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House of Representatives

New Business Tax System (Miscellaneous) Bill (No. 2) 2000

Supplementary Explanatory Memorandum & Correction to Explanatory Memorandum

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

General outline and financial impact

Company losses and bad debts

Schedule 1 makes amendments to Part 1 of Schedule 1 to the New Business Tax System (Miscellaneous) Bill (No. 2) 2000 (the Bill) to ensure that the continuity of ownership test and unrealised loss measures operate as intended.

The continuity of ownership test will be amended to:

extend the same share or interest rule to interests held by an interposed entity in a loss company;
clarify the saving provisions so that the provisions are concerned only with losses that are recognised as deductions or capital losses; and
extend the saving provisions to take into account a deduction or capital loss arising from any capital gains tax (CGT) event.

The unrealised loss measures will be amended to apply the same business test in certain circumstances to a trading stock loss that may arise when an item is revalued under Division 70.

Date of effect: These amendments do not affect the date of effect of the company losses and bad debts measures in the Bill

Proposal announced: The original proposals were announced in the Treasurer's Press Release No. 69 of 21 September 1999 and No. 74 of 11 November 1999.

Financial impact: The amendments clarify and refine the current provisions in the Bill and do not affect the costings for the measures.

Compliance cost impact: Reduced compliance costs are expected from clarifying the saving provisions. In the absence of these amendments, taxpayers would be required to quantify the amount of losses even where the losses have no tax consequences. There are no additional compliance costs associated with the other amendments.

Life insurance companies

Schedule 2 to the Bill amends the Income Tax Assessment Act 1936 (ITAA 1936) and the Income Tax Assessment Act 1997 to ensure that life insurance companies are taxed on all the profit made from their different activities in broadly the same way as activities in other entities that are similar in economic substance. The amendments also ensure that the current pension business of complying superannuation funds and exempt units of pooled superannuation trusts is taxed consistently with the immediate annuity and other exempt superannuation business of life insurance companies.

Schedule 3 to the Bill amends the dividend imputation provisions in the ITAA 1936 that affect life insurance companies.

Date of effect: The measures contained in Schedule 2 and Schedule 3 to the Bill generally apply from 1 July 2000.

Proposal announced: The original measures were announced in Treasurer's Press Release No. 58 of 21 September 1999 (refer to Attachment N). The amendments have not previously been announced but are consistent with the original announcement.

Financial impact: The amendments to provide transitional relief for small superannuation funds have a cost to revenue as follows:

2000-2001 2001-2002 2002-2003 2003-2004 2004-2005
- -$10m -$7m -$5m -$3m

The remaining amendments do not alter the original estimates contained in the explanatory memorandum to the Bill.

Compliance cost impact: There will be no change to the compliance costs as outlined in the explanatory memorandum to the Bill.

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