Senate

Taxation Laws Amendment Bill (No. 2) 1994

Explanatory Memorandum

(Circulated by the authority of the Treasurer the Hon Ralph Willis, M.P.)

General Outline and Financial Impact

AMENDMENTS TO THE FRINGE BENEFITS TAX ASSESSMENT ACT 1986

Benchmark interest rate

Amends the definition of "benchmark interest rate" in subsection 136(1) so that the rate is determined not by reference to a rate offered by the Commonwealth Bank for a housing loan but by reference to the standard variable rate for owner-occupied housing loans of the major banks, as determined by the Reserve Bank of Australia.

Date of effect: 1 April 1994

Proposal announced: Not previously announced

Financial impact: The gain to revenue will be $60 million in 1994-95 and $45 million in 1995-96.

AMENDMENTS TO THE INCOME TAX ASSESSMENT ACT 1936

Accruals assessability of certain securities

Amends Division 16E of Part III to overcome tax deferral advantages associated with indexed securities when compared with other securities covered by the Division.

The amendment will provide a proper basis of taxation by requiring that all returns from indexed securities and other variable return securities be brought to account on a compounding accruals basis.

Effectively, the same accruals methodology will be used for variable return securities as presently applies for fixed return securities under Division 16E.

A further amendment will remove an unintended consequence of Division 16E in relation to certain securities issued in a series to ensure that later issues in a series of securities will not fall within the scope of the Division where securities in the first of that series are outside its scope.

Date of effect: Applies to qualifying securities issued after 27 January 1994.

Proposal announced: The Treasurer's Press Release No. 7 of 27 January 1994.

Financial impact: Revenue savings from this measure are expected to be $10m in 1993-94, $18m in 1994-95 and $26m in 1995-96.

Capital gains tax: Payment of rebatable dividends from certain share premium accounts and revaluation reserves

Amends the CGT provisions of the Act so that any capital gain computed having regard to the disposal consideration for shares in a company or the amount of capital paid back on shares will not be reduced by the amounts of the payments that are treated as rebatable dividends. These amendments relate to:

·
liquidator's distributions;
·
off-market share buy-backs;
·
other disposals of shares; and
·
amounts paid in connection with a reduction of capital.

Date of effect: The amendments apply after 12:00 midday Eastern Summer Time 12 January 1994.

Proposal announced: The Assistant Treasurer's Press Release No 3 of 12 January 1994.

Financial impact: There is insufficient data available on which a reliable estimate of the revenue impact of these amendments can be made. However, the measure has the potential to prevent a significant future loss to revenue.

Capital gains tax: Rebatable dividends out of pre-acquisition profits

Amends the CGT provisions so that a capital loss that would otherwise be incurred by a controller of a company or an associate of the controller on the disposal of any share in the company will be reduced by any distribution made by the company to the controller or the associate that is a rebatable dividend paid out of pre-acquisition profits.

Date of effect: The amendment will apply in relation to disposals of shares made on or after the date of introduction of the Bill.

Proposal announced: Not previously announced.

Financial impact: There is insufficient data available on which a reliable estimate of the revenue impact of these amendments can be made. However, the measure has the potential to prevent a significant future loss to revenue.

Capital gains tax: Share value shifting arrangements

Removes certain CGT advantages currently attracted by value shifting transactions involving shares in a company. The amendments will apply to material shifts in value from shares held by the controller of a company and associates into other shares in the company held by them. A value shift will be considered to be material if the value shifted exceeds the lesser of 5% of the value of the shares or $100,000.

Date of effect: The amendments will apply to material shifts in the value of shares effected after 12:00 midday Eastern Summer Time on 12 January 1994.

Proposal announced: The Assistant Treasurer's Press Release No 3 of 12 January 1994.

Financial impact: There is insufficient data available on which a reliable estimate of the revenue impact of these amendments can be made. However, the measure has the potential to prevent a significant future loss to revenue.

Capital gains tax: Change in ownership of assets

Amends the operation of the CGT provisions as they apply to declarations of trust over assets, transfers of assets to trusts, and certain conversions of trusts to unit trusts. The amendments are intended to ensure that certain transfers of assets to a trust are treated as changes in the ownership of the assets so that a capital gain may arise on the transfer.

Date of effect: The amendments will apply to declarations of trusts, transfers of property to trusts, and relevant conversions of trusts to unit trusts, made after 12:00 midday Eastern Summer Time 12 January 1994.

Proposal announced: The Assistant Treasurer's Press Release No 3 of 12 January 1994.

Financial impact: There is insufficient data available on which a reliable estimate of the revenue impact of these amendments can be made. However, the measure has the potential to prevent a significant future loss to revenue.

Capital gains tax: Prerequisite for roll-over relief for the transfer of assets within company groups

Changes the requirement for the granting of roll-over relief for assets transferred within a company group that the transferor and transferee companies be group companies for the whole of the income year in which the transfer occurred. The companies will need to be group companies only at the time of transfer.

Date of effect: The amendments to the roll-over relief provisions will apply to disposals of assets that occur during the 1993-94 income year, and in any subsequent income year, of the transferor.

Proposal announced: The Assistant Treasurer's Press Release No 3 of 12 January 1994.

Financial impact: This measure would have a small but unquantifiable cost to the revenue.

Capital gains tax: Transfer of assets within company subgroups

Amends section 160ZZOA so that the deemed disposal and reacquisition rules, as they relate to the transfer of assets within company subgroups, do not operate as an impediment to business restructures.

Date of effect: The amendments will apply to the break-up of company groups which occur after 16 December 1992, which is the date from which section 160ZZOA took effect.

Proposal announced: The Assistant Treasurer's Press Release No 3 of 12 January 1994.

Financial impact: This measure would have a small but unquantifiable cost to the revenue.

Capital gains tax: Group company capital loss transfers

Amends section 160ZP which deals with cost base adjustments in relation to transfer of losses between group companies. The amendments will:

·
provide that the reduction of the cost base of shares and debts held in the company that has transferred a loss will be determined having regard also to any payment (subvention payment) made by the transferee company in consideration for the transfer; and
·
allow an appropriate increase in the cost base of post-CGT shares in the transferee company.

Date of effect: The amendments will apply to net capital losses transferred for offset against the net capital gains of the transferee company for the 1993-94 income year or later years.

Proposal announced: The Assistant Treasurer's Press Release No 3 of 12 January 1994.

Financial impact: This measure would have a small but unquantifiable cost to the revenue.

Capital gains tax: Assets used by non-residents in Australian permanent establishments

Amends the CGT provisions so that a capital gain or capital loss arising to a non-resident on the disposal of a taxable Australian asset used by the non-resident in carrying on a trade or business wholly or partly at or through a permanent establishment in Australia is to be calculated by reference only to the total period during which it is used in that way.

Date of effect: The amendments will apply to disposals which take place after 12:00 midday Eastern Summer Time 12 January 1994.

Proposal announced: The Assistant Treasurer's Press Release No 3 of 12 January 1994.

Financial impact: A cost to the revenue of less than $1m per year.

Capital gains tax: Division 19A and liquidators' distributions

Amends Division 19A in Part IIIA to ensure that it does not apply to interim or final in specie distributions of capital from liquidators if a company is dissolved within a period of three years after liquidation proceedings commenced, or within a further period allowed by the Commissioner.

Date of effect: The amendments will apply in relation to disposals of assets after 6 December 1990, which is the date from which Division 19A applied to certain disposals of property.

Proposal announced: The Assistant Treasurer's Press Release No 3 of 12 January 1994.

Financial impact: This measure would result in an insignificant cost to the revenue.

Capital gains tax: Application to Government incentive schemes

Amends the law so that there will be no liability to capital gains tax on the payment or re-imbursement of an expense under certain Commonwealth, State and Territory incentive schemes that are prescribed in the Regulations.

Date of effect: The amendments will apply in relation to all disposals, other than assignments, of rights under a scheme which is prescribed in Regulations applying to the time of disposal, even if the Regulations are not made until after that time.

Proposal announced: The Assistant Treasurer's Press Release No 3 of 12 January 1994

Financial impact: The estimated cost of this measure is less than $1m per year.

Capital gains tax: Amendment of assessments

Amends sections 160U and 170 to ensure that the time limits imposed by section 170 on amending assessments do not apply if the amended assessment is to:

·
give effect to subsection 160U(3) (time of acquisition or disposal of an asset under a contract) or 160U(8) (time of disposal if asset is compulsorily acquired); or
·
treat the disposal or acquisition of an asset as never having happened if the contract is later found to have been a nullity from the beginning.

Date of effect: Generally, assessments made at any time. However, an amended assessment increasing a liability is not permitted if section 170 prevented the Commissioner of Taxation from amending the assessment as at 11 January 1994.

Proposal announced: The Assistant Treasurer's Press Release No.3 of 12 January 1994.

Financial impact: This measure will result in an insignificant gain to the revenue.

Foreign investment funds and foreign life insurance policies

Amends the foreign investment fund (FIF) measures to:

·
allow a holding company exemption from the FIF measures for certain indirect investments in company FIFs which carry on general insurance, life insurance, real property or multi-industry activities; and
·
exclude construction activities from the black-list of activities for the purposes of the FIF measures thereby making them eligible activities for the purposes of the active business exemption.

Date of effect: 1 January 1993

Proposal announced: The amendments were announced by the Treasurer on 22 December 1993.

Financial impact: The amendments will have minimal effect on revenue.

Development allowance and general investment allowance

Proposes two amendments to both of these allowances and a further amendment to the development allowance only. The first relates to the use of property within wholly-owned company groups. The next will extend the allowances to property for use in the transport of minerals and quarry materials. The third will simplify procedures when a leasing company transfers, to a lessee, its entitlement to the development allowance in respect of leased property.

Property used within wholly-owned company groups

Companies are to be allowed to grant rights to use property to companies within the same wholly-owned company group, without losing entitlement to the general investment and development allowances. This will allow company groups to use property in the most efficient manner.

Date of effect: applies from the time when the allowances commenced; that is, 27 February 1992 in the case of the development allowance, and 9 February 1993 in the case of the general investment allowance.

Proposal announced: Announced by the Assistant Treasurer on 29 November 1993.

Financial impact: The amendment will impose some cost to the revenue, which, by the nature of the amendment, cannot be reliably estimated. However, the cost is unlikely to be significant.

Property used in the transport of minerals and quarry materials

The general investment allowance and the development allowances are to be extended to expenditure on plant, such a railways and pipelines, that qualifies for write-off under the mineral and quarry materials transport provisions, Division 10AAA. Currently, such expenditure is excluded from the allowances.

Date of effect: applies from the time when the allowances commenced; that is, 27 February 1992 in the case of the development allowance, and 9 February 1993 in the case of the general investment allowance.

Proposal announced: Announced by the Assistant Treasurer on 29 November 1993.

Financial impact: The cost to the revenue of this measure is unlikely to exceed $20 million per annum over the term of the allowances.

Transfer of entitlements to the development allowance by leasing companies

The requirement that a leasing company provide a written notice to the Commissioner of Taxation on the transfer of an entitlement to the development allowance to a lessee is be replaced with a requirement that the notice be given to the lessee. This will make the development allowance consistent with the general investment allowance in this regard.

Date of effect: Applies to leasing arrangements entered into after date of Royal Assent.

Proposal announced: Not previously announced.

Financial impact: The is amendment is revenue neutral, but should reduce the compliance costs of leasing companies.

HECS - Inclusion in provisional tax calculation

Amends Division 3 of Part VI to include a Higher Education Contribution (HEC) assessment debt in provisional tax calculations.

Date of effect: The inclusion will be for the calculation of provisional tax (including instalments) payable for the 1994-95 and later years of income.

Proposal announced: 1993-94 Budget, 17 August 1993

Financial impact: This measure will bring revenue forward by one year; thus increasing revenue by approximately $12m in 1994-95, $3m in 1995-96 and $2m in 1996-97.

Constitutionally protected superannuation funds

Amends the superannuation provisions to exempt from tax all income derived by certain State public sector superannuation funds that are constitutionally protected from tax on any of their receipts.

Date of effect: 1 July 1993. However, the amendments will apply with effect from 1 July 1988 to funds that have not paid income tax on the assumption that all their income was exempt from tax.

Proposal announced: Not previously announced.

Financial impact: The overall financial impact will be minimal. There will be a cost to revenue by exempting constitutionally protected superannuation funds from tax but a gain to revenue because benefits paid from such funds will be treated as being from an untaxed source.

Depreciation of employee amenity property

Ensures that the concessional rate of depreciation for employee amenities is available for property even if its use is shared between employees, or children of employees, of companies within wholly-owned company groups.

The amendment will allow wholly-owned company groups to use employee amenities in the most efficient manner, without losing entitlement to the concession.

Date of effect: Applies from the beginning of the 1993/94 year of income in relation to existing and future property.

Proposal announced: Announced by the Assistant Treasurer on 29 November 1993.

Financial impact: The amendment will impose some cost to the revenue, which, by the nature of the amendment, cannot be reliably estimated. However, the cost is unlikely to be significant.

Offshore banking units

Amendment to widen the scope of the borrowing and lending activities in subsection 121D(2)

Extends the meaning of "borrowing or lending activity" to include gold borrowings and gold loans.

Date of effect: Royal Assent

Proposal announced: Not previously announced.

Financial impact: The amendment will have a positive but unquantifiable revenue effect.

Amendment to restrict certain guarantee-type activities in subsection 121D(3)

Amends the definition of "guarantee-type activity" so that a guarantee, letter of credit or performance bond must be in respect of the activities of offshore parties in their performance outside Australia.

Date of effect: Royal Assent

Proposal announced: Not previously announced.

Financial impact: The proposal will minimise the possibility of revenue leakage.

Minor Technical Amendments

Makes a minor technical amendment to subsection 128AE(7) to remove a reference to a repealed subsection.

Date of effect: Royal Assent

Proposal announced: Not previously announced.

Financial impact: None.

Makes a minor technical amendment to subsection 128GB(4) to redefine a previously deleted term required in subsection 128GB(3).

Date of effect: 21 December 1992, the date of Royal Assent for Taxation Laws Amendment Act (No.4) 1992.

Proposal announced: Not previously announced.

Financial impact: None.

Gifts

Allows for a limited period an income tax deductions for gifts made to The "Weary" Dunlop Statue Appeal and The Sandakan Memorials Trust Fund respectively.

Dates of effect: Gifts to -

·
The "Weary" Dunlop Statue Appeal made between 16 July 1993 and 15 July 1994 inclusive; and
·
The Sandakan Memorials Trust Fund made between 30 July 1993 and 29 July 1995 inclusive.

Proposals announced: The decision to make gifts to The "Weary" Dunlop Statue Appeal tax deductible was announced in the Treasurer's Press Release No. 88 of 16 July 1993.

The decision to make gifts to The Sandakan Memorials Trust Fund tax deductible was announced in the Treasurer's Press Release No. 96 of 30 July 1993.

Financial impact: The amendments are not expected to have any significant impact on the revenue.

Secrecy

Amends section 16 to permit the Commissioner of Taxation to provide information to the Health Insurance Commission as to whether a registered carer or an applicant for registration as a carer under the new childcare rebate scheme has a tax file number.

Date of effect: The amendment will apply to the communication of information after 30 June 1994.

Proposal announced: Not previously announced.

Financial impact: Nil. However it will result in improved compliance with the tax laws by carers, and is not expected to increase the cost of compliance by carers.

Outdated references

Amends section 23AA to ensure technical accuracy of references to relevant provisions of United States income tax law but will have no practical effect on the operation of the section.

Date of effect: 22 October 1986

Proposal announced: Not previously announced.

Financial impact: No impact on revenue.

Non-compulsory uniforms or wardrobes

Amends the operation of the non-compulsory uniform/wardrobe provisions to:

·
remove from the operation of section 51AL of the Income Tax Assessment Act 1936 expenditure on clothing that is occupation specific;
·
extend the transitional arrangements until 30 June 1995; and
·
amend the transitional arrangements to allow deductions in certain limited circumstances where the designs of a set of one or more items of clothing are not approved or Registered until after 1 September 1993.

Date of effect: 1 September 1993.

Proposal announced: The Assistant Treasurer's Press Release No. 148 of 23 November 1993.

Financial impact: The amendments are not expected to have any significant impact on the revenue.

Entertainment expense payments

Amends the Fringe Benefits Tax Assessment Act 1986 to include a provision which will reduce the taxable value of a benefit which now arises when an employer makes a payment or reimbursement to an employee to cover expenses incurred by the employee in entertaining clients or other persons on behalf of the employer. The taxable value will be reduced by the amount of expenditure incurred by the employee in entertaining these other persons. The result is that only the part of the payment or reimbursement that relates to the expenditure on the employee or an associate will be included in the taxable value of the benefit.

Amends the Income Tax Assessment Act 1936 (ITAA) so that no deduction will be allowed under that Act for the amount by which the taxable value has been so reduced.

Date of effect: 1 April 1994

Proposal announced: The Assistant Treasurer's Press Release No.11 of 1994

Financial impact: Negligible


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