House of Representatives

Tax and Superannuation Laws Amendment (2013 Measures No. 1) Bill 2013

Second Reading Speech

This Bill amends various taxation laws to implement a range of improvements to Australia's tax laws.

Schedule 1 exempts the interest paid by the Government on unclaimed money returned after 1 July 2013 from income tax. This ensures that the real value of unclaimed money does not diminish over time.

Under the amendments contained in this bill, individuals who are former temporary residents and who subsequently return to Australia will be treated in the same way as other Australian residents, that is, they will not be subject to tax on any interest paid on their unclaimed superannuation.

In the case of interest paid on the unclaimed superannuation of departing temporary residents who do not subsequently become permanent residents, these amendments ensure that such interest payments are appropriately subject to the Departing Australia Superannuation Payments tax. This removes the benefit of the taxpayer funded superannuation tax concessions from those who will not retire in Australia.

Schedule 2 amends the Fringe Benefits Tax Assessment Act 1986 to align the special rules for calculating airline transport fringe benefits with the general provisions dealing with in-house property fringe benefits and in-house residual fringe benefits.

The method for determining the taxable value of airline transport fringe benefits is also updated to simplify the practical operation of the law and to better reflect the value of the benefit.

Schedule 3 amends the income tax treatment of Commonwealth payments to irrigators under the Sustainable Rural Water Use and Infrastructure Program. The payments are for upgrading rural water infrastructure and improving the efficiency of rural water use. Some of the water savings from those improvements will be returned to the Commonwealth for environmental activities.

There can be a timing mismatch between assessing the payments and the deductions for relevant expenses. In particular, the payments will often be assessed right away but the depreciation deductions recognised only over several years. That mismatch can mean that an irrigator has to fund the gap until the expenditure has been fully recognised.

To address that timing mismatch, this measure allows taxpayers to treat the payments as non-assessable non-exempt income. Where they do, their corresponding expenditure is also not recognised for income tax purposes. However, because some taxpayers would be better off under the existing law, the measure also provides taxpayers with a choice between the new treatment and the existing law.

Schedule 4 introduces specific rules for trustees and investment managers of self managed superannuation funds in relation to acquiring certain assets from related parties and disposing of certain assets to related parties.

The Super System Review Panel, which included an expert on self managed superannuation fund issues, found that the current provisions concerning related party acquisitions and disposals are insufficient to mitigate the potential risk of transaction date and asset value manipulation to achieve favourable outcomes for the self managed superannuation fund or the related party.

Consider an example of a member who decided to contribute shares valued at $30,000 to their self managed superannuation fund in June 2012 which were worth $25,000 in May 2012. The member could complete and lodge an off-market transfer form and record May 2012 as the date the transaction took place. The contribution would be recorded as $25,000 even though the fund now owns shares worth $30,000.

In this way, parties may seek to manipulate the timing and valuation of transactions to achieve favourable outcomes, most commonly to stay under the contributions caps and avoid paying excess contributions tax or for capital gains tax advantages. Recommendation 8.13 of the Super System Review was that where an underlying market exists, all acquisitions and disposals of assets between self managed superannuation funds and related parties must be conducted through that market. Where an underlying market does not exist, acquisitions and disposals of assets between related parties must be supported by a valuation from a suitably qualified independent valuer.

The amendments will provide greater transparency to related party acquisitions and disposals. This will enable approved self managed superannuation fund auditors and the Commissioner of Taxation, as Regulator, to monitor these transactions more effectively, which will in turn enhance the integrity of the self managed superannuation fund sector.

This measure will only apply to self managed superannuation funds as there are key differences between these funds and those regulated by the Australian Prudential Regulation Authority that minimise the risk of manipulation of in-specie transfers. Funds regulated by the Australian Prudential Regulation Authority have an independent trustee and consequently their members do not have direct control over the choice of transaction date or asset value.

Schedules 5 and 6 introduce loss carry-back for companies into the income tax law. The introduction of loss carry-back implements recommendation 31 of the 2010 Australia's Future Tax System Review, which stated that '...companies should be allowed to carry back a revenue loss to offset it against the prior year's taxable income, with the amount of any refund limited to the company's franking account balance'.

It is also in line with the recommendations of the Business Tax Working Group (BTWG) made in its Final Report on the Tax Treatment of Losses, which found that loss carry-back would be a worthwhile reform in the near term.

The Working Group recommended that loss carry-back would be a worthwhile reform and proposed a model that is limited to companies, provides a two-year loss carry-back period on an ongoing basis and limits the amount of losses that can be carried back to $1 million a year.

This measure implements that recommendation by amending the taxation law to permit a corporate tax entity that makes a loss in one year to carry that loss back to the two preceding years. The entity must have a tax liability in the tax year it carries the loss back to and must have a franking account balance at the end of the year it claims the loss carry-back. If those requirements are satisfied, the entity will be able to convert the loss into a tax offset at the corporate tax rate. This will produce an effective refund of tax paid in the past of up to $300,000 a year at current rates.

As a transitional measure, corporate tax entities that make a loss in the 2012-13 year will be able to carry back them- loss for one year. In its first 4 years, it is estimated that this major tax reform will provide much-needed assistance to nearly 110,000 corporate tax entities. Almost 90 per cent of these entities are expected to be small businesses.

Small business is the engine room of the Australian economy, employing almost five million Australians and contributing more than 20 per cent of GDP. The Government is determined to create the environment in which small businesses not only survive, they thrive.

Allowing loss carry-back will encourage businesses to invest and adapt, and will mean companies in the slow lane can use their tax losses now - when they need to - rather than in the future when their businesses are performing better.

Finally, Schedule 7 to this Bill addresses some minor deficiencies in the taxation laws. The Government often progresses miscellaneous amendments, such as this, to rectify technical and machinery problems in the taxation laws. In doing so, the Government is giving effect to its long-standing commitment to maintain the integrity of the taxation system.

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