Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon. John Howard, M.P.)
The purpose of this memorandum is to explain the provisions of the above Bill. The provisions are designed to counter tax avoidance and cover three main matters.
The first concerns "pre-payment" schemes under which taxpayers seek to achieve deductions in excess of net outlays on deductible items. Deductions will be denied in these cases. The measures will also apply to tax avoidance arrangements between associated taxpayers under which the taxation of the amount passing between the parties is deferred to a later year.
A second set of provisions is designed to overcome a High Court decision that the existing trust provisions in Division 6 of the Income Tax Assessment Act (the "Principal Act") only have application to Australian source income of trusts. As the law now stands, Australian residents can defer, or escape completely, the payment of tax on foreign source income accumulated in trusts for their benefit. Associated measures relating to partnerships are designed to remove any doubt, arising from the Court decision, about the application of the partnership provisions of the income tax law to partnership income from sources out of Australia.
A third set of provisions is designed to counter trust-stripping schemes which attempt to pass income derived by trusts on to beneficiaries in a tax-free form.