House of Representatives

Taxation Laws Amendment Bill (No. 2) 1998

Second Reading Speech

Mr HOCKEY (Minister for Financial Services and Regulation)

I move:

That the bill be now read a second time.

The bill is being reintroduced with amendments to the bill that was debated and passed by the House of Representatives on 1 December 1997.

The bill gives effect to a number of important measures previously announced by the government to protect the integrity of the income tax base, to make some technical changes and to seek to act on the recommendations of the Small Business Deregulation Taskforce to reduce the compliance burdens faced by small businesses across Australia.

Base Protection and Technical Changes

Denial of certain capital losses

Under the existing law, corporate groups may multiply capital losses through manipulation of the capital gains tax provisions. The bill amends the tax law to remove the benefit of such losses, where the loss was created by the rolling over of an asset before 3 p.m. on 29 April 1997. However, losses already used prior to the announcement of the measure at 3 p.m. on 29 April 1997 will not be affected. These provisions will not apply to small businesses, nor to certain assets used in manufacturing.

The bill also amends the anti-avoidance provisions of the income tax law to apply those provisions to capital loss creation schemes in the year in which the losses are created. The amendments apply to capital losses resulting from schemes entered into after 3 p.m. on 29 April 1997.

Deductible expenditure and capital gains tax cost bases

The bill gives effect to changes to the capital gains cost base provisions, announced as part of the government's 1997-98 budget.

The bill will ensure that taxpayers will no longer be able to include amounts of expenditure as part of the cost base or indexed cost base of an asset to the extent that the expenditure is deductible or is eligible for a heritage conservation rebate or a landcare and water facility tax offset.

The amendments are consistent with the principle that an item of expenditure should either be deductible for income tax purposes or included in the capital gains tax cost base of an underlying asset, but not both.

The amendments will apply to assets acquired after 7.30 p.m. on 13 May 1997. However, expenditure incurred before 1 July 1999 in respect of underlying land or buildings acquired on or before 13 May 1997 will not be subject to the measure.

The amendments in respect of the heritage conservation rebate and the landcare and water facility tax offset only apply to expenditure incurred on or after the day these measures are introduced into the parliament.

Depreciation

As announced in the 1997-98 budget, the bill will amend the income tax law to ensure that, for tax exempt entities that became subject to taxation before 3 July 1995, depreciation deductions and balancing adjust ments are based on the notional written down values of their depreciable assets as if the entity had always been subject to taxation.

Average calculated liabilities of life insurance companies

The bill will amend the income tax law to require life companies to use average calculated liabilities, rather than calculated liabilities at the end of the year of income, as the basis for determining income associated with immediate annuity policies, policies issued by overseas branches and the income and capital gains to be allocated to each class of assessable income.

The amendments apply from the first year of income on or after 29 April 1997. However, the amendments will apply to the preceding year of income if a significant event occurred in one of the insurance funds of a life company in the period from 29 April 1997 to the end of that year of income.

Passive income of insurance companies

The bill also contains amendments announced in the 1997-98 budget to correct a deficiency in the formulae used to calculate the passive income of controlled foreign insurance companies that are subject to accruals taxation and derived on or after 1 July 1997.

Dividend imputation and RSAs

The bill will amend the income tax law to ensure that no franking credit or debit arises from the payment or refund of tax where those amounts are attributable to the retirement savings account business of a life assurance company.

Effect of bankruptcy on carrying forward tax offsets

The bill will amend the income tax law for the 1997-98 and later income years to prevent a taxpayer who has become bankrupt from using a carried forward land care and water facility tax offset in certain circumstances.

Company tax instalments

The bill will amend the income tax law from the 1995-96 income year to exclude superannuation funds, approved deposit funds, and pooled superannuation trusts from the grouping provisions contained in the company tax instalment system.

Changes to assist small business

Fringe benefits tax

The bill will amend the fringe benefits tax law to, amongst other things, give effect to changes foreshadowed by the Prime Minister in his statement on 24 March.

The amendments will:

·
extend and simplify the exemption for taxi travel;
·
exempt certain small businesses from fringe benefits tax on certain car parking benefits;
·
simplify the `arranger' provisions;
·
remove the burden of keeping records in certain circumstances for small business; and
·
exempt benefits arising from an employer's participation in an approved student exchange program.

Details of the commencement of these changes are outlined in the explanatory memorandum.

All of the measures demonstrate the government's commitment to reducing FBT compliance costs for employers and, in particular, for small businesses.

Payments of tax by small companies

The bill will amend the company tax instalment provisions of the income tax law to allow entities classified as small to pay their tax obligations later than currently required. Consequential changes to the date for determining classification are also being made.

Full details of the measures in the bill are contained in the explanatory memorandum circulated to honourable members. I present the explanatory memorandum and I commend the bill to the House.

Debate (on motion by Mr Martin) adjourned.