House of Representatives

Tax Laws Amendment (2010 Measures No. 4) Bill 2010

Second Reading Speech

Mr Clare (Parliamentary Secretary for Employment)

I move:

That this bill be now read a second time.

The Tax Laws Amendment (2010 Measures No. 4) Bill 2010 amends various taxation laws to implement a range of improvements to Australia's tax laws.

Schedule 1 amends the GST Act 1999 to ensure that the appropriate GST outcome is achieved in all situations involving third-party payments.

The changes in schedule 1 further refine the GST law to ensure the correct GST outcome is achieved when supplies for which third-party payments are made change their taxable status along the supply chain. This amendment prevents the use of third-party rebates to achieve an unfair GST advantage. It also prevents too much GST being paid in other situations.

This amendment arose from recent changes to the GST act which takes effect on 1 July 2010. The effect of those changes was to create GST adjustments to ensure the correct GST outcome where payments are made to third parties in the supply chain.

The amendment will apply to third-party payments made on or after 1 July 2010.

Schedule 2 amends the income tax laws to provide a capital gains tax (CGT) rollover for taxpayers who replace an entitlement to water with one or more different water entitlements.

This rollover ensures that CGT is not a barrier to transformation. Transformation is the process by which an irrigator permanently changes their right to water against an operator into a statutory licence held by an entity other than the operator. Transformation facilitates water market trading and the efficient use of water resources.

This schedule also allows termination fees to be recognised when calculating a capital gain or capital loss on an asset, by including these costs in the asset's cost base. This change applies to all assets and not just those relating to water.

Part 1 of schedule 3 to the bill makes minor policy refinements and technical amendments to the taxation of financial arrangements (TOFA), stages 3 and 4 provisions.

The TOFA stages 3 and 4 provisions cover both the tax treatment of hedges and tax-timing treatment in respect of financial arrangements other than hedges.

The TOFA stages 3 and 4 provisions include division 230 of the Income Tax Assessment Act 1997 and the consequential and transitional provisions inserted by the Tax Laws Amendment (Taxation of Financial Arrangements) Act 2009. These provisions modernise the financial taxation system by better reflecting the economic and commercial substance of financial arrangements.

The TOFA stages 3 and 4 provisions represent a major legislative reform that affects a wide range of financial arrangements, including those of a complex nature. The amendments, which improve tax certainty and reduce compliance costs, are the result of the ongoing monitoring and consultation undertaken by the government to ensure that the TOFA stages 3 and 4 provisions operate as intended. Consultation has benefited from the participation of industry representatives and professional bodies.

Part 2 of schedule 3 extends the transitional period for the application of the debt/equity provisions to 1 July 2010 for upper tier 2 capital instruments issued before 1 July 2001. The amendment will allow the issuers of certain upper tier 2 instruments to transition into proper upper tier 2 regulations.

Part 3 of this schedule makes minor technical amendments to the foreign currency gains and losses provisions. The amendments extend the scope of a number of compliance cost-saving measures in the tax law as well as ensure that the provisions operate as intended.

Schedule 4 amends the income tax laws to make it easier for takeovers and mergers regulated by the Corporations Act, to qualify for the CGT scrip-for-scrip rollover.

These amendments carve out takeover bids that do not contravene key provisions of the Corporations Act and approved schemes of arrangement from having to meet the rollover requirement that the target entity's interest holders can participate in the arrangement on substantially the same terms.

These amendments have been made in part because the income tax legislation does not need to regulate participation where the Australian Securities and Investments Commission already takes into account equality issues, including in relation to consideration, in administering its role in relation to schemes of arrangement.

These amendments ensure that the scrip-for-scrip rollover operates more effectively.

Schedule 5 implements the government's 2010-11 budget measure to increase the threshold above which a taxpayer may claim the net medical expenses tax offset. The claim threshold will increase from $1,500 to $2,000 with effect from 1 July 2010.

The amendments will also introduce annual indexation of the claim threshold to the consumer price index. The first indexation adjustment will take place on 1 July 2011. These changes will help reduce the long-term cost to the budget of a rapidly growing expenditure and ensure the ongoing sustainability of the net medical expenses tax offset.

The amendments apply to the 2010-11 year of income and later income years.

Schedule 6 amends the list of deductible gift recipients, or DGRs, in the ITAA 1997. Taxpayers can claim income tax deductions for certain gifts to organisations with DGR status. DGR status will assist the listed organisations to attract public support for their activities.

This schedule adds one new organisation to the act-namely, One Laptop per Child Australia Ltd. The organisation was established in 2008 and aims to improve the lives of Indigenous children living in disadvantaged communities in rural and remote Australia. It is working to achieve this goal by giving remote Indigenous school children laptops. The laptops are designed to be durable, energy efficient and appropriate for children.

This schedule extends the period for which the Xanana Vocational Educational Trust can receive deductible gifts until 30 December 2010. The trust was established to provide vocational and technical training to the peoples of Timor-Leste.

Finally, this schedule changes the name of a DGR from the Clontarf Foundation Inc. to the Clontarf Foundation. The foundation dates from June 2000 and works to improve the health, employment, education and life skills of disadvantaged youths, predominantly Indigenous boys, through a number of Australian rules football academies in Western Australia.

Schedule 7 extends access to tax-deductible donations to all volunteer fire brigades. Volunteer fire brigades perform an important community service. Brigades aim to prevent, respond to and assist with recovery from a range of fire related emergencies, including preventing bushfires from reaching people in built-up communities.

Schedule 7 also adds three new general deductible gift recipient categories to the ITAA 1997. This widens the accessibility of tax-deductible donations to all entities that provide volunteer based emergency services, including volunteer fire brigades, and extends deductible gift recipient status to all state and territory government bodies that coordinate volunteer fire brigades and State Emergency Service units.

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

Debate (on motion by Mrs Gash) adjourned.