt from FBT. No-private-use declarations are statutory evidentiary documents.

1.50 Subsection 123(1) also explains the consequences if an employer fails to retain statutory evidentiary documents for what is called the 'retention period' which is defined in subsection 136(1). This period was decreased from 6 years to 5 years from 1 April 1995.

ITAA 1936 - car parking expenses

1.51 Under Division 4A of Part III of the ITAA 1936, the amount of any deduction for car parking expenses incurred by a self-employed person, a partnership, or a trust is reduced by an amount equivalent to the taxable value of the car parking fringe benefit that would have arisen if the car parking had been provided by an employer to an employee. Division 4A incorporates the valuation methods available to employers for valuing car parking fringe benefits under the FBTAA 1986, including the statutory formula method under section 89FA of the ITAA 1936. However, the formula in section 89FA differs from the formula in the FBTAA 1986.

Explanation of the amendments

Amendments to the FBTAA 1986

1.52 Subsection 123(1), which provides for the retention of statutory evidentiary documents, is amended to take into account documents made by an employer, such as no-private-use declarations made under sections 20A and 47A [item 12] .

1.53 Subparagraph (b)(i) of the definition of 'retention period' in subsection 136(1) is amended to reflect the reduction in the retention period for statutory evidentiary documents from 6 years to 5 years [item15] .

Amendments to the ITAA 1936

1.54 Subsection 89FA(5) provides for the calculation of the deduction for car parking expenses incurred by self-employed persons using the statutory formula method. Subsection 89FA(5) is amended to ensure that the value of a car parking fringe benefit under the FBTAA 1986 and the amount of the parallel deduction under the ITAA 1936 are calculated on the same basis. The amendment to the statutory formula changes the number of days that it is assumed car parking will be provided to an employee from 240 days in a year to 228 days [item 17] .

1.55 Section 89FC provides for the calculation of the daily rate amount, which is an element of the formula used in section 89FA. The amendment corrects the section to refer to 'average cost amount' rather than 'gross deduction amount' [item 19] .

Superannuation

Purpose of the amendments

1.56 The amendments will:

·
correct an anomaly in the ITAA 1936 to ensure that the rollover of the post-June 1994 invalidity component of an eligible termination payment (ETP) to purchase an annuity or superannuation pension does not change the 'tax free' status of the component; and
·
enable objections to be made if regulations provide that a decision by the Commissioner of Taxation is reviewable by the Administrative Appeals Tribunal under Part IVC of the TAA 1953.

Date of effect

1.57 The amendment to the ITAA 1936 will apply to annuities and superannuation pensions if the first day of the period to which the first payment of the annuity or pension relates is on or after Royal Assent [subitem 27(1) of Schedule 6; subclause 2(1)] . The amendment to the TAA 1953will apply from Royal Assent [subclause 2(1)] .

Background to the legislation

Tax-free status of post-June 1994 invalidity component of an ETP

1.58 The 'post-June 1994 invalidity component' is a component of an ETP. The post-June 1994 invalidity component essentially refers to invalidity payments made on or after 1 July 1994. ETPs are concessionally taxed payments from employers and superannuation providers.

1.59 Currently, the ITAA 1936 operates to allow a post-June 1994 invalidity component to be 'tax free' if it is taken as a lump sum. However, if the component (or part of the component) is rolled over to purchase an annuity or superannuation pension, the amount of the component cannot be included in the 'undeducted purchase price' (UPP) of the annuity or superannuation pension. The effect is that the component is subject to taxation. This situation arises because the definition of UPP contained in subsection 27A(1) specifically excludes the post-June 1994 invalidity component from the UPP of an annuity or superannuation pension paid in respect of a period which commences after 1 July 1994.

Administrative review of decisions made by the Commissioner of Taxation

1.60 Part IVC provides for administrative review of decisions made by the Commissioner of Taxation. Section 14ZL of the TAA 1953provides that Part IVC of the TAA 1953 applies if a provision of an Act provides that a person who is dissatisfied with an assessment, determination, notice or decision may object against it in the manner set out in Part IVC. However, section 14ZL does not allow for a situation where regulations provide that a person may object.

1.61 Part 5A of the Income Tax Regulations confers discretions on the Commissioner of Taxation in relation to the determination of transitional reasonable benefit limits (RBLs). The discretions were inserted into Part 5A by Statutory Rule No. 461 of 1994.

1.62 RBLs are the maximum amount of concessionally taxed superannuation that a person can receive in his or her lifetime. Transitional RBLs ensure that taxpayers who had superannuation benefits at 1 July 1994 are not detrimentally affected by the transition on 1 July 1994 from RBLs based on a multiple of the person's highest average salary to RBLs based on flat dollar amounts. Generally, taxpayers had until 4 April 1997 to apply to the Commissioner of Taxation for transitional RBLs.

1.63 A minor amendment is required to subsection 14ZL(1) to ensure that such discretions are reviewable under Part IVC of the TAA 1953 if regulations provide that a person dissatisfied with a decision may object against it.

Explanation of the amendments

1.64 The proposed amendment to the definition of UPP in subsection 27A(1) of the ITAA 1936 will allow the post-June 1994 invalidity component of an ETP rolled-over to purchase an annuity or superannuation pension to be included in the UPP of the annuity or superannuation pension and therefore remain 'tax free' [item 1 of Schedule 6] .

1.65 The proposed amendment to subsection 14ZL(1) of the TAA 1953 will ensure that Part IVC of the TAA 1953 applies if a regulation provides that a person who is dissatisfied with a particular decision by the Commissioner of Taxation may object against it in the manner set out in Part IVC [item 19 of Schedule 6] .

Bankrupt estates - treatment of registered trustee in bankruptcy

Purpose of the amendment

1.66 This amendment is to ensure that bankrupt estates administered by a registered trustee are given the same tax treatment as estates administered by the Official Receiver.

Date of effect

1.67 The amendment will apply from the 1996-97 year of income [subitem 27(2) of Schedule 6] .

Background to the legislation

1.68 When a person is declared bankrupt and their property has vested in either the Official Receiver in Bankruptcy or a registered trustee, this creates a trust estate which is administered by either the Official Receiver or a registered trustee. The Commissioner of Taxation has a discretion not to apply the maximum rate of personal tax under section 99A of the ITAA 1936. However, this discretion currently applies only to trust estates where a bankrupt's property has vested in the Official Receiver.

1.69 A situation therefore exists where income earned by a bankrupt estate administered by a registered trustee may be taxed at a higher rate than that of a bankrupt estate administered by the Official Receiver.

Explanation of the amendment

1.70 Paragraph 99A(2)(b) of the ITAA 1936 is amended to include the words 'or a registered trustee' after the words 'Official Receiver in Bankruptcy' [item 2 of Schedule 6]. This amendment is necessary because the bankruptcy laws were changed to allow registered trustees to administer bankrupt estates as well as the Official Receiver. The amendment will have the effect of treating both types of administration of bankrupt estates equally under the tax law.

Public trading trusts - eligible investment business; meaning of security

Purpose of the amendment

1.71 This amendment is to clarify the scope of Division 6C of the ITAA 1936, which deals with the taxation of income of public trading trusts, by specifically including secured loans within the meaning of 'eligible investment business' in subparagraph 102M(b)(i).

Date of effect

1.72 This amendment will apply from 16 December 1985, the date on which Division 6C commenced operation [subclause 2(6)] .

Background to the legislation

1.73 Income of public unit trusts which carry on trading activities are taxed under Division 6C of Part III of the ITAA 1936. The purpose of Division 6C is to ensure that a trust's trading income is treated in the same way for taxation purposes as a company's income. The original intention of the legislation was not to apply company tax arrangements to unit trusts of the more traditional kind that invest wholly in property, equities, or securities. Therefore, Division 6C does not apply to trusts wholly engaged in 'eligible investment business', defined broadly to include property investment and investment in financial securities.

1.74 The definition of 'eligible investment business' in section 102M of the ITAA 1936 is fundamental to the operation of Division 6C. If the trustee of a unit trust carries on a business that does not consist wholly of 'eligible investment business' that trustee is carrying on a trading business and the trust may be a public trading trust to which Division 6C applies.

1.75 Currently the definition of 'eligible investment business' in section 102M of the ITAA 1936 does not specifically include secured loans, although such loans may be considered to fall within the scope of 'other securities' in subparagraph 102M(b)(ii). It is desirable, however, to remove any doubt that secured loans are included in the definition of eligible investment business.

Explanation of the amendment

1.76 This Bill will amend subparagraph 102M(b)(i) of the definition of 'eligible investment business' to provide that that definition includes both secured and unsecured loans [item 3 of Schedule 6] .

Demutualisation of insurance companies

Purpose of the amendments

1.77 The amendments remove an ambiguity in the demutualisation provisions of the ITAA 1936 to put beyond any doubt that the franking surplus of a demutualising life or general insurance company, a mutual affiliate company or wholly-owned subsidiary is to be reduced to nil.

Date of effect

1.78 The amendments will have effect from the date the original provisions took effect, that is, 7.30 pm AEST on 9 May 1995 [subitem 27(3) of Schedule 6] .

Background to the legislation

1.79 Under item 12 of Table 2 in section 121AT of the ITAA 1936, demutualising insurance companies and their wholly-owned subsidiaries whose franking accounts contain a surplus are required to reduce their franking account balance to nil at the beginning of their demutualisation resolution day.

Explanation of the amendments

1.80 Item 12 of Table 2 in section 121AT is amended so that, in the event of a demutualisation, the class A franking surplus, class B franking surplus, or class C franking surplus is reduced to nil [item 4 of Schedule 6].

1.81 This amendment applies to mutual life and general insurance companies, mutual affiliate companies and wholly-owned subsidiaries that were in existence at 7.30 pm AEST on 9 May 1995 [subitem 27(3) of Schedule 6].

1.82 This amendment is clarificatory only and does not change the meaning of the relevant provision.

Spouse rebate

Purpose of the amendment

1.83 This amendment will remove the anomaly that a spouse rebate is reduced only by the spouse's entitlements to certain allowances and payments under the Social Security Act 1991.

Date of effect

1.84 The amendment will apply to assessments for the first year of income that begins after the date of commencement of the amending Act and later years of income [subitem 27(4) of Schedule 6] .

Background to the legislation

1.85 The income tax law requires a taxpayer to reduce their dependent spouse rebate by the amount of any:

·
home child care allowance;
·
exempt benefit parenting allowance; or
·
non-benefit parenting allowance

received by the taxpayer's spouse.

1.86 However, the existing provisions do not require a taxpayer to reduce their dependent spouse rebate where the Department of Social Security pays amounts in respect of the various types of parenting allowance directly to a non-dependent spouse; that is, the taxpayer entitled to the spouse rebate.

1.87 The amendments are designed to ensure that benefits paid to the non-dependent spouse (ie. the taxpayer) are taken into account in calculating the taxpayer's entitlement to the rebate.

Explanation of the amendment

1.88 The proposed amendment to paragraph 159J(5E)(b) of the ITAA 1936 will reduce a taxpayer's spouse rebate by an amount of home child care allowance, non-benefit parenting allowance, exempt benefit parenting allowance, non-benefit parenting payment (partnered) or exempt benefit parenting payment (partnered payment) received either by the taxpayer or his or her spouse [item 5 of Schedule 6] .

1.89 Consequential amendments are made to the provisional tax provisions [items 13, 14 and 15 of Schedule 6] .

Application

1.90 The amendments made to paragraph 159J(5E)(b), sub-subparagraphs 221YCAA(2)(pa)(iv)(A) and 221YCAA(2)(pa)(iv)(B) apply to assessments for the first whole year of income and subsequent years of income after the commencement of these provisions [subitem 27(4) of Schedule 6] .

Commencement

1.91 Where this Act commences before Schedule 1 to the Social Security Legislation Amendment (Parenting and Other Measures) Act 1997 (the Social Security Amendment Act), item 13 of Schedule 6 to this Act will commence immediately after Schedule 1 to the Social Security Amendment Act commences and item 14 will commence on the day this Act commences [subclause 2(8)] .

1.92 Where the Social Security Amendment Act commences before this Act, item 14 of Schedule 6 to this Act will not commence and item 13 will commence on the day this Act commences [subclause 2(9)] .

1.93 The Social Security Amendment Act amends sub-subparagraph 221YCAA(2)(pa)(iv)(A), but does not contain similar amendments as those in items 13 and 14. The operation of items 13 and 14 are therefore dependent upon the timing of the commencement of the Social Security Amendment Act.

1.94 Items 13 and 14 are designed to ensure that the necessary amendment is made, irrespective of when the Social Security Amendment Act comes into effect.

Foreign source income measures

1. Foreign tax credit for Australian tax paid by a FIF

1.95 The purpose of the amendment is to provide a foreign tax credit for Australian tax paid by a foreign investment fund (FIF) where income accrued from an interest in the FIF is calculated under the calculation method.

Date of effect

1.96 This amendment will apply from 1 January 1993 (the date of commencement of the FIF measures) [subclause 2(7)] .

Background to the legislation

1.97 A taxpayer who has an interest in a FIF has a choice of three methods for calculating the amount of FIF income that has accrued from that interest. If the taxpayer chooses the calculation method (subsections535(3), (4) and(5)):

·
the amount of Australian tax and foreign tax paid by the FIF is taken into account as a deduction in calculating the amount of FIF income that has accrued to the taxpayer (section573)); and
·
the taxpayer is entitled to a foreign tax credit for the amount of foreign tax paid (sections160AFCE, 160AFCF, 160AFCG and160AFCH).

1.98 A credit is not currently available, however, for Australian tax paid by the FIF. Therefore, double taxation can occur if the FIF has paid Australian tax.

Explanation of the amendment

1.99 This amendment provides further relief from double taxation by allowing taxpayers a credit for Australian tax paid by the FIF in circumstances where a credit would be allowed for foreign tax paid by the FIF. This will be achieved by amending paragraphs 160AFCE(1)(d), 160AFCF(2)(e), 160AFCG(1)(c) and 160AFCH(2)(d) to insert the words 'Australian tax or' before 'foreign tax' in those paragraphs [item 6 of Schedule 6] .

2. Definition of associates - section 318 of the ITAA 1936

Purpose of this amendment

1.100 The purpose of this amendment is to correct a drafting error in sub-subparagraph 318(2)(e)(i)(B).

Date of effect

1.101 This amendment will apply from the date on which the Bill receives Royal Assent [subclause 2(1)] .

Background to the legislation

1.102 Section 318 of the ITAA 1936 details the relationships which result in an entity being an associate of another entity for the purposes of the CFC measures (PartX). Subsection318(2) specifies the persons and entities who are associates of a company. However, subsection 318(2) is deficient in that it does not provide that a company that is sufficiently influenced by an entity that is an associate of the company (the primary entity) because of the associate tests in the other paragraphs of the subsection is an associate of the primary entity.

1.103 The defect in subsection 318(2) is due to a drafting error. The explanatory memorandum to Taxation Laws Amendment (Foreign Income) Bill 1990 explained that sub-subparagraph 318(2)(e)(i)(B) had the effect that 'a second company that is sufficiently influenced by ... an entity that is an associate of the company because of paragraph 2(a), (b), (c), (d) or(f)' would be an associate of a company. Clearly, sub-subparagraph 318(2)(e)(i)(B) does not have this effect.

Explanation of the amendment

1.104 This Bill will amend sub-subparagraph 318(2)(e)(i)(B) to provide that a controlled company that is sufficiently influenced by an entity that is an associate of the primary entity because of another paragraph of subsection318(2) will be an associate of the primary entity [item 18 of Schedule 6] .

Franking rebates for life assurance companies, superannuation funds, registered organisations and pooled superannuation trusts.

Purpose of the amendments

1.105 The purpose of the amendments is to correct an anomaly in the ITAA 1936 to ensure that life assurance companies, superannuation funds, registered organisations and pooled superannuation trusts receive the full benefit of franking rebates arising on receipt of franked dividends which have passed through a trust or partnership, even if the trust or partnership distribution is exempt from tax under certain provisions of the ITAA 1936.

Date of effect

1.106 The amendments are to apply in relation to dividends paid on or after 1 July 1988. This is the date from which the franking rebate provisions relating to partners and beneficiaries (sections 160AQX, 160AQYA, 160AQZ and 160AQZA) apply [subitem 27(5) of Schedule 6] .

Background to the legislation

1.107 Division 6 of Part IIIAA of the ITAA 1936 contains the relevant provisions for determining the amount of franking rebate to which a recipient of a franked dividend will be entitled. Under section 160AQT, a shareholder, including a life assurance company, superannuation fund, registered organisation, or pooled superannuation trust, that receives a franked dividend directly (ie. other than through a trust or partnership) is required to gross-up its assessable income by including the amount of the dividend together with the attached imputation credits. Section 160AQU then allows a franking rebate equal to the imputation credit included in its assessable income under section 160AQT.

1.108 One of the conditions for allowing a franking rebate is that the dividend is not exempt income of the shareholder (paragraph 160AQT(1)(c)). However, subsections 160AQT(4) and 160AQU(2) allow life assurance companies, superannuation funds, registered organisations and pooled superannuation trusts to claim a franking rebate for certain franked dividends that are exempt from tax. Exemption arises under sections 110C and 112A in the case of life assurance companies, sections 282B and 283 in the case of superannuation funds, section 116FB in the case of registered organisations, and section 297B in the case of pooled superannuation trusts. With the exception of section 112A (which exempts income relating to exempt policies), these provisions exempt income relating to current pensions. The effect of subsections 160AQT(4) and 160AQU(2) is that an amount is included in the shareholder's assessable income under the section 160AQT gross-up requirement in respect of these exempt dividends and a commensurate rebate allowed under section 160AQU, even though the dividend itself (or part thereof) is not included in assessable income.

1.109 Division 7 of Part IIIAA of the ITAA 1936 contains the provisions relating to the imputation treatment of dividends which have been paid to trusts and partnerships and subsequently distributed to beneficiaries and partners. Those provisions generally treat a dividend paid through a trust or partnership in the same way as if the dividend were paid directly to the final recipient. Therefore, where a trust or partnership distribution representing a franked dividend is exempt under one of the provisions described above, the same franking rebate should be available as if the dividend had been received directly. However, the operation of the current provisions prevents this from happening.

1.110 For instance, where a life assurance company receives a franked dividend as a distribution from a trust, that distribution must be included in the assessable income of the life assurance company for the life assurance company to be entitled to a franking rebate under section 160AQZA. Where that distribution is exempted (including, for example, by the operation of section 110C or section 112A), no rebate is allowed. Additionally, the definitions of 'trust amount' and 'partnership amount' in section 160APA exclude amounts which are not assessable, thereby removing those amounts from any calculation of flow-on franking amount or potential rebate amount for the purposes of section 160AQZA.

1.111 The franking rebate entitlements of superannuation funds and pooled superannuation trusts are calculated in a similar manner under section 160AQYA and the franking rebate entitlements of registered organisations are calculated in a similar manner under sections 160AQX (trust amounts) and 160AQZ (partnership amounts). None of these provisions allows a rebate where the distribution is not included in the assessable income of the recipient.

Explanation of the amendments

1.112 New section 160AQWA provides assumptions to use in determining a taxpayer's entitlement to a rebate under sections 160AQX, 160AQYA, 160AQZ and 160AQZA. The proposed new section ensures that the rebate entitlements of life assurance companies, superannuation funds, registered organisations and pooled superannuation trusts is the same, irrespective of whether the franked dividend is paid directly to them or is passed through a trust or partnership [item 7 of Schedule 6] .

1.113 Proposed new paragraph 160AQWA(a) overcomes the unintended denial of a franking rebate by assuming that the provisions which exempt the relevant income were never enacted. This has the effect of including the exempt income in the calculation of trust amount and partnership amount and also in the calculation of the flow-on franking amount. Therefore, any entitlement to a rebate arising under sections 160AQX, 160AQYA, 160AQZ and 160AQZA is unaffected by the exemption of income by sections 110C, 112A, 116FB, 282B, 283 and 297B.

1.114 Proposed new paragraph 160AQWA(b) overcomes the unintended denial of a further franking rebate to registered organisations by assuming that income from sickness, funeral and eligible policies is assessable. The definition of assessable income in section 116G is deemed by the proposed amendment to include income from these sources, but only for the purposes of determining the registered organisation's entitlement to a franking rebate. This proposed amendment also has the effect of including these exempt amounts in the calculation of trust amount and partnership amount and also in the calculation of the flow-on franking amount.

Capital gains tax roll-over relief for small business

Purpose of amendment

1.115 The Bill will amend Division 17A of the capital gains tax (CGT) provisions in the ITAA 1936 to provide that where a beneficiary of a discretionary trust has an interest in a public entity and the trust deed provides that the entity is a potential beneficiary of the trust, then the entity will not be deemed to control the trust for the purposes of the $5million threshold test.

1.116 As a result, the assets of that public entity will not be taken into account in determining whether the trust satisfies the $5 million threshold test.

Date of effect

1.117 The amendment will apply to disposals of assets from 1 July 1997, the application date of the roll-over relief for small business measure [subitem 27(6) of Schedule 6] .

Background to the legislation

1.118 The Treasurer's 1996-97 Budget night press release of 20 August 1996 announced the Government's proposal to allow CGT roll-over relief for small business. The legislation giving effect to the press release was contained in Taxation Laws Amendment Act (No. 1) 1997 which received Royal Assent on 8 July 1997.

1.119 Broadly, the measure allows a taxpayer whose net value of assets does not exceed $5 million to elect to defer the CGT liability relating to a capital gain made on the disposal of an active asset in certain circumstances.

1.120 It is common for the trust deeds of discretionary trusts to prescribe as beneficiaries any company in which a beneficiary of the trust has an interest. If a beneficiary holds an interest in a listed public company, then that company becomes a potential beneficiary of that discretionary trust.

1.121 As a result, for the purposes of working out whether the discretionary trust satisfies the $5 million threshold test, it is possible that all of the assets of the listed public company would have to be taken into account (by the operation of subsections 160ZZPP(4), 160ZZPN(5) and 160ZZPN(2)).

Explanation of amendment

1.122 New subsection 160ZZPN(5A) will ensure that, where a beneficiary of a discretionary trust has an interest in a public entity, and, because of the beneficiary's interest in that entity, the entity becomes a potential beneficiary of the trust, then the assets of the public entity will not be taken into account when determining whether the $5 million threshold test has been satisfied by the trust [item 8 of Schedule 6] .

1.123 A public entity is defined in existing subsection 160ZZPK(1) as a public company, a mutual insurance organisation, or a publicly traded unit trust.

Reportable payments system

Purpose of the amendment

1.124 The proposed amendments will remove any doubt that the reportable payments system (RPS) extends to payments made by a person who factors a debt which, if not factored, would have been a reportable payment.

Date of effect

1.125 The amendments will apply from the date on which the Bill receives Royal Assent [subclause 2(1)] .

Background to the legislation

1.126 The RPS applies to certain payments that are declared by the Income Tax Regulations to be reportable payments and that are assessable income. Income is assessable when it is derived. The time at which income is derived depends on whether income is returned on a cash (receipts) basis or an accruals (earnings) basis. A business that operates on an accruals basis generally derives income when there is a right to receive the income, that is, when a debt comes into existence.

1.127 In some industries where the payment of invoiced amounts may be delayed, it is common practice to factor business debts; that is, to sell the entitlement to recover the amount owing in respect of a debt for an immediate but lesser amount.

1.128 There is some doubt as to whether a payment made by a factor in relation to the transfer of a debt by an accruals taxpayer is a reportable payment. It can be argued that the proceeds are from the sale of an asset and therefore do not constitute assessable income (or at least do not constitute assessable income to which the RPS applies). The Commissioner of Taxation does not accept this view of the existing law.

1.129 The proposed amendments are intended to remove any doubt about the application of the RPS legislation to a payment made when a debt is factored.

Explanation of the amendment

1.130 The amendments are contained in Items 9, 10, 11 and 12 of Schedule 6 of the Bill.

1.131 New section 220ADA provides that, to avoid doubt, if a payment of a debt would be a reportable payment, and the whole or part of the debt is transferred to another person in return for a payment, the latter payment will be a reportable payment [item 12] .

1.132 Consequential amendments are necessary. Section 220AB provides a table outlining the RPS provisions under various topic headings. The table in section 220AB is amended to include a reference to new section 220ADA in respect of the definition of a reportable payment [item 9] .

1.133 Section 220AC contains a definition of 'reportable payment'. The proposed amendment inserts another note to the definition to the effect that new section 220ADA clarifies the definition of a reportable payment [items10 and 11] .

Provisional tax

Purpose of the amendment

1.134 This amendment is to ensure that provisional tax credits cannot be applied against provisional tax notified for a later year that is not due and payable.

Date of effect

1.135 The amendment commences on 1 July 1998 and applies to all credit assessments lodged on or after this date [subclause 2(10)] .

Background to the legislation

1.136 Section 221YE of the ITAA 1936 is the provision that instructs the Commissioner of Taxation how to apply amounts of provisional tax or instalments of provisional tax paid by taxpayers. It provides that the Commissioner must credit provisional tax in respect of income of a particular year, in the following order, in payment against the following taxes:

·
income tax in respect of the year of income;
·
provisional tax notified, or an instalment of provisional tax that is due and payable by the taxpayer, in respect of income of the following year; and
·
any other income or withholding tax payable by the taxpayer.

1.137 Following a 1994-95 Budget announcement to refund provisional tax credits instead of applying the credits to provisional tax amounts not yet due and payable, provisional tax for the following year is notified subsequent to the time of assessment and is not due and payable until at least 1 April.

1.138 An anomaly exists in those cases where an assessment is subsequently amended and a credit results. Under the current law, the provisional tax credit due to a taxpayer from a credit amendment is applied against the provisional tax notified even though it is not yet due and payable.

Explanation of the amendment

1.139 Subparagraph 221YE(1)(b)(i) is to be amended so that provisional tax credits cannot be applied against provisional tax notified for a later year that is not due and payable [item 16 of Schedule 6] .

Chapter 2 - Technical corrections

2.1 The Bill makes a number of technical corrections to the following Acts and Bills.

Date of effect

2.2 The following amendments will apply from the date of Royal Assent unless stated otherwise.

Explanation of the amendments

ITAA 1936

2.3 The definition of 'rebated tax' in subsection 159ZR(1) is amended to replace the reference to a section 160AA rebate with a reference to a section 159SA rebate. This is necessary because section 160AA was repealed in 1989 and replaced by section 159SA. This amendment applies to payments made on or after the date of Royal Assent [items 1 and 4 of Schedule 2] .

2.4 Paragraph 221YHZDAC(1)(a) is amended to correct a transpositional error in the reference to subsection 221YHZC(1A) [item 2 of Schedule 2].

2.5 The note in subsection 222AHD(3) is amended to refer to subsection (3) and not subsection (2) [item 3 of Schedule 2] .

2.6 Subsection 78(3) and Items 10.2.2 and 10.2.3 of Table 10 in subsection 78(4) are amended to reflect the name change of 'Girl Guides Association of Australia' to 'Guides Australia Incorporated'. These amendments apply to gifts made on or after 2 July 1996, the date on which the name change occurred [items 1, 2, 3 and subitem 7(1) of Schedule 3] .

2.7 Subsection 264(2) is amended by inserting after 'oath' (wherever occurring) the words 'or affirmation'. This amendment will enable the Commissioner to require information or evidence required under a section 264 notice to be given upon oath or by way of affirmation and ensures consistency with other provisions in the ITAA 1936 [item 17 of Schedule 6] .

ITAA 1997

2.8 Items 10.2.2 and 10.2.3 of section 30-90 and the index of subsection 30-315(2) are amended to reflect the name change of 'Girl Guides Association of Australia' to 'Guides Australia Incorporated'. These amendments apply to assessments for the 1997-98 and later income years [items 4, 5, 6 and subitem 7(2) of Schedule 3] .

Taxation Laws Amendment Act (No. 4) 1995 (TLAA (No. 4) 1995)

2.9 In item 12 of Schedule 2 of TLAA (No. 4) 1995, a comma which is not in the Act being amended (the ITAA 1936) was included in a phrase to be omitted. That item is amended by removing the comma. This amendment commences immediately after the commencement of item 12 of Schedule 2 to the TLAA (No. 4) 1995 [item 20 of Schedule 6; subclause 2(11)] .

2.10 Items 134 and 136 of Schedule 2 of TLAA (No. 4) 1995 only included the word 'rebate' once in the phrase to be omitted. These items are amended by adding the word 'rebate' to the omitted phrases. This amendment commences immediately after the commencement of item 134 of Schedule 2 to the TLAA (No. 4) 1995 [item 21 of Schedule 6; subclause 2(12)].

Taxation Laws Amendment Act (No. 2) 1997 (TLAA (No. 2) 1997)

2.11 The word 'company' was incorrectly added to items 9 and 10 of Schedule 3 to the TLAA (No. 2) 1997. The proposed amendments will delete the word 'company' from these items. This amendment commences immediately after the commencement of items 9 and 10 of Schedule 3 to the TLAA (No. 2) 1997 [item 22 of Schedule 6; subclause 2(13)] .

2.12 A reference was made to 'Paragraph 170-40(1)(a) instead of 'Subsection 170-40(1)' in the heading of item 16 of Schedule 3 to the TLAA (No. 2) 1997. The proposed amendment will correct this technical error [item 23 of Schedule 6] .

2.13 The application clause contained in item 18 of Schedule 3 to the TLAA (No. 2) 1997 incorrectly referred to item 9 instead of items 15-17 inclusive. The proposed amendments will correct this error, and insert a separate application provision for each item [item 24 of Schedule 6] .

2.14 The amendments made by items 23 and 24 commence immediately after the TLAA (No. 2) 1997 received Royal Assent [subclause 2(14)] .

FBTAA 1986 and related amendments to the ITAA 1936

2.15 Subsection 10(3D) of the FBTAA 1986 is amended by deleting the reference to subsection 162M(2), because section 162M has been repealed [item 1 of Schedule 5] .

2.16 The term 'log books' is replaced with 'log book records' in the following provisions in the FBTAA 1986, so that terminology is consistent:

·
paragraph 10A(a) [item 2 of Schedule 5] ;
·
paragraph 10A(c) [item 4 of Schedule 5] ;
·
subparagraph 24(1)(ea)(iv) [item 5 of Schedule 5] ;
·
subparagraph 44(1)(da)(iv) [item 8 of Schedule 5] ;
·
subparagraph 52(1)(da)(iv) [item 9 of Schedule 5] ; and
·
paragraph 65E(a) [item 10 of Schedule 5] .

2.17 Paragraphs 10A(a) and 65E(a) are further amended to replace the term 'applicable log period' with 'applicable log book period' [items 3 and 11 of Schedule 5] . These amendments ensure that the terms are consistent throughout the FBTAA 1986.

2.18 Section 37BA is amended by inserting 'year', so that a reference is made to 'the FBT year' [item 6 of Schedule 5] .

2.19 Paragraph 37CE(1)(b) is amended to correctly refer to 'an associate of the employee' rather than 'an associate of the employer' [item7 of Schedule 5] . The heading to section 37CF is altered by omitting 'Fraudulent' and substituting 'False or misleading' [item 7] .

2.20 The definition of 'entertainment facility leasing expenses' in subsection 136(1) is amended to ensure consistent use of terminology in the FBTAA 1986 [item 14 of Schedule 5] and to remove words that are repeated [item 13 of Schedule 5] .

2.21 The amendments to the FBTAA 1986 will apply to FBT assessments for the 1998-99 FBT year and later FBT years.

2.22 The definition of 'total deductions for register meal entertainment' in subsection 51AEB(2) of the ITAA 1936 is corrected to refer to SubdivisionC of Division 9A of the FBTAA 1986 [item 16 of Schedule 5] .

2.23 The heading to subsection 89FB(2) is altered by omitting the word 'benefits' and substituting 'deductions' [item 17 of Schedule 5] .

2.24 Subsection 89FB(7) is amended to refer to 'taxpayer' rather than 'employer' [item 18 of Schedule 5] .

Statute Law Revision Act 1996

2.25 This Act made certain amendments related to the Debits Tax Administration Act 1982. In Item 49 of Schedule 2 (note) to the Act, the words 'of section 56' were omitted after the word 'commencement'. The proposed amendment will correct this technical error [item 25 of Schedule 6] .

Industry Research and Development Act 1986

2.26 Paragraph 39HD(1)(a) (second occurring) has been incorrectly lettered. The proposed amendment will reletter the paragraph as paragraph (b) [item 26 of Schedule 6] .


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