House of Representatives

Taxation Laws Amendment Bill (No. 7) 2003

Second Reading Speech

Mr SLIPPER (Fisher-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.

Schedule 1 to this bill will provide tax exemptions for Australian residents who receive compensation payments from an overseas fund relating to the Second World War.

A number of overseas funds are making compensation payments to Australian residents who suffered during the Second World War, or to a deceased resident's surviving relatives or descendants. The payments are intended to compensate for persecution suffered or property lost during the Second World War.

Under current income tax law some of these payments are exempt from tax but others are taxable.

This measure ensures that payments received by Australian residents from foreign funds in connection with persecution suffered or property lost during the Second World War are tax-free.

Schedule 2 to this bill updates the lists of specifically listed deductible gift recipients in the Income Tax Assessment Act 1997. It adds to these lists new recipients announced since October 2002. Deductible gift recipient status will assist these organisations to attract public support for their activities.

Schedule 3 simplifies the listing in the tax law of these specifically listed deductible gift recipients. It allows any new specifically listed deductible gift recipients to be prescribed in regulations. It also provides for the transfer of all existing specifically listed deductible gift recipients from the Income Tax Assessment Act 1997 to regulations.

This simplification is part of the government's response to the Report of the inquiry into the definition of charities and related organisations. It will allow continued scrutiny by the parliament but will make legislative amendments concerning specifically listed deductible gift recipients less administratively costly and more timely.

This measure also allows deductions for cash donations to deductible gift recipients to be spread over a period of up to five years. This will ensure that cash and property gifts are treated similarly, and will make it more attractive for taxpayers to make donations to deductible gift recipients earlier. Deductible gift recipients that receive funds earlier from donors will benefit from the amendments.

Schedule 4 will amend the Crimes (Taxation Offences) Act 1980 to correct a technical deficiency with the deeming mechanism in this act, and to include Criminal Code harmonisation amendments to clarify the interpretation of offences under the Criminal Code.

Schedule 5 introduces a measure which will allow certain entities with foreign losses to be excluded from a consolidated group on a transitional basis, notwithstanding that they are wholly owned by the group's head company. Entities will have up to three years to recoup their foreign losses prior to joining the group, rather than being subject to consolidation rules which may impact harshly in some instances.

Schedule 6 will make amendments to ensure that the goods and services tax interacts appropriately with the consolidation regime. In particular, the amendments will provide that certain supplies made as a consequence of the statutory operation of the consolidation law or as a result of agreements that are entered into because of consolidation will not be taxable supplies. These changes will ensure that entities are afforded similar goods and services tax treatment under the consolidation regime as the treatment they received in a pre-consolidation environment.

Schedule 7 amends the Income Tax Assessment Act 1997 to include imputation rules for life insurance companies, replacing the current rules set out in the Income Tax Assessment Act 1936. The amendments form part of the ongoing implementation of the government's reform of business taxation in respect of the imputation system.

Broadly, the provisions are concerned with setting out the circumstances when franking credits and debits arise in the franking accounts of life insurance companies from the payment and refund of tax or the receipt of franked dividends.

The provisions will apply from 1 July 2002, consistent with the commencement of the simplified imputation system. The life insurance industry has been involved in the development of these provisions.

Schedule 8 amends the overseas forces tax offset provisions of the Income Tax Assessment Act 1936 to exclude periods of service for which an income tax exemption for foreign employment income is available.

Schedule 9 to this bill amends the Income Tax Assessment Act 1997 to provide an automatic capital gains tax rollover for financial service providers on transition to the financial sector reform regime during the financial sector reform transitional period.

The capital gains tax rollover will ensure that the capital gain or capital loss that would otherwise be made when the original asset comes to an end is deferred until a CGT event happens to the replacement asset.

This measure will encourage financial service providers to move to the financial sector reform regime by removing potential capital gains tax impediments during the financial sector reform transitional period.

Schedule 10 changes the current company tax treatment of foreign limited partnerships and US limited liability companies to partnership treatment. This will alleviate unintended and inappropriate outcomes from the current treatment, particularly under the international tax rules.

In order to prevent investors with limited liability obtaining unlimited access to tax losses relating to these entities, which would occur under the normal partnership rules, the government has introduced a limit on the losses that may be claimed. The limit is based upon the amount invested in the foreign entity by the investor.

The new rules will generally apply from the 2003-04 income year. In addition, changes are being made to the way in which these foreign entities have to be treated for some past income years under the international tax rules. This will remove considerable uncertainty surrounding these years and lead to fairer results.

The new rules will provide a better alignment of Australian and foreign tax rules for Australians operating offshore.

Lastly, schedule 11 to this bill makes a number of technical amendments to the Income Tax Assessment Act 1936, the Income Tax Assessment Act 1997 and other tax related legislation.

Full details of the measures in this bill are contained in the explanatory memorandum.

I commend this bill to the House and present the explanatory memorandum.

Debate (on motion by Mr Snowdon) adjourned.