House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister representing the Acting Treasurer, the Hon. W.C. Fife, M.P.)

General outline

This Bill will amend the income tax law to:

•

allow a rebate of tax for home loan interest payments made by a resident taxpayer on or after 1 July 1982 in connection with his or her sole or principal residence situated in Australia, limited to the first 5 years of owner-occupancy of a residence that commences between 1 July 1977 and 30 June 1985 (proposal announced 18 March 1982);

•

permit the supply of information from income tax records to the Secretary, Department of Housing and Construction, for the purposes of the new Home Deposit Assistance Scheme;

•

permit the disclosure of information from income tax records to the Royal Commission on the Activities of the Federated Ship Painters and Dockers Union, the Royal Commission of Inquiry into Drug Trafficking and any subsequent Royal Commission which is given appropriate terms of reference (proposal announced 14 April 1982).

Main features

The main features of the Income Tax Assessment Amendment Bill (No. 2) 1982 are as follows:

Disclosure of information to certain Royal Commissions (Clause 3)

The Bill will give effect to proposals announced on 14 April 1982 to amend section 16 of the Income Tax Assessment Act to permit the Commissioner of Taxation, without breach by him of the secrecy provisions of the income tax law, to disclose information to certain Royal Commissions. They are the Royal Commission appointed to inquire into certain activities of the Federated Ship Painters and Dockers Union, the Royal Commission appointed to inquire into drug trafficking and any other Royal Commission that is given terms of reference which permit it to obtain information from income tax records.

A Royal Commission will in turn be permitted to disclose information obtained from the Commissioner, but without identifying any individual or company, in its report to the Governor-General or in its public proceedings. As well, a Royal Commission may divulge taxation information, including the identity of any party, to the Attorney-General where it appears that a law of the Commonwealth may have been breached. The Attorney-General may, in turn, convey that information to the Australian Federal Police. Subject to these exceptions, any person to whom information about the taxation affairs of a person or company is communicated will be subject to strict secrecy constraints of the kind now applicable to taxation officers and other authorised recipients of taxation information.

Taxation information obtained by persons outside the Taxation Office by the operation of this Bill will not be permitted to be used in any prosecution proceedings.

Rebate of tax in respect of home loan interest (Clause 4 )

The Bill also gives effect to the proposals, announced on 18 March 1982 as part of the Government's housing assistance package, to allow an individual resident taxpayer a rebate of tax for home loan interest payments made on or after 1 July 1982 in respect of his or her sole or principal residence situated in Australia.

The rebate will be 32 cents for each dollar of interest paid, subject to an upper limit, but will not exceed the tax otherwise payable on an assessment. The rebate will apply in relation to interest paid during the first 5 years in which a taxpayer occupies as a sole or principal residence any residence in Australia which he or she owns or partly owns. The 5 year period will be measured from the date the person first occupied a sole or principal residence in Australia in which he or she had ownership rights of one kind or another. In the case of a married person or a person in a de facto marriage relationship, the 5 year owner-occupancy period will run from the earliest date on which either of the partners first became an owner-occupier of such a residence.

The basic upper limit of the rebate will be $500 per dwelling in the first year of owner-occupancy and will reduce by $100 per year for each of the succeeding 4 years. The limit will be increased by $200 in any year in which a dependent child or dependent student lives with the taxpayer in the dwelling for which the interest is paid.

The rebate will be available to home-owners who first occupied a sole or principal residence on or after 1 July 1977 or who occupy it not later than 30 June 1985. It will be allowable in respect of interest on a loan paid on or after 1 July 1982 if the taxpayer had an interest in the dwelling in that year and provided the interest on the loan accrued while the taxpayer was the occupier of the dwelling. In the year of income in which the fifth anniversary of the date of first occupation of a dwelling, which was the sole or principal residence of a person, occurs, interest paid will be rebatable only to the extent that -

(a)

where the first occupation date was before 1 July 1982 - the interest accrued before the end of the year of income in which the fifth anniversary occurred; or

(b)

where the first occupation date was on or after 1 July 1982 - the interest accrued before the date of the fifth anniversary.

A rebate is not to be allowable in respect of any interest which accrues or is paid after the year of income in which the fifth anniversary of first occupation of a sole or principal residence by either the taxpayer or his or her spouse (including a de facto marriage partner) occurs. Occupation of a residence without the requisite ownership of the dwelling will not be counted for these purposes.

Interest will qualify for the rebate (subject to the upper limits mentioned below) if it is paid on moneys lent to a taxpayer and applied by the taxpayer for certain specified purposes connected with a dwelling used by the taxpayer as his or her sole or principal residence. Those purposes include the acquisition of land on which a dwelling is subsequently constructed, the construction of a dwelling or the acquisition of land on which there is already a dwelling. Interest on moneys used to extend a dwelling by adding additional living space will also qualify but not where the moneys are used to build improvements such as swimming pools, garages or fences.

Where moneys are borrowed partly for the purposes of acquiring a dwelling and partly for other purposes, so much only of the interest as is attributable to that part of the moneys applied to acquire the dwelling will qualify for the rebate. Where a dwelling is used partly as a sole or principal residence and partly for other purposes the Commissioner will be empowered to allow a rebate in respect of the amount of interest which is reasonable in all the circumstances. This could occur, for example, where a person borrows moneys to purchase a building containing a flat above a shop and occupies the flat as his or her residence. In this case, the intention is that interest on money attributable to the flat would be rebatable.

As mentioned earlier, the rebate of tax calculated at 32 per cent of qualifying interest paid and otherwise allowable is to be subject to an upper limit. The amount of the limit in a year of income will depend on the date of first occupation by the particular taxpayer of his or her sole or principal residence and will be available in the year of income on the basis of the number of whole months in the year that the taxpayer owned and occupied the dwelling. A person will, for this purpose, be deemed to occupy a dwelling for the whole of a month if it is used as his or her sole or principal residence for 16 or more days in that month.

Where the first occupation date of a taxpayer is before 1 July 1982, the rebate will be limited as follows:

(a)

in the case of the year of income commencing on 1 July 1982 -

(i)

where the first occupation date is in the 1977-78 income year - $100;

(ii)

where the first occupation date is in the 1978-79 income year - $200;

(iii)

where the first occupation date is in the 1979-80 income year - $300;

(iv)

where the first occupation date is in the 1980-81 income year - $400; and

(v)

where the first occupation date is in the 1981-82 income year - $500; and

(b)

in the case of the 1983-84 year of income or a subsequent year of income - an amount which is $100 less than the amount which applied in the immediately preceding year.

Where the first occupation date of a taxpayer is on or after 1 July 1982, the rebate limit will, in the first income year in which that date falls, be a proportionate part of $500 calculated on the basis of the number of whole months in the year of income that the person occupied the dwelling. In the second income year the amount of the limit will continue to be dependent on the number of whole months in the year that the taxpayer occupied the dwelling and will be the balance of the amount of $500 not taken into account in the first year and that proportion of $400 applicable to the number of whole months in the second year of occupation. In subsequent years the limit will be calculated in a similar fashion, with the relevant upper limits decreasing by $100 in each year.

The annual rebate limit will be subject to a $200 increase where the dwelling is also a home of a dependent child or a dependent student of the owner/occupier. The additional amount will be reduced on a pro rata basis if the dwelling is a home of the dependant for only part of the year.

No rebate will be allowable after the year of income in which the fifth anniversary of the date of first occupation of a sole or principal residence by the taxpayer occurs.

The scheme will allow for a rebate limit to be calculated in respect of each occupier of a dwelling who has a relevant interest in it. Where more than one person qualifies in respect of a period of occupancy of a dwelling, those persons will be given the opportunity to decide the part each is to have of the limit applicable to him or her in respect of the common-occupation period. Notice of the agreement will need to be lodged with the Commissioner of Taxation on or before 31 August in the year of income following that to which the agreement relates or before such later date as may be appropriate. Where the persons do not make such an agreement, each will be entitled to a proportionate part of the rebate limit otherwise applicable to that person in respect of the common-occupation period, calculated having regard to the proportion that that person's rebatable interest bears to the total rebatable interest in the common-occupation period.

If, during the period of 5 years calculated from the time a taxpayer first occupies a sole or principal residence in which he or she had an interest, the taxpayer acquires another residence which he or she occupies as the sole or principal residence, the interest in relation to that residence will be eligible for rebate but the upper limit of the rebate will continue to be calculated from the date of occupation of the person's first sole or principal residence.

In a case where a taxpayer is entitled to a rebate, or would have been so entitled if he or she were liable to pay tax, the taxpayer will be able to elect to transfer the whole or a part of the rebate to his or her spouse.

Interest payments which are otherwise allowable as a deduction from assessable income under ordinary income tax rules will continue to be allowed as a deduction and will not attract the rebate.

More detailed explanations of each of the provisions of the Bill are contained in the notes that follow.

Notes on Clauses

Clause 1: Short title etc.

By sub-clause (1) of this clause the amending Act is to be cited as the Income Tax Assessment Amendment Act (No. 2) 1982.

Sub-clause (2) will facilitate references to the Income Tax Assessment Act 1936 which, in the Bill, is referred to as the "Principal Act".

Clause 2: Commencement

Under this clause the amending Act is to come into operation on the day on which it receives the Royal Assent. But for this clause the amending Act would, by reason of sub-section 5(1A) of the Acts Interpretation Act 1901, come into operation on the twenty-eighth day after the date of Assent. Clause 2 will facilitate the early incorporation of the home loan interest rebate into pay-as-you-earn tax deduction procedures.

Clause 3: Officers to observe secrecy

Introductory note

Clause 3 of the Bill proposes two amendments to the secrecy provisions of section 16 of the Principal Act. The first will permit the Commissioner of Taxation to supply information from income tax records for the purposes of the new Home Deposit Assistance scheme. This amendment is made by the proposed insertion in sub-section 16(4) of paragraph (j).

The second amendment to section 16, to be effected by the insertion in section 16 of paragraph (4)(k) and new sub-sections (4A), (4B), (4C), (4D) and (4E), will permit the Commissioner to disclose information from taxation records to certain Royal Commissions. Information so obtained from the Commissioner of Taxation may in turn be disclosed by a Royal Commission, in a manner that does not identify any individual or company, in its reports to the Governor-General or in its public proceedings. As well, the proposed amendments will permit a Royal Commission to divulge taxation information that it has obtained from the Commissioner of Taxation, including the identity of any person or company, to the Attorney-General where it appears that a law of the Commonwealth may have been breached. The Attorney-General may, in turn, convey that information to the Commissioner of the Australian Federal Police. Necessary communication of the relevant information for these purposes to authorised officials will also be permitted.

Subject to these exceptions, any person to whom taxation information is communicated will be subject to strict secrecy constraints of the kind now applicable to taxation officers and other persons. The maximum penalty for a person who is convicted of a breach of the secrecy obligations of section 16 is $500 or imprisonment for 12 months.

Recipients of taxation information furnished to a Royal Commission in accordance with the new provisions will not be permitted, and may not be compelled, to disclose that information to a court as evidence in the course of any prosecution.

More detailed explanations follow.

Paragraph (a) of clause 3 will replace existing sub-section 16(1). New sub-section 16(1) will define terms used in section 16:

"Officer"

means a person appointed or employed by the Commonwealth or by a State and who, in the course of the duties of that office or employment, has acquired taxation information. (This definition is identical to that contained in existing sub-section (1)).

"Royal Commission"

is expressed to mean a Royal Commission appointed by the Governor-General to conduct an enquiry, and includes any member of such a Royal Commission.

Paragraph (b) of clause 3 is a formal drafting measure to facilitate insertion by paragraph (c) of clause 3 of 2 new paragraphs in sub-section 16(4).

Paragraph (c) of clause 3 will insert those 2 new paragraphs - paragraph (j) and (k) - in that sub-section.

The new paragraph (4)(j) will authorise the Commissioner to communicate information contained in income tax records to the Secretary, Department of Housing and Construction for the purpose of administering the new Housing Deposit Assistance Scheme.

The proposed new law to provide deposit assistance to home buyers will depend, in part, on the operation of a means test based on the taxable incomes of a person and his or her spouse. It may therefore become necessary to make information from taxation records available at the request of the Department of Housing and Construction to verify applicants' income levels.

By reason of sub-section 16(5), a person receiving such information will be made subject to obligations of secrecy in respect of it.

By paragraph (k), the Royal Commissions to which the Commissioner of Taxation is to be permitted to disclose information concerning the affairs of a person or company are specified. They are the Royal Commission appointed to enquire into certain activities of the Federated Ship Painters and Dockers Union, the Royal Commission appointed to enquire into Drug Trafficking and any other Royal Commission which, by the Letters Patent by which it is appointed, is declared to be a Royal Commission to which sub-paragraph (iii) of paragraph (k) applies. Information will be able to be disclosed to a Royal Commission by the Commissioner of Taxation if the information is required by the Royal Commission for the purposes of conducting its enquiry.

By paragraph (d) of clause 3, five new sub-sections - sub-sections (4A), (4B), (4C), (4D) and (4E) - are to be inserted in section 16 of the Principal Act. In broad terms, the effect of these new sub-sections is to prohibit, except in certain specified circumstances, the further revelation to other persons of taxation information obtained by a Royal Commission from the Commissioner of Taxation by virtue of new paragraph 16(4)(k).

New sub-section (4A) sets out the circumstances in which a Royal Commission may divulge taxation information supplied to it and specifies the obligations to be imposed on the Royal Commission and its staff for the purpose of protecting the confidentiality of the information.

By paragraph (a) of sub-section (4A), a Royal Commission will be permitted to disclose taxation information in a report to the Governor-General or in the course of its public proceedings, provided that the information disclosed in either case does not reveal the identity of a person or company to whom the information relates.

Paragraph (b) of sub-section (4A) will enable a Royal Commission to disclose taxation information, including the name of a person or company to whom it relates, to the Attorney General if the Royal Commission is of the opinion that the information indicates that a person may have committed an offence against a provision of a Commonwealth Act.

Paragraph (c) of sub-section (4A) will prohibit any disclosure of taxation information by a Royal Commission, other than a disclosure permitted by paragraphs (a) and (b), except to an employee or other person (such as counsel engaged to assist the Royal Commission in its enquiry) who is under the control of the Royal Commission. Communications to employees or other persons under the control of a Royal Commission will be permitted where that is relevant to the conduct of the enquiry of the Royal Commission.

By paragraph (d) of sub-section (4A), a person appointed to a Royal Commission will, on ceasing to hold that appointment, be prohibited from recording or making any communication of taxation information obtained while a Royal Commissioner.

Paragraph (e) of sub-section (4A) will impose secrecy constraints on employees and other persons under the control of the Royal Commission. While a person remains under the control of the Royal Commission, he or she will only be permitted to communicate taxation information to the Commission or, as necessary, to other members of its staff. Once a person ceases to be under the control or employ of the Royal Commission, recording or disclosure by that person of the taxation information will not be permitted in any circumstances.

Proposed sub-section (4B) sets out the circumstances in which taxation information that has been communicated to the Attorney-General by a Royal Commission, in pursuance of sub-section (4A), may be divulged by the Attorney-General, and contains the obligations that will fall on the Attorney General and relevant officials for the protection of the confidentiality of the information.

Paragraph (a) of sub-section (4B) will permit the Attorney-General to disclose any taxation information, received from a Royal Commission, to the Commissioner of the Australian Federal Police.

Paragraph (b) of sub-section (4B) will generally prohibit any disclosure of taxation information by the Attorney General, other than the disclosure permitted to be made to the Australian Federal Police under paragraph (a), but will enable disclosure to persons under the employ or control of the Attorney-General if such disclosure is appropriate for the purpose of performance by the Attorney-General of the function under paragraph (a) of passing information to the Australian Federal Police. Proposed sub-section (4D), discussed later in these notes, specifies that certain persons are to be regarded as being under the control of the Attorney-General for the purpose of this paragraph.

By paragraph (c) of sub-section (4B), a person to whom information has been communicated as Attorney-General is, on ceasing to hold that office, to be prohibited from divulging that information in any circumstances.

Paragraph (d) of sub-section (4B) will impose secrecy constraints on persons who, for the purpose of enabling the Attorney-General to pass taxation information on to the Australian Federal Police, have become privy to that information. While such a person remains under the control of the Attorney-General, he or she will only be permitted to communicate the taxation information to the Attorney-General, and to other persons under the control of the Attorney-General where it is necessary for the purposes of the performance by the Attorney-General of his function under paragraph (a) in relation to the Australian Federal Police. Subsequently, disclosure by the person will not be permitted in any circumstances.

Proposed sub-section (4C) specifies the obligations to be imposed on the Commissioner of the Australian Federal Police and persons under the control of the Police Commissioner in respect of taxation information received under sub-section (4B) from the Attorney-General.

Paragraph (a) of sub-section (4C) will prohibit the disclosure of taxation information received by the Commissioner of the Australian Federal Police, except such disclosure to persons under the control of the Commissioner as is necessary for the purpose of enabling that person to carry out his or her duties as a police officer. Federal Police officers will thus be entitled to make use of the information in investigating possible breaches of Commonwealth laws but will not be permitted to pass on that information to other law enforcement agencies.

By paragraph (b) of sub-section (4C), a person who ceases to hold the office of Commissioner of the Australian Federal Police after relevant taxation information has been communicated to him, is to be prohibited from recording or divulging that information in any circumstances.

Paragraph (c) of sub-section (4C) will impose secrecy constraints on police officers and other persons under the control of the Commissioner of the Australian Federal Police who, for the purposes of carrying out their duties, have been supplied with taxation information received by the Police Commissioner. While such a person remains under the control of the Police Commissioner he or she will only be permitted to communicate the taxation information to the Police Commissioner (including a subsequently appointed Commissioner) and to other persons under the control of the Police Commissioner, for purposes connected with the performance of the official duties of the Commissioner or those other persons.

The practical effect of this provision will be that the Australian Federal Police will be permitted to use taxation information in pursuing their enquiries relating to an alleged offence against a Commonwealth law, provided the use of the information in this way does not involve its disclosure to persons outside the Federal Police. The Federal Police will not be permitted to tender the information as evidence in any prosecution resulting from such enquiries.

A person who ceases to be under the control of the Police Commissioner and who has received confidential taxation information will thereafter not be permitted to record, divulge or communicate that information in any circumstances.

New sub-section (4D) is an interpretation measure designed to clarify the reference, in sub-section (4B), to a person under the control of the Attorney-General. The effect of this sub-section is that, in addition to the Attorney-General's personal staff, officers and employees of the Attorney-General's Department and other officers and employees (and persons under their control) engaged under an Act administered by the Attorney-General will be regarded as being under the control of the Attorney-General. By this provision, the Minister, in performing the function of deciding whether or not to pass taxation information on to the Australian Federal Police, and in passing on such information, will have available the services of appropriate officials.

New sub-section (4E) represents the application, in presently relevant circumstances, of the principles of sub-section 16(3) of the Principal Act. It is designed to make it clear that a person who, in consequence of the disclosure of confidential taxation information to a Royal Commission, has received such information cannot be compelled to disclose that information in any court.

Paragraph (e) of clause 3 will amend sub-section 16(5). Sub-section (5) imposes secrecy constraints on those persons to whom the Commissioner of Taxation is permitted to disclose taxation information under the existing provisions of sub-section (4). These are mainly persons who have responsibility for the administration of laws providing for the payment of benefits of one kind or another by the Commonwealth. By sub-section (5), these persons are subject to the same rights, privileges, obligations and liabilities in relation to confidential taxation information passed on to them as if they were taxation officers. Sub-section (5) as amended will apply in the same manner to persons who receive taxation information in accordance with new paragraph (4)(j) of section 16, i.e., the Secretary of the Department of Housing and Construction and officers of that Department.

The amendment proposed to be made to sub-section 16(5) will exclude from the scope of that sub-section those persons who receive taxation information as a result of the disclosure of that information by the Commissioner of Taxation to a Royal Commission. Instead, such persons will be subject to the broadly comparable secrecy obligations to be imposed by new sub-sections (4A), (4B) and (4C), and which have been discussed earlier in these notes.

Clause 4: Rebate of tax in respect of home loan interest

This clause proposes the insertion of a new Subdivision - Subdivision AA, comprising sections 159ZA to 159ZQ - in Division 17 of Part III of the Principal Act. The new Subdivision contains the measures necessary to provide a rebate of tax in respect of home loan interest payments, a general description of which is contained in the introduction to this explanatory memorandum.

Details of the new rebate are provided in the following notes.

Section 159ZA : Interpretation

Proposed sub-section 159ZA(1) defines certain terms used in Subdivision AA:

"Building society"

means a body which, irrespective of its name, is of a kind commonly known as a building society. The definition relates to the operation of sub-section 159ZJ(3) which deals with interest paid by members of an actuarial-type building society, so that the interest is treated on a basis comparable to that paid by borrowers from other building societies or lending institutions.

"Disentitling spouse"

means the spouse of a taxpayer (see definition below) who, by virtue of his or her earlier occupancy of a sole or principal residence which he or she owned or part-owned more than 5 years prior to any particular time, disqualifies the taxpayer from eligibility for a rebate of tax under this Subdivision to which the taxpayer would otherwise be entitled.

"Dwelling"

means, in relation to a taxpayer, a unit of residential accommodation constituted by or contained in a building, or a part of a building, in Australia and includes a garage or store-room for use in association with a dwelling if it is erected before the taxpayer first occupies the dwelling as his or her sole or principal residence.

"First occupation date"

is the date on which a taxpayer first occupied, as his or her sole or principal residence, a dwelling which the person owned or part-owned. This date is the commencement of the 5 year period of eligibility for a home loan interest rebate. The definition refers to a dwelling in Australia and therefore any occupation of a dwelling overseas will not be counted as part of the 5 year period.

"Month"

means any of the 12 months of the year.

"Rebatable dwelling"

means a dwelling in respect of which home loan interest paid by a taxpayer is to be taken into account in calculating an amount of interest subject to the rebate.

"Spouse"

means the person who is legally married to the taxpayer, unless the person is living separately and apart from the taxpayer. It also extends to a person living wi th the taxpayer on a de facto marriage basis.

"Stratum unit"

means a unit on a unit plan registered under a law providing for the registration of unit titles or strata titles. The definition covers both vertical development (e.g., a flat or home unit) and horizontal development (e.g., a town-house type of construction).

"Taxpayer"

means a taxpayer (other than a company) who is a resident of Australia. The effect of the definition will be to restrict the home loan rebate to natural persons who are residents of Australia.

Sub-section (2) of proposed section 159ZA will mean that where there is a reference in the Subdivision to the amount of a rebate of tax to which a taxpayer is entitled under the Subdivision, the matter is to be determined without regard to whether any tax would be payable in respect of the year of income by the taxpayer. Nothing in the sub-section, however, affects the operation of existing section 160AD which stipulates that the sum of the rebates allowable under the Principal Act shall not exceed the tax otherwise payable. The sub-section will ensure a person who does not have any taxable income will not be precluded from transferring any rebate entitlement to his or her spouse under proposed section 159ZO.

Section 159ZB : Prescribed interests and relevant interests

Proposed section 159ZB will set out the rules that are to determine whether a person has a "relevant interest" in a dwelling, that is, whether the person has ownership rights as an owner or long-term lessee or licensee of the dwelling. A rebate of tax will be allowable only for interest paid in respect of a dwelling which the taxpayer uses as his or her sole or principal residence and in which he or she has a "relevant interest".

Sub-section (1) specifies the circumstances under which a person, or 2 or more persons jointly, are to be taken, for the purposes of new Subdivision AA, to have "a prescribed interest" in land or in a stratum unit (paragraph (a)) or "a proprietary right" in respect of a flat or home unit under a sub-divided residence scheme (paragraph (b)).

Sub-paragraph (a)(i) specifies, in effect, that a person who has an estate in fee simple in land or in a stratum unit, will be taken to have a prescribed interest in the land or unit. It also means that, where 2 or more persons have an estate in fee simple as joint tenants or as tenants in common, those persons are to be taken as having a prescribed interest in the land or stratum unit.

sub-paragraph (a)(ii) refers to the situation where a person has an interest in land or a stratum unit, either solely or jointly with others, under a lease or licence. For the purposes of the new Subdivision, a lease or licence will qualify as a prescribed interest in land or a stratum unit where the Commissioner of Taxation is satisfied that the lease or licence gives the person reasonable security of tenure for a period of not less than 10 years.

Sub-paragraph (a)(iii) ensures that a person who has or held a sole or joint interest in land or in a stratum unit, as purchaser of an estate in fee simple under a contract that provides for payment of the purchase price to be paid at a future time or by instalments, will be taken to have a prescribed interest in the land or the stratum unit for the purposes of Subdivision AA.

Sub-paragraph (a)(iv) is designed to take into account situations where a person has a sole or joint interest in land or a stratum unit as a purchaser of a right to be granted a lease of that land or unit under a contract that provides for payment of the purchase price at a future time or by instalments. A person entering into such a contract will be taken to have a prescribed interest in the relevant land or unit where the Commissioner is satisfied that the lease will offer reasonable security of tenure for a period of not less than 10 years.

New paragraph (1)(b) refers to cases where sole or joint rights of occupancy in a flat or home unit accrue through ownership of shares in a company which owns the building containing the flat or home unit. In these circumstances the taxpayer is, for purposes of Subdivision AA, to be taken as having "a proprietary right" in the flat or home unit. Paragraph (1)(b) ensures that a taxpayer who purchases shares in a home unit company so as to establish rights of occupancy in a flat or home unit will be able to satisfy one of the necessary conditions for obtaining a rebate under the Subdivision in respect of amounts that he or she pays by way of interest on moneys borrowed to buy those shares.

Sub-section (2) is a drafting measure which will define what is meant by a "relevant interest" in a dwelling. A person is to be deemed to have such an interest (or in other words to be the "owner" of the dwelling) if, whether alone or with others, that person acquires or holds a prescribed interest in the land on which the dwelling is situated, a prescribed interest in a stratum unit in relation to the dwelling or, in the case of a flat or home unit owned by a company, a proprietary right in respect of the dwelling.

Section 159ZC: When interest deemed to be paid in respect of housing loan

Proposed section 159ZC sets out the general circumstances in which an amount paid by a taxpayer by way of interest is to be taken as having been paid in respect of a loan connected with a dwelling, so that it will be interest which qualifies as a rebatable amount for the purposes of new section 159ZJ.

Sub-section (1) will, for drafting purposes, provide that a reference in section 159ZC to a "taxpayer", except in reference to an amount paid by a taxpayer, will include a reference to a taxpayer and another person. The effect of this is that interest paid jointly by a taxpayer and another person on a joint home loan will still qualify for the rebate.

Sub-section (2) stipulates that, subject to the operation of sub-section (3) and (4), interest is to qualify for a rebate if it is paid by a taxpayer on moneys lent to the taxpayer and used by him or her "for housing purposes connected with a dwelling" (see notes on section 159ZD for an explanation of this expression).

Sub-section (3) will mean that interest on bank overdraft finance used for housing purposes will qualify for a rebate only where the bank maintains a separate account in relation to the moneys used for that purpose. This sub-section will overcome problems which might arise with apportionment if housing loan or loan repayment transactions were not separate from a taxpayer's normal day to day transactions with a bank.

Sub-section (4) is a safeguarding measure to exclude from the scope of the rebate those loan arrangements where the taxpayer and the lender do not deal with each other independently and the loan transaction is at an interest rate higher than might reasonably have been expected in an independent arm's length situation. It will guard against the making of non-arm's length loans at interest rates designed to exploit the taxation benefits of the rebate scheme.

Sub-section (5) is a further drafting measure by which the new section 159ZC is made an exclusive code for determining whether an amount shall be taken to have been paid by way of interest in respect of a loan connected with a dwelling.

Section 159ZD : When moneys deemed to be applied for housing purposes

The basic purpose of this proposed section is to specify the ways in which a taxpayer must expend loan moneys in relation to a dwelling if the loan interest is to be taken as being interest on moneys applied for housing purposes under proposed section 159ZC.

Sub-section (1) is the principal sub-section of section 159ZD and will specify, in paragraphs (a) to (h) inclusive, the purposes for which loan moneys must be wholly or partly applied in connection with a dwelling if interest on the moneys is to attract a rebate of tax. Where the moneys are partly applied for purposes specified in the sub-section, new section 159ZJ will enable an apportionment to be made in determining the amount of interest which will qualify for a rebate (see notes on proposed section 159ZJ).

By paragraph (a) of sub-section (1), loan moneys applied by a taxpayer to acquire a prescribed interest in land on which a dwelling has since been constructed, or to acquire such an interest and construct, or finish construction of a dwelling on that land, are to be taken as applied for housing purposes connected with that dwelling.

The differing types of land tenure which constitute a "prescribed interest" for the purposes of Subdivision AA are explained in the earlier notes on section 159ZB. Interest paid on loan moneys applied to buy vacant residential land will qualify for rebate to the extent to which it accrued and was paid after the taxpayer occupied a dwelling erected on that land.

Under paragraph (b), loan moneys applied by a taxpayer to construct or complete the construction of a building constituting or containing a dwelling on land in which a prescribed interest was held are to be taken as applied for housing purposes connected with that dwelling. This paragraph could apply, for example, where a taxpayer constructs a building which contains business premises as well as residential accommodation.

Paragraph (c) will specify that loan moneys are to be taken as applied for housing purposes connected with a dwelling where the taxpayer applies them to acquire land on which there is an existing building constituting or containing a dwelling.

By paragraph (d) loan moneys are to be taken as applied for housing purposes connected with a dwelling where they are used to acquire a prescribed interest in a stratum unit in relation to a dwelling. That is, it relates to the acquisition of an "own-your-own" home unit or town-house.

Paragraph (e) will cover loan moneys applied by a taxpayer to extend a dwelling by adding a room or part of a room to the dwelling. Such moneys are to be taken as applied for housing purposes connected with that dwelling.

The requirement that the dwelling be extended by adding a room or part of a room will mean that interest on moneys borrowed to make alterations or undertake renovations of an internal nature which do not increase the living space available in the dwelling will not qualify for a rebate. Nor will a rebate be allowable in relation to interest on loan moneys applied, subsequent to the construction and occupation of a dwelling, in constructing such improvements as a garage, store-room, swimming pool or fence.

Paragraph (f) caters for the case where loan moneys are applied to finance extensions to a dwelling subject to a stratum title. Such moneys will be taken as applied for housing purposes connected with that dwelling to the extent they are expended in adding a room or part of a room. The limitations described in relation to paragraph (e) will also apply in a case to which this paragraph applies.

Paragraph (g) will enable loan moneys used to acquire a proprietary right in respect of a flat or home unit (i.e., shares in a company title development) to be regarded as applied for housing purposes connected with a dwelling. The meaning that the term "proprietary right" has in the Subdivision is explained more fully in notes on paragraph 159ZB(1)(b).

Paragraph (h) ensures that loan moneys applied to repay or refinance an earlier housing loan the interest on which would qualify for rebate, will be taken as applied for housing purposes connected with the relevant dwelling, thereby also attracting the rebate for interest.

Sub-section 159ZD(2) will mean that, subject to certain circumstances dealt with in section 159ZE, only moneys that, in terms of sub-section (1), are to be taken as applied by the taxpayer for housing purposes connected with a dwelling may be considered under Subdivision AA in determining eligibility for the rebate of tax for home loan interest. The purpose of sub-section (2) is to ensure that the circumstances referred to in sub-section (1) exhaustively state when moneys will be regarded as having been applied for housing purposes.

Sub-section (3) of section 159ZD is a drafting measure to ensure that the term "taxpayer" in sub-section (1) includes a taxpayer and another person and therefore covers moneys borrowed and expended in joint names.

Section 159ZE : Moneys deemed to be lent in certain circumstances

Section 159ZE contains provisions designed to ensure that a taxpayer who does not, in a strict sense, borrow moneys to acquire a dwelling but who incurs interest under a deferred payment, or an instalment purchase or other arrangement is brought within the scope of the rebate provisions.

Sub-section (1) will cover the case of a dwelling sold to a taxpayer under an agreement that provides for payment of the purchase price or part of the purchase price, to be made at a future time or by instalments. In such circumstances the purchase price or part thereof which is payable at a future time (whether by fixed instalments or otherwise) is to be deemed, for the purposes of the Subdivision, to have been lent to the taxpayer on the date of the agreement and applied by him or her for purposes referred to in sub-section 159ZD(1). The interest paid under such an agreement would not, apart from sub-section 159ZE(1), qualify for a rebate because it would not be interest on loan moneys.

Sub-section (2) will provide for interest paid under alternative means of finance to be brought within the scope of the Subdivision. It deals with the case where a person becomes liable, or 2 or more persons become liable jointly, upon acquiring a property, to repay an amount secured by a mortgage. Where, for example, the purchaser of a dwelling takes over from the vendor an existing liability secured by mortgage on the property, the sub-section will apply to ensure that any interest paid qualifies for rebate.

Section 159ZF : Eligible occupation of dwelling

Proposed section 159ZF sets out the tests to be met by a taxpayer to be an "eligible occupier" of a dwelling at any particular time. The term "eligible occupier" is a drafting aid used to describe a taxpayer who can qualify for a rebate. The tests are that the taxpayer:

(a)

occupied the dwelling as his or her sole or principal residence;

(b)

had a relevant interest in the dwelling, i.e., had a "prescribed interest" or a "proprietary right" in terms of sub-section 159ZB(1); and

(c)

did not have a disentitling spouse, i.e., a spouse who had, more than 5 years before that date, been an occupier of a sole or principal residence in which he or she held a prescribed interest or a proprietary right (see sub-section 159ZA(1); sub-section 159ZK(2) deals with the case where the taxpayer had, more than 5 years previously, a sole or principal residence).

Section 159ZG : Occupation, & c.;, of dwelling for whole month

The purpose of new section 159ZG is to provide a convenient "whole months" test to be used in calculating (where necessary) a proportion of the upper limits of the rebate provided for under proposed section 159ZL or 159ZM.

By paragraph (a), where a taxpayer is an eligible occupier of a dwelling for not less than 16 days in any calendar month that part month will be counted as a whole month.

A dwelling which is a home of a person for not less than 16 days in a calendar month will, by reason of paragraph (b), be counted as the home of the person for a whole month. This paragraph, in association with new section 159ZH will cater for the case where a taxpayer contributes to the maintenance of a dependent child or dependent student and is thus entitled to an amount of $200 in addition to the basic upper limit otherwise applicable to the taxpayer in respect of a dwelling.

Section 159ZH : Eligible dependant

New section 159ZH sets out the requirements to be met if a person is to be taken to be an eligible dependant of a taxpayer at a particular time. Where a taxpayer has an eligible dependant an additional $200 will be added to the basic upper limit otherwise applicable to the taxpayer under section 159ZL or 159ZM. The additional $200 will be apportioned over the number of whole months in a year of income that the taxpayer's dwelling is the home of the eligible dependant.

Under the first test which is provided for by paragraph (a), it will be necessary for the taxpayer to be an eligible occupier of the dwelling and for the dwelling to be a home of a person who is a dependant of the taxpayer. In order for a dwelling to be a home of a dependant it will not be necessary for the dependant to actually reside there at all times. For example, a dwelling may still be the home of a child who attends a boarding-school during school term. Similarly, a dependant may have more than one home, for example, where the dependant regularly spends a part of a week at one dwelling with one parent and the balance of the week at another dwelling with another parent.

Under the remaining tests in paragraphs (b) and (c), a person will be classed as a dependant if (not being a spouse) he or she is a person included in class 3 or class 4 in the table set out in sub-section 159J(2) of the Principal Act, and the taxpayer would be entitled to a rebate under section 159J in respect of the person, but for the operation of sub-section 159J(1A) which has terminated concessional rebates for dependent children or students. This will mean that a person will be a dependant if he or she is a child less than 16 years of age or a student less than 25 years of age receiving full-time education at a school, college or university in respect of whose maintenance the taxpayer contributes during the year and whose separate net income (an expression defined in sub-section 159J(6)) in the year is less than a specified amount. For 1982-83 this amount is $1,786.

Section 159ZJ : Rebatable interest

The purpose of proposed section 159ZJ is to specify those amounts paid by a taxpayer in a year of income by way of interest in respect of a loan connected with a dwelling (section 159ZC) which are to be taken into account for the purpose of calculating the rebate allowable under section 159ZK. The amount which so qualifies is to be called the "rebatable amount".

The rebate allowable in a year of income for interest paid will be limited to interest which accrued while the taxpayer was an eligible occupier. Where the loan moneys to which the interest paid relates were not applied wholly for purposes connected with the use of the dwelling as a sole or principal residence an apportionment will be made.

If the loan moneys are applied by the taxpayer only partly for purposes connected with the dwelling then the interest paid on the moneys used for other purposes is not to be taken into account in ascertaining the rebatable amount of interest. In cases where the dwelling is used only partly as the sole or principal residence, or where any profit or loss on its disposal is taken into account for income tax purposes, the Commissioner of Taxation will be empowered to determine how much of the interest paid is to qualify as a rebatable amount.

Sub-section 159ZJ(1) will specify that for an amount of interest on a loan connected with a dwelling to be rebatable, that amount must be paid by the taxpayer during a year of income in which he or she was, at any time, an eligible occupier of the dwelling. Sub-section (1) is subject to the succeeding provisions of section 159ZJ.

Sub-section (2) will stipulate several conditions to be satisfied if interest paid in a year of income is to be taken into account for the purposes of sub-section (1). By paragraph (a), for home loan interest paid by a taxpayer to be a rebatable amount it must have accrued while the taxpayer was an eligible occupier of the dwelling. Paragraph (b) will require that the interest be paid on or after 1 July 1982 and, by reason of paragraph (c), the taxpayer's "first occupation date" (defined in section 159ZA) must be before 1 July 1985.

Paragraph (d) will cover the case where a taxpayer's first occupation date is before 1 July 1982. In such cases interest accrued and paid by the end of the year of income in which the fifth anniversary of that first occupation date occurs will, provided the earlier tests in paragraphs (a), (b) and (c) are met, attract the rebate. This paragraph will apply to taxpayers who first occupied as owner a dwelling as a sole or principal residence on or after 1 July 1977 and before 1 July 1982. Taxpayers who were owner/occupiers of a sole or principal residence before 1 July 1977 are not to be eligible for the rebate.

Cases where the taxpayer's first occupation date is after 30 June 1982 will be covered by paragraph (e) which provides that interest accrued before the fifth anniversary of that first occupation date and paid by the end of the year of income in which that anniversary falls will, subject also to the tests in paragraphs (a), (b) and (c) being satisfied, attract the rebate.

Sub-section (3) will ensure that interest payments on home loans by actuarial-type building societies, generally of a kind known as terminating building societies, are treated on a comparable basis to interest payments on home loans made by other building societies and lending institutions which operate under a credit foncier method of repayment.

Paragraphs (a), (b) and (c) outline the circumstances which will be present where an actuarial-type society is the lending institution. These are that moneys have been lent to a taxpayer for housing purposes (paragraph (a)), the building society credits or makes an allowance to the borrower for interest on his subscriptions related to the loan moneys (paragraph (b)) and those credits or allowances do not form part of the borrower's assessable income (paragraph (c)). Where all these circumstances are present the amount of interest paid by the taxpayer which would otherwise be rebatable is to be reduced in accordance with paragraphs (d) and (e).

By those two paragraphs the reduction is to be the amount of credit or allowance referred to in paragraph (b) in the case of a sole borrower or, in the case of joint borrowers, an amount, not exceeding that credit or allowance, determined by the Commissioner. Such a determination would, if the taxpayer disagreed, be capable of being reviewed by an independent Taxation Board of Review.

Proposed sub-section (4) provides for the apportionment of interest paid in a year of income where the loan funds are only partly applied in connection with acquiring, constructing or extending a dwelling. The notes on section 159ZD describe the kinds of expenditure to which loan moneys are to be applied before interest on the loan will qualify for the rebate. To the extent that the taxpayer applies the loan moneys other than for those purposes, the interest paid which relates to the proportion so applied will not attract the rebate. By way of example, a taxpayer may spend part of a loan to purchase a car or acquire furnishings, in which case interest on the moneys so applied will not qualify as a rebatable amount.

Sub-section (5) relates to the apportionment of home loan interest paid by a taxpayer in a year of income in certain other specified circumstances where it would not be appropriate to treat the whole of the interest paid as a rebatable amount. Where the sub-section applies, the Commissioner of Taxation is empowered to determine how much of the total interest payment is reasonably to be regarded as home loan interest for rebate purposes. A Taxation Board of Review could reconsider the Commissioner's decision at the request of a dissatisfied taxpayer.

Paragraph (a) means that where a taxpayer is an eligible occupier of a dwelling during the whole or part of the year of income and has paid during the year of income interest on a loan connected with the dwelling, the Commissioner may, in the circumstances specified in paragraph (b), reduce the otherwise rebatable amount to an amount which, in his opinion, is reasonable in all the circumstances. This will generally involve ascertainment of the proportion of loan moneys applied to that part of a building or dwelling used as the sole or principal residence of the taxpayer.

The specified circumstances in which the Commissioner may decide to reduce the amount of home loan interest otherwise qualifying for the rebate are where the dwelling or part of the dwelling, the building containing the dwelling or a part of that building, the parcel of land on which the building stands or a part of that parcel of land was -

•

used or held for the purpose of gaining or producing income or for carrying on a business for that purpose (sub-paragraph (i)); or

•

used for some other purpose by the taxpayer - not being use as the taxpayer's sole or principal residence or a use related to such use (sub-paragraph (ii)).

This sub-section is designed for 2 purposes. First, it aims to prevent a taxpayer from obtaining both a home loan interest rebate and a deduction from assessable income in relation to the same interest payments. Second, it is designed to deny a rebate in respect of some part of interest payments in any case where a taxpayer's dwelling is used during a year for a purpose other than as his or her sole or principal residence.

For example, a taxpayer may have a flat attached to the house which is used for income producing purposes. Interest incurred on the loan moneys attributable to acquiring the flat would be an allowable deduction, from the rent received, in calculating the taxpayer's taxable income and therefore would be, by virtue of sub-section (5), ineligible for the rebate.

Sub-section (6) expands the operation of sub-section (5) so that where a taxpayer disposes of property or part of a property on which a dwelling is situated in such a manner that a profit from the sale of the property is assessable not under the general provisions of the law (in which case sub-section (5) would itself apply) but under paragraph 26(a) or section 26AAA or a loss on sale is deductible under section 52, then that property is to be taken to have been used at the time or times specified in paragraphs (d) and (e) for the purpose of gaining or producing income and thus any interest paid in relation to it will be subject to the operation of sub-paragraph (5)(b)(i).

Paragraph (a) deals with the acquisition of property for the purposes of profit-making by sale where the profit on sale is included in assessable income under the first limb of paragraph 26(a) or a deduction is allowable under section 52 for any loss which occurs on sale.

Where paragraph (a) applies to particular property, that property will, by virtue of paragraph (d), be deemed to have been used by the taxpayer for income producing purposes at all times during which the property was owned by the taxpayer. The effect of this will be to deny a taxpayer a rebate for interest which has already been taken into account in calculating the profit included in the taxpayer's assessable income or in calculating the loss allowed as a deduction.

A similar result is provided for under paragraphs (b) and (e) where a profit is included in assessable income under the second limb of paragraph 26(a) or a loss is allowed under section 52 in respect of property which has been ventured into a profit-making undertaking or scheme. Where this occurs the property is to be taken to have been used by the taxpayer for the purpose of gaining or producing income from the time it was held for the purpose of, or in connection with, the profit-making undertaking or scheme.

Paragraph (c) concerns cases where a profit from the sale of property within 12 months of acquisition is included in assessable income under section 26AAA. By virtue of paragraph (d) the property will be deemed to have been used for income producing purposes at all times during which the property was owned by the taxpayer and this will bring cases involving section 26AAA within the ambit of the Commissioner's authority to determine, under sub-section (5), the extent (if any) to which interest on the property is rebatable.

The purpose of sub-section (7) is to ensure that prepayments of interest are disregarded in determining the amount of rebatable interest in a year of income. Prepaid interest is deemed to have been paid in the income year in which the interest falls due and are to be considered in rebate calculations for that year and not in the year in which it is in fact paid.

Section 159ZK : Rebate of tax

Proposed section 159ZK contains the operative provision, central to the rebate provisions.

Sub-section (1) will give a rebate of tax in a taxpayer's assessment of an amount equal to 32% of the rebatable amount (paragraph (a)), or where there is more than one such rebatable amount, the sum of those amounts (paragraph (b)). The term "rebatable amount" is explained in the notes to section 159ZJ. As only interest paid after 1 July 1982 will qualify as a rebatable amount, no rebate is to be allowable in assessments before the 1982-83 year of income.

Sub-sections (2) and (3) combine to set the temporal bounds of the scheme in relation to a taxpayer.

By reason of sub-section (2), a rebate will not be allowable if, before 1 July 1977, the taxpayer occupied as a sole or principal residence a dwelling which he or she owned in one of the ways set out in new sub-section 159ZB(2). A taxpayer in that situation will, in relation to the 1982-83 income year, have occupied a dwelling more than 5 years before 1 July 1982.

Similarly, sub-section (3) will deny a rebate at the other end of the 5 year period of eligibility, by providing that a rebate is not allowable in respect of any year of income after the year in which the fifth anniversary of a taxpayer's first occupation date occurs. Thus, the last income year in which any taxpayer will be entitled to a rebate will be 1989-90, that being the year of income in which the fifth anniversary will occur of a first occupation date which occurred in the 1984-85 income year.

Section 159ZL : Rebate limit where first occupation date before 1 July 1982

A taxpayer will, under section 159ZK, be entitled to a rebate of tax at 32% on rebatable interest taken into account in accordance with section 159ZJ.

Section 159ZL will, however, mean that the rebate of tax allowable to a taxpayer in the 1982-83 or a subsequent year of income in respect of a dwelling is, where the taxpayer first occupied as owner a dwelling as his or her sole or principal residence before 1 July 1982, to be subject to an upper limit.

The formula by which a taxpayer's upper rebate limit is to be calculated where his or her first occupation date is before 1 July 1982 is set out in section 159ZL. The formula is

(AB + CD)/(12)


and the letters represent the following factors :

A

is the upper rebate limit, for the particular year of income under consideration, determined having regard to the taxpayer's first occupation date of a dwelling as his or her sole or principal residence;

B

is the number of whole months in the year of income in which the taxpayer was an eligible occupier (see section 159ZF) of a rebatable dwelling (see sub-section 159ZA(1));

C

is $200 and is the additional amount applicable where the taxpayer has an eligible dependant living in a dwelling (see section 159ZH); and

D

is the number of whole months in the year of income in which the taxpayer had an eligible dependant living in a dwelling.

In respect of the year of income commencing on 1 July 1982, the amount for A is specified in sub-paragraphs (i) to (v) of paragraph (a) of component A having regard to the "date of first occupation" of the taxpayer as defined in sub-section 159ZA(1). For any later year of income the amount determined for A will be $100 less than the amount used in the immediately preceding year. Whether or not the amount for A in relation to a year of income will be apportioned will depend on the number of whole months during the year of income in which the taxpayer was an eligible occupier. That number of whole months will be component B in the formula.

Component C is the additional amount applicable where a dependent child or student of the taxpayer has the dwelling of the taxpayer as a home, and the amount of $200 will be apportioned on the basis of the number of whole months in the year of income that the dependant has the dwelling as a home, if that number is less than 12. Component D in the formula represents the number of months that the dwelling was the home of the dependant during the year of income.

Example 1

Where the first occupation date of a dwelling by a taxpayer as his sole or principal residence was 14 August 1978 and the taxpayer had an eligible dependant as from 1 August 1983, the upper limit of the rebate allowable to the taxpayer in his assessments for 1982-83, 1983-84 and 1984-85 is as follows:

(a)

1982-83

($200(A) * 12(B))/(12) = $200


(b)

1983-84

(($100(A) * 12(B)) + ($200(c) * 11(D)))/(12) = $283.33


(c)

1984-85 Because of the operation of sub-section 159ZK(3) which precludes any rebate after the year of income in which the fifth anniversary of the first occupation date of the taxpayer occurs, the rebate will be nil, notwithstanding that an application of the formula in section 159ZL would produce a limit of $200.

Example 2

Where the first occupation date of a dwelling as a sole or principal residence by a taxpayer, who had an eligible dependant at all times, was 21 February 1980 but the taxpayer disposed of the dwelling on 24 February 1984 and acquired another dwelling on 13 April 1984 which he continued to use as his sole or principal residence, the upper limit is to be calculated as follows:

(a)

1982-83

(($300(A) * 12(B) + ($200(C) * 12(D)))/(12) = $500


(b)

1983-84

(($200(A) * 11(B)) + ($200(C) * 11(D)))/(12) = $366.67


(c)

1984-85

(($100(A) * 12(B)) + ($200(C) * 12(D)))/(12) = $300


(d)

1985-86 Because of the operation of sub-section 159ZK(3) and the fact that the first occupation date is 21 February 1980, no rebate is allowable in the 1985-86 income year.

The rebate limit calculated under the formula for each year of income must of course be compared with the rebate of tax otherwise allowable to the taxpayer for that particular year. Thus, in Example 1, if the rebatable interest paid by the taxpayer for the 1982-83 income year was $2,000, the taxpayer would be entitled to a rebate of $200 in his assessment, being the lesser of $640 ($2000 x 32%) and the upper rebate limit of $200. If the taxpayer had paid interest of $600, the rebate entitlement would be $192 ($600 x 32%) which is the lesser of his upper rebate limit of $200 and the rebate otherwise determined as allowable.

Section 159ZM : Rebate limit where first occupation date after 30 June 1982

Proposed section 159ZM sets out the formula by which a taxpayer's upper rebate limit is to be calculated where his or her first occupation date is after 30 June 1982. The section operates in a different manner to section 159ZL insofar as, in the first year in which the taxpayer occupies a dwelling, the limit attributable to that year ($500) is allowable only on a pro-rata basis having regard to the number of whole months the taxpayer was an eligible occupier of the dwelling in the year of income in which that first occupation date occurs. In the next succeeding year, the balance of the $500 is available and is added to a proportion of $400, being the limit for the second full year of occupation.

The formula in section 159ZM is

(AB + CD + EF)/(12)


and the letters represent the following factors:

A

is the upper rebate limit, for the particular year of income under consideration, determined having regard to the first occupation date of a dwelling by the taxpayer. In the year in which the first occupation date occurs it is $500; in each subsequent year component A reduces by $100;

B

is the number of whole months in the year of income in which the taxpayer was an eligible occupier (see section 159ZF) of a rebatable dwelling (see sub-section 159ZA(1)), except in the year in which the fifth anniversary of a taxpayer's first occupation date falls, in which case B is nil. Sub-paragraphs (b)(i) and (ii) are drafting devices which when combined with the operation of sub-paragraphs (b)(i) and (ii) of component D exclude certain months from the calculation to ensure that a taxpayer gains a rebate in any income year only for a total of 12 months;

C

is nil in the income year of the taxpayer's first occupation date and, in any subsequent year the amount that was A in the preceding year;

D

is nil in the income year of the taxpayer's first occupation date and, in any subsequent year, is the number of whole months in the year of income in which the taxpayer was an eligible occupier of a rebatable dwelling (see notes in relation to B above for the operation of the inter-relationship between component B and sub-paragraphs (b)(i) and (ii) of this component;

E

E is $200 and is the additional amount applicable where the taxpayer has an eligible dependant for whom the dwelling is a home (see section 159ZH); and

F

is, in the income year of the fifth anniversary of the taxpayer's first occupation date, the number of whole months in the year of income in which the taxpayer had an eligible dependant, not including -

(i)

any month after the month in which that fifth anniversary occurs; or

(ii)

where the taxpayer occupied the dwelling for the whole of the month in which the first occupation date occurred, the month in which the fifth anniversary occurs and any subsequent month.

Sub-paragraphs (a)(i) and (ii) are drafting measures to limit the additional amount for an eligible dependant in the year of income in which the fifth anniversary of the first occupation date occurs to the number of months in that year during which the taxpayer had the eligible dependant, but not extending beyond the month in which the fifth anniversary occurs. In the preceding years of income F will be the number of whole months in the year of income during which the taxpayer had an eligible dependant.

The following example will illustrate the operation of the formula in section 159ZM.

Example

Taxpayer's first occupation date was 7 October 1982 and, from 18 December 1982, the taxpayer had an eligible dependant. Application of the formula for the 1982-83 and subsequent income years gives the following annual limits:

(a)

1982-83

(($500(A) * 9(B)) + (nil(C) * nil(D)) + ($200(E) * 6(F)))/(12) = $475


(b)

1983-84

(($400(A) * 9(B)) + ($500(C) * 3(D)) + ($200(E) * 12(F)))/(12) = $625


(c)

1984-85

(($300(A) * 9(B)) + ($400(C) * 3(D))+ ($200(E) * 12(F)))/(12) = $525


(d)

1985-86

(($200(A) * 9(B)) + ($300(C) * 3(D)) + ($200(E) * 12(F)))/(12) = $425


(e)

1986-87

(($100(A) * 9(B)) + ($200(C) * 3(D)) + ($200(E) * 12(F)))/(12) = $325


(f)

1987-88

((nil(A) * nil(B)) + ($100(C) * 3(D)) + ($200(E) * 3(F)))/(12) = $75


(g)

1988-89 NIL

Although, in the above example, the taxpayer's rebate limit is calculated in 6 separate income years it relates only to the 5 years of occupancy (on a whole months basis) dating from 7 October 1982 and the 4 years 9 months of that 5 years during which the taxpayer had an eligible dependant. By reason of sub-section 159ZK(3), no rebate entitlement arises in respect of periods subsequent to the fifth anniversary of a taxpayer's first occupancy date.

Section 159ZN : Reduction of rebate limit in cases of co-ownership

Under proposed sections 159ZL and 159ZM the upper rebate limit applicable to a taxpayer is calculated having regard to occupation of a dwelling, but without regard to what other taxpayer or taxpayers may also qualify in respect of that dwelling for the same period (termed a co-ownership period). The purpose of proposed section 159ZN is to provide the means by which an upper rebate limit will be shared, either by agreement or, in the absence of an agreement, in accordance with the proportion of interest paid by each qualifying party.

The section will operate in relation to what is termed the "dwelling limit". The dwelling limit is the annual rebate limit otherwise applicable to the taxpayer (including a beneficiary in a trust estate where a trustee is entitled to a rebate by virtue of section 159ZQ), under either section 159ZL or 159ZM, for the period in the year of income during which the taxpayer was a co-owner/eligible occupier of the dwelling. Once the dwelling limit is ascertained in relation to each taxpayer who was a co-owner/eligible occupier during the year of income, a further calculation is required to ascertain the rebate limit ("modified dwelling limit") applicable to each taxpayer. The method to be used for ascertaining the modified dwelling limit will depend on whether the parties reach an agreement as to the percentage each is to have of their respective "dwelling limit" or whether, in the absence of any such agreement, the percentage is to be determined by reference to the proportion paid by the taxpayer of the total rebatable interest paid on the dwelling which accrued during the period of co-ownership.

Finally, to ascertain the upper rebate limit applicable to the taxpayer during the whole of a year of income (which may include periods where the taxpayer was not a co-owner or where another person who was a co-owner was not an eligible occupier), it will be necessary to reduce the amount of the upper rebate limit calculated under section 159ZL or 159ZM by the "limit reduction amount" which is the amount (if any) by which the "dwelling limit" exceeds the "modified dwelling limit". In other words, this is the amount of a taxpayer's upper rebate limit to which he or she is not entitled by reason of the entitlement of another person to a rebate in relation to the particular dwelling. It should be noted that the "limit reduction amount" in relation to one co-owner will not necessarily be the entitlement of a second co-owner, because that second co-owner may be entitled to a higher or lower dwelling limit depending, for example, on the number of years during which that co-owner has had a relevant interest in his or her sole or principal residence.

Sub-section (1) of section 159ZN defines a number of terms used in the section:

"annual rebate limit"

means a taxpayer's upper rebate limit calculated under section 159ZL or 159ZM as the case may be, without regard to this section.

"dwelling limit"

is the proportion of a taxpayer's annual rebate limit for the year of income relative to the period in the year during which the taxpayer was an eligible occupier of a dwelling with another person who also held a relevant interest in the dwelling (the "co-ownership period").

"modified dwelling limit"

is a taxpayer's share of his or her "dwelling limit" in relation to a co-ownership period, as agreed by the various co-owners or as determined, in the absence of such agreement, by this section. The limit is to be determined in accordance with the formula

(AB)/(100)


, where the letters represent the following factors:

A

is the dwelling limit (see above) for the taxpayer in relation to the particular co-ownership period being considered;

B

is, under paragraph (a) of this component, the number allotted by agreement between the various co-owners/eligible occupiers as provided for by sub-section (5). If there is no agreement between the parties then paragraph (b) will apply and component B will be the proportion paid by the taxpayer of the total rebatable interest paid by all co-owners to whom the section applies and accrued during the co-ownership period. In effect,the fraction

(B)/(100)


represents the percentage of a taxpayer's dwelling limit which has been allocated to him or her, either by agreement or by operation of the section.

"rebatable interest"

is defined for drafting purposes as interest which is taken into account in relation to a dwelling in calculating the rebatable amount under section 159ZJ.

Sub-section (2) will determine circumstances in which the new section 159ZN applies. It will apply where there is, in any year of income, a period of co-ownership. A "co-ownership period" will occur in an income year if there is in relation to the same dwelling a period of more than 16 days in any month in the year during which period 2 or more taxpayers are each entitled to a rebate of tax under Subdivision AA. It is also a requirement before a co-ownership period will occur, for each of the taxpayers to have paid rebatable interest which accrued during the co-ownership period.

Sub-sections (3) and (4) operate to calculate the annual rebate limit in relation to a taxpayer where, under this section, the annual rebate limit otherwise applicable is reduced because of a co-ownership period. As explained in the earlier notes on this section, sub-sections (3) and (4) operate in combination to ascertain the amount of the upper rebate limit not applicable to a particular taxpayer by reason of an entitlement of another person to some portion of an upper rebate limit.

Sub-section (5) will combine with component B of the formula in the definition of "modified dwelling limit" (see notes on that definition) to allow taxpayers who are co-owners/eligible occupiers of a dwelling to agree as to the apportionment of their respective dwelling limits.

Under new sub-section (6) any agreement by taxpayers in accordance with sub-section (5) will not have effect unless notice of the agreement, in a form approved by the Commissioner of Taxation and signed by each of the taxpayers, is lodged with the Commissioner on or before 31 August in the year of income to which the agreement relates or before such later date as the Commissioner allows. In effect this will require each taxpayer who is a party to such an agreement to lodge notice of the agreement with his or her return of income for the particular year to which the agreement relates. It should be noted that taxpayers who are co-owners/eligible occupiers of a dwelling will need to make a fresh agreement in relation to each year of income unless they wish an automatic allocation of their upper rebate limit to occur. Moreover, the apportionment of the upper rebate limits applicable in relation to a particular dwelling may differ from year to year.

Section 159ZO : Benefit of rebate may be transferred to spouse

The purpose of proposed section 159ZO is to permit the transfer between a taxpayer and his or her spouse of the benefit of the rebate to which the taxpayer would otherwise be entitled under the new Subdivision.

Paragraphs (1)(a) and (b) provide that a taxpayer who is entitled under the preceding provisions of the Subdivision to a rebate of tax may elect to transfer the whole (or a part) of that rebate entitlement to a person who was, on the last day of the income year, the taxpayer's spouse. This will in effect mean that, as between married couples (including those in a de facto marriage relationship), it will make no difference to the entitlement to a rebate which of the couple incurred or paid the interest for which the rebate is being claimed.

Where an election under paragraph (b) is made, paragraphs (c) and (d) effectuate the transfer of the amount of rebate to which the election relates, giving the recipient spouse, and denying the taxpayer, entitlement to the transferred amount.

By reason of new sub-section 159ZA(2) - refer to notes on that sub-section - a taxpayer who has paid interest which satisfies the eligibility criteria of Subdivision AA and who, by reason of having no taxable income or a taxable income below the threshold at which tax becomes payable cannot benefit from a rebate entitlement, will not be precluded from transferring to his or her spouse the rebate of tax (calculated notionally) to which he or she would have been entitled if he or she had, in fact, had a liability to tax.

By sub-section (2) an election under sub-section (1) is to be exercised by notice in writing given to the Commissioner on or before the date on which the taxpayer transferring the rebate lodges his or her return of income. The Commissioner is empowered to extend the time for lodgment of the notice of election.

Where, however, the transferring taxpayer is not required to lodge a return of income then the election is to be lodged on or before the date of lodgment of the return of income of the spouse of the taxpayer to whom the rebate is being transferred.

Section 159ZP : Recoupment of expenditure

New section 159ZP is a safeguarding provision designed to cover cases where a taxpayer is recouped, or entitled to be recouped, for his or her outlay on home loan interest. In such cases, by reason of sub-section (1), Subdivision AA does not apply and is deemed never to have applied to the amount recouped.

Sub-section (2) will deal with those cases where the amount of a recoupment of home loan interest is included in a person's assessable income. This could occur where an amount of home loan interest is reimbursed by a person's employer and the amount of the reimbursement is an employment-related benefit assessable under paragraph 26(e). In such a case, sub-section 159ZP(1) does not apply so as to preclude a rebate of tax being allowable in respect of the interest recouped.

Proposed sub-section (3) is designed for those cases where an amount is received by a taxpayer which relates to both home loan interest paid and to other expenditure, but no amount is allocated by the payer specifically to the home loan interest. Where this occurs the Commissioner of Taxation is to be empowered to determine the extent to which the amount received constitutes a recoupment of home loan interest.

Section 159ZQ : Rebate where interest paid by trustee

Section 159ZQ proposes to extend the scope of the rebate provisions to those cases where a trustee of a trust estate pays home loan interest out of income to which a beneficiary is presently entitled, or applies income of the trust estate for the benefit of the beneficiary by payment of home loan interest, and the interest relates to a dwelling which the beneficiary uses as his sole or principal residence. The extension of the rebate provisions in this way is consistent with the operation of the trust provisions of the income tax law which, in certain circumstances, permit a trustee to claim the benefit of concessional rebates to which a beneficiary would be entitled.

Sub-section (1) specifies the conditions which must be present before the section will operate.

Those conditions are:

•

the trustee has been assessed under section 98 in respect of a share of the net income of a trust estate. Section 98 provides, in broad terms, for a trustee to be assessed on that part of the net income of a trust estate in relation to which a beneficiary, although under a legal disability, is presently entitled, as if that part were the income of an individual. In other words, the trustee is assessed on that part separately from any other assessment in relation to the income of the trust.

•

the trustee paid out of income to which the beneficiary is presently entitled home loan interest, or the trustee applied income of the trust estate for the benefit of the beneficiary by the payment of the home loan interest, in relation to a dwelling in which the trustee has a relevant legal interest.

•

the beneficiary occupied the dwelling as his or her sole or principal residence.

Where all these conditions are satisfied, paragraphs (d) and (e) deem the Subdivision to apply as if the beneficiary both held the relevant interest in fact held by the trustee and paid the interest paid by the trustee. In practical terms, this will result in the trustee becoming entitled to a rebate of tax in the section 98 assessment which relates to the beneficiary's share of the trust income.

Sub-section (2) applies in reverse manner to sub-section (1). Where there is included in a taxpayer's assessable income of a year of income an amount as a share of the income of a trust estate and, during the year, the trustee paid interest in connection with a dwelling which is the taxpayer's sole or principal residence, out of income to which the taxpayer is presently entitled, or exercised his discretion in favour of the taxpayer in payment of the interest so that the taxpayer is deemed, by virtue of section 101, to be presently entitled to the amount applied for his benefit, then the taxpayer is to be entitled to the rebate to which he or she would have been entitled if he or she had had ownership rights in the dwelling and had paid the interest which the trustee paid.

Proposed sub-section (3) will permit a rebate of tax in the date of death assessment of a deceased person in respect of interest accrued before the date of death and paid by the trustee during the year of income in which the deceased person died. This is consistent with the treatment afforded to other concessional rebates.

Sub-section (4) is a drafting measure to ensure that a rebate of tax is not allowable to a trustee under Sub-division AA except in accordance with the requirements of section 159ZQ.

Clause 5: Amendment of assessments

This clause will amend sub-section (10) of section 170 of the Principal Act, which section governs the power of the Commissioner of Taxation to amend income tax assessments. Sub-section 170(10) provides that nothing in section 170 is to prevent the amendment of an assessment at any time for the purpose of giving effect to specified provisions of the Principal Act.

By this clause it is proposed to insert in sub-section 170(10) references to new sub-section 159ZJ(6) and sections 159ZO and 159ZP which clause 4 of the Bill proposes to insert in the Principal Act.

As amended, sub-section 170(10) will enable the Commissioner to give effect to sub-section 159ZJ(6) by amending at any time the assessment of a taxpayer where, by operation of the relevant provisions, a taxpayer is assessed on a profit arising, or is allowed a deduction for a loss, on sale of a dwelling, but in respect of which a rebate under Subdivision AA has been allowed (see earlier notes on sub-sections 159ZJ(5) and (6)).

The need to include sub-section 159ZJ(6) in sub-section 170(10) arises because facts may emerge some time after a taxpayer acquired a dwelling, which he or she used as his or her sole or principal residence, which indicate that the dwelling (or part of the property on or in which the dwelling is situated or contained) was acquired for a purpose which results in a profit or loss on disposal being reflected in taxable income. Alternatively, the property may be ventured as part of a profit-making undertaking or scheme. Where such an event occurs the Commissioner will be authorised by sub-section 170(10) to amend an assessment at any time to give effect to sub-section 159ZJ(5) as affected by sub-section 159ZJ(6).

The insertion, in sub-section 170(10), of the reference to section 159ZO will enable the Commissioner to amend the assessment of a taxpayer at any time to give the taxpayer the benefit of the rebate of tax where the spouse of the taxpayer lodges an election to transfer that benefit and that election is lodged after notice of the taxpayer's assessment has issued.

The insertion, in sub-section 170(10), of the reference to section 159ZP will enable the Commissioner to amend an assessment of a taxpayer who, in a later year of income, is recouped an amount of interest that has been taken into account as rebatable interest under section 159ZJ for the purposes of calculating a rebate of tax.