House of Representatives

Tax Laws Amendment (2006 Measures No. 3) Bill 2006

Second Reading Speech

Mr Dutton (Minister for Revenue and Assistant Treasurer)

I move:

That the bill be now read a second time.

This bill amends various taxation laws to implement a range of improvements to Australia's taxation system, including changes announced in the recent 2006-07 budget.

Schedule 1 to this bill extends eligibility for the beneficiary tax offset to farmers and small business owners in receipt of Cyclone Larry income support payments. This ensures consistency with the taxation treatment of the Newstart allowance.

The government is providing the Cyclone Larry income support payments to farmers and small business owners whose income has been adversely affected by that cyclone.

Schedule 2 to this bill also gives effect to the Prime Minister's announcement that certain payments to assist recovery by businesses adversely affected by Cyclone Larry are to be tax free. This decision recognises the extraordinary hardship inflicted by Cyclone Larry and the threat to the community's recovery prospects.

Schedule 3 extends eligibility for the beneficiary tax offset to drought-affected taxpayers in receipt of interim income support payments.

Interim income support payments are made to farmers in areas where an exceptional circumstances application lodged by a state demonstrates a prima facie case for full exceptional circumstances assistance. Interim income support is available for up to six months while the case for full exceptional circumstances assistance is being considered. Applying the beneficiary tax offset to interim income support payments ensures consistency with the taxation treatment of exceptional circumstances relief payments.

Schedule 4 to this bill amends the Income Tax Assessment Act 1997 to ensure that a company's share capital account will become tainted if it transfers certain amounts to that account. If a company taints its share capital account, a franking debit arises in the company's franking account. If the company chooses to untaint its share capital account, an additional franking debit may arise and untainting tax may be payable. The new share capital tainting rules will apply to transfers made to a company's share capital account after today.

The new share capital tainting rules are a further component of the simplified imputation system and replace the old share capital tainting rules that were in the Income Tax Assessment Act 1936.

Schedule 5 to this bill will provide an exemption from capital gains tax (CGT) for recipients of the Work Choices grants. This ensures that recipients of the government's unlawful termination assistance scheme do not incur a capital gain or loss. The unlawful termination assistance scheme provides eligible applicants with government assistance for independent legal advice to assess the merits of their unlawful termination claim.

Similarly, the CGT exemption will apply to the alternative dispute resolution assistance scheme. This scheme provides eligible parties with the opportunity to receive alternative dispute resolution services.

The government is also expanding the CGT exempt status to include government grants that reimburse expenses. This allows recipients of expense-reimbursing government grants to better utilise the grant.

Each of these CGT changes will take effect from the 2005-06 income year.

Schedule 6 to this bill introduces an offset for certain taxpayers whose Medicare levy surcharge liability arose, or was significantly increased, as a result of a significant, eligible lump sum payment in arrears. Prior to this bill taxpayers have been able to receive concessional income tax treatment to help offset the effects of receiving a lump sum payment in arrears but an equivalent concession has not been available for the Medicare levy surcharge.

This amendment will benefit those who are generally not liable for the Medicare levy surcharge but become liable in a particular year due to receipt of a large lump sum payment in arrears and those who would otherwise have had to pay a larger Medicare levy surcharge.

Schedule 7 to this bill amends the Superannuation Guarantee (Administration) Act 1992 to require a superannuation fund or retirement savings account provider to report to the Commissioner of Taxation. The required reports will contain details of employer and total contributions made to a superannuation fund account or retirement savings account provider.

Schedule 8 to this bill will exclude, from reporting, fringe benefits provided to address certain security concerns relating to the personal safety of an employee, or an associate of the employee, arising from the employee's employment. This measure applies retrospectively from 1 April 2004. As a result of this reporting exclusion, the payment summaries of employees who receive such fringe benefits will not include these amounts.

Schedule 9 amends the Income Tax Assessment Act 1936 to protect revenue and the integrity of the taxation system by preventing the inappropriate use of pre-1 July 1988 funding credits. This will ensure they can only be used in accordance with the original policy intent. In particular, pre-1 July 1988 funding credits will only be able to be used by superannuation schemes to reduce their taxation liability on contributions made after 1 July 1988 if those contributions were made for the purpose of funding benefits that accrued before 1 July 1988.

Schedule 10 to this bill will allow two types of deductible gift recipients - prescribed private funds and public ancillary funds - to obtain an Australian business number where the funds distribute to deductible gift recipients that are not charities (such as public ambulance services and research authorities) provided that these funds are income tax exempt. This ensures that the funds can access the same tax concessions as other funds that distribute solely to deductible gift recipients that are charities.

Schedule 11 gives effect to the government's announcement in the 2005-06 budget that it will increase philanthropy by establishing five new categories of organisations that can receive tax deductible gifts. The categories cover war memorials, disaster relief, animal welfare, charitable services and educational scholarships.

Schedule 12 amends the A New Tax System (Goods and Services Tax) Act 1999 to confirm that the GST charity concessions apply in accordance with the original policy intent. It also clarifies that charities operating retirement villages are required to be endorsed by the Commissioner of Taxation in order to access the relevant GST charity concessions, as other charities must.

Schedule 13 makes a technical clarification to the Tax Laws Amendment (Improvements to Self Assessment) Act (No. 2) 2005 to ensure that the reduced four-year amendment period for income tax assessments involving tax avoidance applies from the 2004-05 income year as announced by the government.

Schedule 14 to this bill contains a measure amending the Wine Equalisation Tax (WET) Producer Rebate Scheme in the A New Tax System (Wine Equalisation Tax) Act 1999. The government announced in the 2006-07 budget that it would provide enhanced assistance to the wine industry, by increasing the maximum amount of wine producer rebate claimable by a wine producer (or group of producers) to $500,000 in each financial year from 1 July 2006.

Finally, schedule 15 amends the A New Tax System (Goods and Services Tax) Act 1999. It will ensure that supplies of certain types of real property remain input taxed. This measure confirms the longstanding GST treatment of these transactions and applies from 1 July 2000. The need for the amendment arises from the reasoning of the full Federal Court of Australia in the Marana Holdings case. If the measure were not adopted, property investors would face significant changes to the GST treatment of affected premises - advantaging some whilst disadvantaging others. It would add to uncertainty, complexity and the compliance burden on taxpayers.

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

Debate (on motion by Mr Griffin) adjourned.