House of Representatives

Taxation Laws Amendment Bill (No. 1) 1996

Explanatory Memorandum

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

General outline and financial impact

Provisional tax uplift factor

Amends the definition of provisional tax uplift factor in the income tax law so that the factor is 6 per cent for the 1996-97 year of income and, until the Parliament otherwise provides, 10 per cent for subsequent years of income.

Date of effect: The amendment applies to the calculation of provisional tax (including instalments) for the 1996-97 year of income.

Proposal announced: 'A New Deal for Small Business' policy document released on 18 February 1996.

Financial impact: A reduction in the uplift factor from 8 per cent to 6 per cent will result in a cost to the revenue of $180 million in the 1996-97 year of income.

Compliance cost impact: The compliance cost impact is negligible.

Share buy-backs

Amends the income tax law so that in an off-market share buy-back the full buy-back price is treated as consideration for capital gain or ordinary income purposes. Relief from double taxation is provided by reducing the amount of the capital gain or income by the amount of the buy-back price that is a dividend included in assessable income or paid out of profits. If the dividend is rebatable it will not create or increase a capital loss or allowable deduction.

A market value rule is also to apply to off-market share buy-backs. Any excess over the market value of a share that is a dividend will not be frankable.

Date of effect: The amendments will apply to share buy-backs that take place after 7.30pm EST on 9 May 1995, subject to certain transitional arrangements.

Proposal announced: 1995-96 Budget, 9 May 1995.

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

Compliance cost impact: The proposed amendments are not likely to result in a significant increase in compliance costs. Companies will be required to ascertain the market value of the shares bought back. For listed shares, the market value is readily ascertainable. For unlisted shares, a valuation is required. However, it could be expected that a company would ordinarily make such a valuation prior to a buy-back of the shares.

Deductions for gifts

Amends the income tax law to allow income tax deductions for gifts made to certain funds and organisations.

Dates of effect: Various

Proposals announced: At various times during 1995.

Financial impact: No significant impact on revenue.

Compliance cost impact: There are no compliance cost impacts.

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