House of Representatives

Taxation Laws Amendment Bill (No. 3) 1991

Taxation Laws Amendment Act (No. 3) 1991

Income Tax (Deferred Interest Securities) (TFN Withholding Tax) Bill 1991

Income Tax (Deferred Interest Securities) (Tax File Number Withholding Tax) Act 1991

Medicare Levy Amendment Bill 1991

Medicare Levy Amendment Act 1991

Explanatory Memorandum

(Circulated by the authority of the Treasurer,the Hon. J. Kerin, M.P.)

General Outline and Financial Impact

The Taxation Laws Amendment Bill (No. 3) will amend various taxing Acts (unless otherwise indicated all amendments refer to the Income Tax Assessment Act 1936 ) by making the following changes:

Fringe Benefits Tax - Living-Away-From-Home Allowances

(Fringe Benefits Tax Assessment Act 1986)

·
Ensures that living-away-from-home-allowances paid to offshore oil and gas rig workers are treated as fringe benefits.
·
Proposal announced : This proposal was announced by the Treasurer on 2 August 1991.
·
Financial impact : The amendment will have a negligible effect upon the revenue.

Exemption of the pay and allowances of members of the Defence Force serving in Iraq and Kuwait

·
Exempts from income tax the pay and allowances of members of the Australian Defence Forces allotted for duty in Iraq and Kuwait in response to Iraq's invasion of Kuwait.
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Proposal announced : 14 August 1990 by Minister for Defence, Science and Personnel.
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Financial impact : The estimated cost will be $850,000 per month with a total cost of $8.75 million in the financial year 1990-91.

Pensions, Benefits and Allowances

·
Amends the tax legislation to bring it in line with amendments to the social security and veterans' entitlements legislation.
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Proposal announced : Not previously announced. Consequential amendments due to changes made to the Social Security Act 1991 and Veterans' Entitlements Act 1986 .
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Financial impact : No impact on revenue.

Investment-related Lottery Winnings

·
Assesses on their winnings the winners of certain investment-related lotteries which are drawn or decided on or after the day on which this Bill receives Royal Assent.
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The amendment will only apply if the lottery is a return on an investment. For instance, it could be a benefit of depositing money with a financial institution.
·
Prizes won in ordinary lotteries such as lotto are not affected.
·
The amendment does not apply if either the prize won or the right to participate in the investment-related lottery is already taxable.
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Proposal announced : 1991-92 Budget.
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Financial impact : The amendment has no direct impact on Revenue, but will prevent a revenue loss through the substitution of lottery prizes for investment returns.

Deduction for Petroleum Resource Rent Tax Payments

·
Allows Petroleum Resource Rent Tax (PRRT) instalments to be deductible in the year in which the instalment payments are made.
·
Ensures that refunds or credits of instalments of PRRT, for which a deduction has been allowed, or is allowable, are assessable income in the year in which the amount is received, credited, paid or applied.
·
Proposal announced : By the Treasurer on 9 May 1991.
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Financial impact : The cost of the amendment is estimated to be $125m in 1991-92 and $205m in 1992-93.

Extension of the Research and Development Activities Concession

·
Extends the research and development tax concession at a maximum rate of deduction of 125% beyond 30 June 1995 indefinitely.
·
Proposal announced : March 1991 Industry Statement.
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Financial impact : The estimated cost is $180m p.a. in the first year of impact 1996/97 rising to $280m p.a. by the year 2000/01.

Gifts to Gift Funds of Cultural Organisations

·
Introduces new arrangements for gifts to gift funds of cultural organisations.
·
As a consequence, removes seven cultural organisations which are presently listed in the income tax gift provisions.
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Proposal announced : By the Treasurer and the Minister for the Arts, Tourism and Territories in a Press Release on 24 March 1991.
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Financial impact : The cost of the proposal cannot be quantified, but is unlikely to have a substantial impact on revenue.

Environmental Impact Studies

·
Allows a deduction for expenditure incurred on environmental impact studies on or after 12 March 1991.
·
Writes off the cost over the lesser of 10 years or the life of the project to which the study relates.
·
Excludes the cost of plant or articles used in the studies from the deduction, but they will be eligible for deduction under the ordinary depreciation provisions.
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Proposal announced : March 1991 Industry Statement.
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Financial impact : The cost of this measure will rise from nil in 1990-91 to an estimated cost of $45 million per year after ten years.

Life Insurance Protection Levy

·
Creates a legislative framework for the taxation treatment of various payments associated with the measure to assist policyholders of Occidental Life Insurance Company of Australia Limited and Regal Life Insurance Limited.
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Proposal announced : 1991-92 Budget.
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Financial impact : The estimated cost to revenue is $25 million (1991/92 prices). It is expected that the measure will not have an impact until 1993/94 financial year. However, the actual timing and amount will be dependent on the judicial management of Occidental Life and Regal Life.

General Mining Exploration and Prospecting Expenditure

·
Removes the requirement that mineral exploration or prospecting expenditure need be incurred on a mining tenement for such expenditure to qualify for immediate deductibility.
·
Puts all exploration or prospecting expenditure on the same footing, whether it relates to quarrying, to petroleum operations or to other mining operations.
·
Applies to exploration or prospecting expenditure incurred on or after 1 July 1991.
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Proposal announced : 1991-92 Budget.
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Financial impact : This amendment will have a small but unquantifiable cost to the Revenue.

Timing of Franking Credits

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Changes the basis on which companies receive franking credits from the assessment of company tax to the payment of company tax.
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Applies where notices of assessments, amended assessments and determinations that are served or deemed to be served after 20 August 1991.
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Proposal announced : 1991-92 Budget.
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Financial impact : There will be revenue savings from eliminating the existing scope for compounding the revenue losses that can occur under the imputation system if company tax is not paid. However, these revenue savings cannot be quantified.

Capital Gains Tax Cost Base

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Allows costs such as interest, repairs and rates and land taxes to be deducted from a capital gain made on the disposal of most assets, where those costs are not otherwise allowable as a tax deduction.
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Applies to assets acquired on or after 21 August 1991.
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Proposal announced : 1991-1992 Budget.
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Financial impact : The cost of these amendments is not expected to be significant.

Provisional Tax Amendments

·
Resolves an inequity that arose as a result of an unintended effect of the calculation of provisional tax on salary or wages income. This will be achieved by modifying the method of calculation of provisional tax on salary or wages income.
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The new method of calculation is based on a split of the provisional tax credit into two components:

(a)
provisional tax on income other than salary or wages; and
(b)
provisional tax on salary or wages income.

·
Also makes technical amendments to the Act to give added certainty to the operation of the provisional tax variation provisions.
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Proposal announced : Not previously announced.
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Financial impact : These amendments will have a negligible impact on the revenue.

Tax File Number Withholding Tax

·
Introduces new rules for withholding tax from income accrued from certain deferred interest investments made on or after 1 February 1992 where an investor has not quoted a tax file number (TFN).
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Proposal announced : 18 April 1991 (second reading speech of Taxation Laws Amendment Act (No. 2) 1991 ).
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Financial impact : this change will have no impact on revenue.

Exemption from Medicare Levy: Blind Pensioners and Sickness Beneficiaries

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Amends the Income Tax Assessment Act 1936 to make that Act reflect the Government's initial intention to limit exemption from the levy on account of holding a health card to blind pensioners and sickness beneficiaries.
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Proposal announced : 9 July 1991.
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Financial impact : The amendment of the Act will avoid an additional unintended cost to revenue.

Medicare Levy Low Income Thresholds

Changes to the Threshold Levels

(Medicare Levy Amendment Act 1986)

·
The Medicare Levy Amendment Bill 1991 will amend the Medicare Levy Act 1986 to vary the taxable income levels below which persons are exempt from tax as from 1 July 1991; the new levels compare with the old as follows:
  1990-91 1991-92
Individuals $11,745 $11,745
Married couples and sole parents $19,045 $19,674
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Proposal announced : 1991-92 Budget.
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Financial impact : The increase in the low income thresholds is estimated to cost nil in 1991-92 and $10 million in 1992-93.

The Taxation of Foreign Source Income

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Provides relief from the double taxation of profits that can occur when an Australian-controlled foreign company (CFC) changes its residence from an unlisted country to either a listed country or Australia. Where a CFC changes residence to Australia, a taxpayer will continue to be exempt from tax on distributions made by the CFC up to the amount of the CFC's income that was previously attributed to the taxpayer. Relief in relation to a change of residence to a listed country is provided by enabling a taxpayer to obtain foreign tax credits for foreign tax paid on certain gains arising to the CFC on the sale of the assets of the CFC after the change of residence.
·
Ensures that taxpayers are not disadvantaged by the rules that provide for conversion of the foreign income losses from the pre 1990-91 classes of income to the new classes of income that operate from the 1990-91 income year. This will enable a taxpayer to treat a pre 1990-91 loss that is able to be carried forward to subsequent years as relating to the same class of income to which it would have belonged had it been a loss incurred in the 1990-91 income year.
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Prevents taxpayers from gaining an unintended advantage by changing the residence of a company from a listed country to an unlisted country and claiming foreign tax credits on dividends paid out of pre 1990-91 profits. The amendment will deny foreign tax credits in those circumstances.
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Enables certain resident trusts to obtain a tax exemption for distributions received from a CFC up to the amount of the CFC's income attributed to them under the accruals tax measures. The trusts affected are corporate unit trusts, public trading trusts and superannuation trusts that are taxed as separate taxpayers.
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Proposal announced : Treasurer's press release issued on 28 June 1991.
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Financial impact : The amendments to the foreign source income provisions of the Principal Act are unlikely to have any significant impact on the revenue.

Amendments Relating to Garnishee Notices

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Provides that, in relation to building society shares, only withdrawable shares (and not permanent or fixed shares) in the capital of a building society can be garnisheed from such a society.
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Proposal announced : Not previously announced.
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Financial impact : Insignificant.

Deferral of Initial Payment of Company Income Tax and Consequences for Dividend Imputation

·
Defers the initial payment of income tax for the 1990-91 income year by companies, superannuation funds, approved deposit funds and pooled superannuation trusts (all referred to as companies) from the 28th day of the month following balance date to the 15th day of the third month following balance date.
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Proposal announced : Treasurer's press releases on 13 June 1991 and 9 September 1991.
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Financial impact : There will be no long term impact on revenue as the income tax collected under the deferral arrangements is the same as that which would have been collected under the existing law. However, the Revenue has lost use of the funds from initial payments of company tax for seven weeks.

Pay-As-You-Earn (PAYE) Amendments

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To restructure the definitions and correct a technical inconsistency in the pay-as-you-earn (PAYE) provisions.
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Proposal announced : These measures have not been announced previously.
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Financial impact : These amendments will not impact on revenue.

Direct lodgment of appeals and applications for review with the Federal Court and the Administrative Appeals Tribunal.

·
Introduces new arrangements for taxpayers to lodge appeals against, or applications for review of, objection decisions directly with the Federal Court or the Administrative Appeals Tribunal.
·
Repeals the objection and appeals provisions of various taxation laws administered by the Commissioner of Taxation and includes a set of generic objection and appeal provisions in the Taxation Administration Act 1953.
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Proposal announced : Not previously announced.
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Financial impact : These arrangements will have no impact on the revenue.

Occupational Superannuation Standards

Reasonable Benefit Limits Administrative Arrangements

·
Corrects a technical deficiency whereby certain payers of eligible termination payments were not required to report such payments to the Insurance and Superannuation Commissioner.
·
Gives the Insurance and Superannuation Commissioner the power to treat a superannuation fund as if it had satisfied the superannuation fund conditions for a particular year even though it had not complied with a request by the Insurance and Superannuation Commissioner to commute an excessive component of a pension.
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Proposal announced : Not previously announced.
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Financial impact : These changes will have no significant impact on revenue.

Pre - 1 July 1988 funding credits

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Removes from the Act the date by which an application for a pre- 1 July 1988 funding credit must be made. The relevant date will be prescribed in the Occupational Superannuation Standards Regulations.
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Proposal announced : Not previously announced.
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Financial impact : This change will have no impact on revenue.

Registered Organisations

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Registered organisations will be denied the right to franking credits and debits from 3 pm (Australian Capital Territory time) on 20 August 1991 and any franking surplus at that time will be cancelled.
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Proposal announced : 1991-92 Budget.
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Financial impact : The change will have no impact on the revenue.

Miscellaneous Minor Clarifying Amendments

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Amends the definition of "registered laboratory" in the Wool Tax (Administration) Act 1964 to provide it has the same meaning as that contained in the Australian Wool Corporation Act 1991 .
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Proposal announced : Not previously announced.
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Financial impact : No impact on revenue.
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Clarifies the operation of certain deduction provisions which are expressed to be subject to the same limits on deductibility as is section 51.
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Proposal announced : The amendment (being only minor) has not been announced previously, as it does not change the effect of the law.
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Financial impact : This measure will not affect revenue.
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Makes two minor technical corrections to the legislation relating to the taxation of foreign employment income.
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Proposal announced : Not previously announced.
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Financial impact : No impact on revenue.


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