House of Representatives

Taxation Laws Amendment Bill (No. 3)1992

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon John Dawkins, M.P.)

General Outline and Financial Impact

The Taxation Laws Amendment Bill (No.3) 1992 will amend the Income Tax Assessment Act 1936 and the Occupational Superannuation Standards Act 1987 by making the following changes:

Primary production definition

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Expands the definition of "primary production" so as to include horticulture, including the propagation or cultivation of plants and their products.
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Proposal announced: Not previously announced.
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Financial impact: The estimated cost to revenue is $0.5 million per year from 1992-93

Expenditure on research and development activities

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Confirms that prospecting, exploring or drilling for minerals, petroleum or natural gas is not as such research and development (R & D) for the purpose of the special R & D deduction of up to 150% of expenditure.
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Proposal announced: Not previously announced.
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Financial impact: This amendment, being clarifying in nature, will have no effect on revenue.

Pooled Development Funds

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Provides for the taxation treatment of pooled development funds.
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Provides for the taxation treatment of shareholders in pooled development funds.
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Proposal announced: Economic Statement of 26 February 1992
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Financial impact: No estimated revenue cost for the first two years. The estimated cost for 1994-95 and 1995-96 is $5 m in each year.

Bad debts

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Confirms that taxpayers are entitled to deductions in respect of losses incurred in writing off a bad portion of a debt.
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Authorises deductions for losses incurred by taxpayers where certain debts owed to a taxpayer are swapped for less valuable equity in the debtor.
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Ensures that subsequent profits on disposal of equity acquired in debt/equity swaps are included in assessable income, or losses allowed as deductions.
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Applies to debt/equity swaps where the debt is extinguished on or after 27 February 1992.
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Proposal announced: The proposal was announced by the Prime Minister in the "One Nation" Statement on 26 February 1992.
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Financial impact: The amendments will have no long term cost to the revenue. Some deductions from debt/equity swaps could be brought forward at a small but unquantifiable cost to the revenue.

Tax exempt infrastructure borrowings

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provides that infrastructure borrowings will be borrowings for a maximum period of 10 years raised by:

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eligible companies and unit trusts to finance the construction of specified infrastructure facilities they intend to own, use and control for a period of 25 years from the time the facility becomes income producing; and
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companies whose sole purpose is to acquire infrastructure borrowings; and

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provides also that infrastructure borrowings will be accorded the following tax treatment:

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investors will not be assessable on the interest;
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the interest paid by the borrower will not be tax deductible;
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costs incurred by investors in deriving interest on infrastructure borrowings will be tax deductible;
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profits or gains arising on the disposal of securities that are infrastructure borrowings will be exempt from tax;
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losses incurred on the disposal of securities that are infrastructure borrowings will not be allowable deductions;
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the tax benefits will be available for a maximum period of ten years, including rollovers of the initial borrowing.

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Proposal announced: "One Nation" Statement of 26 February 1992
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Financial impact: The estimated revenue cost of this measure for the 1993-94, 1994-95 and 1995-96 years is $M10, $M35 and $M100, respectively.

Depreciation on property on leased land

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Allows depreciation to holders of Crown leases who were denied depreciation deductions for property they install on the leased land by reason only that they are not owners at law.
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Proposal announced: "One Nation" Statement of 26 February 1992.
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Financial impact: The amendments are likely to have some cost to on revenue. That cost is not expected to be significant, but cannot be reliably estimated.

Traveller accommodation

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Increases the rate of deduction for buildings used in the provision of short-term traveller accomodation from 2.5 percent per annum to 4 percent per annum.
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Proposal announced: "One Nation" Statement of 26 February 1992.
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Financial impact: The following is the estimated cost to revenue:
1991-92 1992-93 1993-94 1994-95 1995-96
$M $M $M $M $M
- - 2 6 12

Industrial buildings

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Increases the rate of deduction for industrial buildings from 2.5 per cent per annum to 4 per cent per annum.
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Proposal announced: "One Nation" Statement of 26 February 1992.
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Financial impact: The following is the estimated cost to revenue:
1991-92 1992-93 1993-94 1994-95 1995-96
$M $M $M $M $M
- - 3 9 18

Income-producing structural improvements

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Allows the capital cost of income-producing structural improvements to be evenly deductible over 40 years at the rate of 2.5 per cent per annum.
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Proposal announced: "One Nation" Statement of 26 February 1992.
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Financial impact: The amendments will have some revenue cost; however, it has not been possible to make a reliable estimate of the revenue impact.

Development Allowance - taxation deduction

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Re-activates and amends the former investment allowance provisions to allow the development allowance. The allowance gives a tax deduction, for a restricted period, of 10% of capital expenditure on plant and equipment acquired by taxpayers for conducting certain Australian projects, costing $50 million or more, which meet some other criteria.
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The Development Allowance Authority Bill 1992 is integral to the operation of the taxation provisions. The Authority will determine whether certain criteria have been met. A certificate issued by the Authority is a pre-requisite to claiming a deduction under the tax provisions.
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Proposal announced: in "One Nation" Statement, by the Prime Minister, on 26 February 1992. Further criteria were announced by the Treasurer in a Press statement on 5 April 1992.
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Financial impact: The cost is expected to be about $40 million in 1994/95 and $70 million in 1995/96.

Occupational Superannuation Standards Act amendments

Notification of RBL Determinations

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requires that only excessive determinations be notified to taxpayers by the ISC;
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allows for non excessive determinations to be notified to taxpayers, upon the initiative of the ISC or upon request;
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adjusts the existing scheme of the Act in consequence of these changes, by ensuring review rights in respect of non excessive determinations and by allowing for improved ISC communication of determination information to the Commissioner of Taxation for tax assessment purposes.
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Proposal announced: Treasurer's Press Release of May 1992
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Financial impact: It is estimated that the combined cost of implementing the proposed measures (including associated measures involving amendment of the Regulations) for the 1991/92 financial year will be $70,000 and $0.3m for the 1992/93 year. Savings for the 1993/94 and following years are estimated at $0.1m per annum.


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