House of Representatives

Taxation Laws Amendment Bill (No. 3) 1988

Taxation Laws Amendment Act (No. 3) 1988

Second Reading Speech

the Hon. Peter Morris, M.P.

the Minister Assisting the Treasurer ?? I move that the Bill be now read a second time.

Madam Speaker, this Bill will amend the capital gains tax and substantiation provisions of the income tax law and the fringe benefits tax law.

Capital Gains Rollover Relief

The Bill gives effect to the proposal announced on 28 January 1988 to extend relief from tax on capital gains to a number of kinds of business reorganisations, and to make a number of technical amendments to the existing rollover provisions.

Generally the rollover amendments in this Bill will apply to reorganisations commencing after 28 January 1988.

Interposition of a Company into an Existing Business Structure

Rollover relief will be given where a resident company is interposed between an existing resident company and its shareholders who dispose of their shares in the existing company for non-redeemable shares in the interposed company.

Crown Leases

The Bill will allow rollover relief from 20 September 1985 where a crown lease of land is converted to freehold or to a lease in perpetuity, or is renewed, extended, reduced or expanded in size, subdivided or consolidated with another crown lease held by the taxpayer.

The 28 January 1988 announcement indicated that rollover relief would be available where the land under the new lease was the same, or substantially the same, as that under the original lease.

This Bill clarifies what is meant by substantially the same by broadly proposing that rollover relief be available to the extent to which land under a new lease or a freehold interest comprises land held under the original crown lease.

A related amendment to apply from 20 September 1985 broadens the scope of the principal residence exemption to include a dwelling on land under a crown lease, regardless of the term of the lease.

Rollover relief will also apply if the crown pays compensation to the lessee where a crown lease of land has expired and is not to be renewed and the lessee acquires a replacement asse.

Renewal of Licences or authorities

Rollover relief will be extended from 20 September 1985 to the renewal or extension of a statutory licence, authority or permit.

Prospecting and Mining Rights

Specific rollover relief applicable to the mining industry will be widened from 20 September 1985 to include renewals, extensions, consolidations or splits of prospecting rights or mining rights and the relinquishment of part of an existing prospecting or mining right on the issue of a new right.

Involuntary Dispasals

Rollover relief will be extended from 20 September 1985 where a Government or Government authority acquires an asset by voluntary agreement rather than under the compulsory acquisition processes.

Also, a replacement for an asset acquired before 20 September 1985 will be taken to have been acquired before that date if its acquisition cost does not exceed 120 per cent of the market value of the original asset immediately before its loss or destruction.

Transfer of Asset to Wholly Owned Company

The Bill will extend the rollover relief available to a partnership that transfers assets to a wholly-owned company where one or more of the partners are trustees and the requirement that at least one of the partners be a natural person is to be removed.

Public Trading Unit Trusts

Rollover relief will be extended where the trustee of a public trading trust established before 20 September 1985 makes, as a result of a reorganisation, a proportionate distribution in specie to unitholders of shares acquired before that date.

Generally, the amendment to extend relief in this way will apply to transfers of shares after 28 January 1988 and before 1 July 1988.

Marriage Breakdown

The scope of the present rollover for the transfer of assets on the breakdown of a marriage is to be extended to include a court-directed or court-sanctioned transfer between a company or a trust and one of the spouses.

Unit Trusts/Companies

Categories of rollover relief now available for certain transactions by companies are to be extended to comparable transactions by trustees of unit trusts.

Relief will also be extended to splits or consolidations of company issued rights or options to acquire shares and to rights or options to acquire units in a unit trust.

Transfer of assets to non-resident companies

In the announcement of 28 January 1988, it was said that where a taxable Australian asset was transferred to a non-resident company in circumstances in which rollover relief was available, the asset would be taken to be a taxable Australian asset in the hands of the transferee and an asset received in consideration for the disposal would also be a taxable Australian asset.

On further review it was found that a more satisfactory approach is to provide that rollover relief will be available only where the asset is in fact a taxable Australian asset of the transferee company, instead of treating the asset as a taxable Australian asset.

To ensure that there is no element of retrospectivity in this approach, the limitation of the availability of rollover relief will apply only in respect of assets disposed of after today.

Amendments to treat the transferred asset as a taxable Australian asset will apply in respect of assets disposed of after 28 January 1988 and on or before today.

Madam Speaker, the nature of these rollover amendments is such that a reliable estimate of the revenue effect cannot be made.

Substantiation Rules

The substantiation rules will be amended in a number of respects.

Overseas travel expenses

Employees in receipt of a reasonable travel allowance will, with effect from 1 July 1986, not have to substantiate claims, within that allowance, for expenses in respect of food, drink or other expenditure incidental to overseas travel.

Travel diary requirements for members of the crew of an international flight will also be removed from the substantiation rules.

Motor vehicle fuel and oil expenses

The substantiation rules were amended in 1987 to allow fuel and oil expenses for cars to be verified by a record of total kilometres travelled during the year.

From 1 July 1986 this Bill allows similar treatment for other vehicles such as motor cycles and small trucks.

Car hire expenses

Car hire expenses incurred after the start of the 1988-89 income year are not to be treated as car expenses for the purposes of the substantiation rules.

Instead, they will be substantiated as employment-related expenses or, if the hire car is used for overseas travel or extended travel within Australia, as travel expenses.


The Bill also makes it clear that reimbursements of fringe benefits tax are exempt from income tax.

Fringe benefits tax

Several refinements of fringe benefits tax rules, generally having effect from 1 July 1986, are also proposed.

Employers meeting the reasonable food, drink or incidental expenses of overseas travel by their employees will be able to appropriately reduce the taxable value of the relevant fringe benefits without first obtaining documentary evidence of those expenses.

To ease the paperwork burden on fringe benefits tax employers, the Bill provides that employers may specify certain information about car fringe benefits in records to be retained by them, rather than in fringe benefits tax returns.

From the start of the 1989-90 fringe benefits tax year, car records will have to be in a form approved by the Commissioner of Taxation.

The remote area holiday travel concession, under which employers pay fringe benefits tax on only one half of the taxable value of fringe benefits arising from reimbursing employees' holiday costs is to be extended to cover cases where the benefit is an allowance paid to an employee's spouse or children.

Another change is the exemption from fringe benefits tax of the cost to employers of compassionate travel.

Broadly, the exemption will apply where an employer meets the cost of an employee's travel to visit a seriously ill spouse or child or to attend a family funeral.

It will also be made plain that an employee contribution to an employer's fringe benefits tax liability does not reduce the taxable value of the fringe benefits the employer provides.

Other minor technical amendments are included in the Bill.

The fringe benefits tax and substantiation measures in this Bill will have a negligible effect on revenue.

I present the explanatory memorandum and commend the Bill to the House.