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Senate

Taxation Laws Amendment Bill (No. 3) 1997

Supplementary Explanatory Memorandum

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

General outline and financial impact

Gains and losses

Amends the Bill to remove an apparent discretion given to the Commissioner of Taxation in relation to consideration given for the transfer of revenue losses between related companies. The amendment is technical in nature and will ensure the amended provision, which will be included in the Income Tax Assessment Act 1997 (the 1997 Act), operates as a matter of fact, as intended, rather than on the basis of the opinion of the Commissioner.

Date of effect: The amendment will apply to the 1997-98 year of income and later years of income.

Proposal announced: Not previously announced.

Financial impact: There should be no impact on the revenue as the change merely ensures the 1997 Act operates as intended.

Compliance cost impact: There should be no impact on compliance costs as the amendment will not affect the obligations of taxpayers.

Employee share schemes

Amends the employee share scheme provisions of the Income Tax Assessment Act 1936 (the Act) to make two technical amendments.

Date of effect: The amendment to subsection 139CD(5) will apply with effect from the original date of application of Division 13A, and the amendment to paragraph 139GF94)(b) will apply to shares or rights acquired on or after 1 July 1996.

Amendments announced: Assistant Treasurer's Press Release dated 25 July 1997.

Financial impact: The effect on the revenue is expected to be negligible.

Compliance cost impact: Nil.

Chapter 1 - Gains and losses

Summary of the amendment

Purpose of the amendment

1.1 The proposed amendment to the Bill will remove an apparent discretion inadvertently given to the Commissioner of Taxation in relation to consideration given for the transfer of revenue losses between related companies. The amendment is technical in nature and will ensure the amended provision, which will be included in the Income Tax Assessment Act 1997 (the 1997 Act), operates as a matter of fact, as intended, rather than on the basis of the opinion of the Commissioner.

Date of effect

1.2 The amendment will apply to the 1997-98 year of income and later years of income.

Background to the legislation

1.3 Schedule 14 of the Bill introduced parallel amendments to the Income Tax Assessment Act 1936 (the 1936 Act) and the 1997 Act relating to revenue and capital gains and losses. One of the amendments will ensure that consideration given for the transfer of a capital or revenue loss between related companies will not give rise to a capital gain or loss to the transferor or transferee company.

Explanation of the amendment

1.4 New subsection 170-25(1) of the Bill, which amends the 1997 Act, deals with the Taxation consequences for a transferor company which receives consideration from a transferee company for the transfer of the whole or part of a revenue loss.

1.5 Paragraph 170-25(1)(a) provides that where a transferor company receives consideration from a transferee company, only so much of the consideration as, in the opinion of the Commissioner, is given for the amount of the loss is neither assessable income or exempt income of the payee company.

1.6 The apparent discretion conferred on the Commissioner of Taxation by the words in italics above was inadvertently included in paragraph 170-25(1)(a). In substance, the extent to which a payment is given for the amount of a revenue loss transferred is a question of fact, not a matter of discretion for the Commissioner. The words of the law should reflect this.

1.7 Consequently amended paragraph 170-25(1)(a) will remove the apparent discretion given to the Commissioner of Taxation.

[Amendment 1]

Chapter 2 - Employee share schemes

Overview

2.1 These amendments amend the employee share scheme provisions of the Income Tax Assessment Act 1936 (the Act) to make two technical amendments.

Summary of the amendments

Purpose of the amendments

2.2 The proposed amendments will:

·
amend subsection 139CD(5) so that it refers to 'permanent employees' rather than to 'employees'; and
·
amend paragraph 139GF(4)(b) to change the reference to 'two thirds' to '75%".

Date of effect

2.3 The amendment to subsection 139CD(5) will apply with effect from the original date of application of Division 13A, and the amendment to paragraph 139GG(4)(b) will apply to shares or rights acquired on or after 1 July 1996.

[Item 3]

Background to the legislation

2.4 The taxation of benefits arising under employee share schemes in respect of shares, or rights to acquire shares('rights'), issued after 6.00pm ACT time on 28 March 1995, is generally covered by Division 13A of Part III of the Act.

Explanation of the amendment

2.5 Request for Amendment 1 inserts Schedule 17. The Schedule amends subsection 139CD(5) so that it refers to 'permanent employees' rather than to 'employees' [Item 1] . This amendment is intended to remedy an omission from Division 13A. The amendment was foreshadowed in December 1995 by a spokesperson for the Treasurer of the previous Government, and subsequently announced by this Government on 20 August 1996 and 25 July 1997.

2.6 The Schedule also amends paragraph 139GF(4)(b) to change the reference to 'two thirds' to 75% [item2] . This amendment is intended to remedy a defect in the meaning of 'non-discriminatory basis' set out in section 139GF of the Act by ensuring that the participation percentage is the same throughout the section.


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