House of Representatives

Taxation Laws Amendment Bill (No. 5) 2003

Second Reading Speech

Mr Slipper (Parliamentary Secretary to the Minister for Finance and Administration)

I move:

That this bill be now read a second time.

This bill makes amendments to the income tax law and other laws to give effect to several taxation measures.

Firstly, this bill includes amendments that implement changes to the thin capitalisation regime. The thin capitalisation provisions, which commenced on 1 July 2001, ensure that multinational entities do not inappropriately allocate an excessive amount of debt to their Australian operations. The amendments in this bill will ensure that the legislation is consistent with the government's policy intentions and further clarifies aspects of the operation of the law. The measures will assist business in effectively complying with the thin capitalisation measures.

The most significant amendments in the bill relate to the application of the thin capitalisation rules to securitisation vehicles and financial entities. There are also important changes to the record keeping requirements for permanent establishments and to the revaluation of assets.

The amendments in the bill will generally reduce compliance costs for taxpayers and will ensure that taxpayers undertaking similar activities are able to apply the same thin capitalisation rules.

Secondly, this bill amends the Fringe Benefits Tax Assessment Act 1986 from 1 April 2003 so that fringe benefits provided to employees whose duties are performed in, or in connection with, a public hospital will qualify for the $17,000 capped fringe benefits tax exemption, regardless of whether or not the hospital is a public benevolent institution.

In addition, the amendments provide that, for the purposes of the fringe benefits tax exemption for remote area housing, a remote area for a public hospital will be one that is at least 100 kilometres from a population centre of 130,000 or more, regardless of whether or not the hospital is a public benevolent institution.

Thirdly, the amendments implement the government's 2001 election commitment to reduce the tax rate on the excessive component of an eligible termination payment (that is, a lump sum) from a super fund. The reduction is delivered through a cut in the tax rate from 47 per cent to 38 per cent on the excessive component originating from a taxed source and a reduction in the amount of contributions which are subject to the superannuation surcharge. The amount of the reduction will depend on the contributions, if any, made to the super fund in the year that the excessive lump sum payment is paid.

Fourthly, amendments in this bill will overcome an anomaly in the tests that apply to companies deducting prior year losses and bad debts written off. The amendments will ensure companies are not prevented from accessing the same business test because they are unable to determine a precise date on which they failed the continuity of ownership test.

Lastly, this bill makes amendments that will allow corporate tax entities to be able to choose the amount of prior year losses they want to deduct in an income year. This will ensure prior year losses are not used up against franked dividend income which has already effectively been freed up from tax by way of the franking tax offset. Similarly, entities will not be required to use up current year losses against franked dividend income. The current year loss will be carried forward for deduction in a later year of income.

Full details of the measures contained in this bill are included in the explanatory memorandum. I commend this bill to the House and I present the explanatory memorandum.

Debate (on motion by Mr Sidebottom) adjourned.