Taxation Laws Amendment Bill (No. 6) 1992

Taxation Laws Amendment Act (No. 6) 1992

Second Reading Speech

by the Minister for Industry, Technology and Commerce the Hon Senator John Button

I move that the Bill be now read a second time.

The Bill will amend the taxation laws in a number of respects.

It includes measures to implement changes announced in the 1992-93 Budget, as well as changes to the Prescribed Payments System announced by the Treasurer in July.

Budget announcements to be given effect by this Bill are changes to tax deduction arrangements for occupational clothing, changes to dividend streaming arrangements, and new arrangements to treat limited partnerships as companies for tax purposes.

Other minor amendments proposed by the Bill relate to the gifts provisions and consequential amendments following the introduction of the family payment advance.

I turn now to a more detailed discussion of these measures.

Occupational clothing

The Bill will give effect to the Budget decision to deny a tax deduction for expenses incurred in relation to certain corporate uniforms or wardrobes. This measure will ensure that the taxation laws do not confer an unfair advantage on some employees by permitting tax deductions for clothing which may not be essentially different from that worn to work by other employees for which no deductions are allowed.

The effect of the amendment is that employees will only be able to claim tax deductions for expenses incurred in purchasing, cleaning and repairing items that comprise a uniform or corporate wardrobe where the wearing of such clothing is expressly required by the employer as a condition of employment.

The Government has decided to target more closely the areas of potential abuse in this area. The Government will not prevent non-compulsory uniforms or wardrobes from being deductible in cases where the clothing is clearly identifiable as a corporate wardrobe. The Treasurer will develop strict guidelines to establish whether non-compulsory uniforms or wardrobes, as sets of clothing, are eligible for taxation deduction. These guidelines, which will be published as soon as possible after this Bill receives Royal Assent, will prevent the clear cases of abuse of the existing requirements that have come to the Government's attention.

The Government proposes to amend the Bill in Committee stage of its passage to give effect to this proposal.

It is important to note that the new rules will not operate to deny a deduction for clothing worn to protect employees from injury, or their normal clothing from damage.

The savings cannot be estimated at this stage.

Because of the changes to the Budget announcements the Government has decided to postpone the implementation of these measures until 1 July 1993.

Dividend streaming arrangements

The Bill gives effect to the announcement in this year's Budget that the income tax law is to be amended to ensure that the dividend streaming provisions work as intended when applied to international dividend streaming arrangements.

The changes affect only those companies that are a party to international dividend streaming arrangements. The vast majority of companies will not be affected.

The amendments will result in a resident company being able to preserve a portion of its available franking credits to be offset against the franking debit that arises under the dividend streaming provisions when a non-resident associate pays a related dividend under the streaming arrangement.

This change will apply to franked dividends paid by resident companies on or after the date the Bill receives Royal Assent and will have an insignificant impact on revenue.

Taxation of limited partnerships as companies

As announced in the 1992-93 Budget, limited partnerships formed on or after 19 August 1992 will be subject to the same taxation provisions as companies.

The proposal is consistent with the Government's equity objectives for the taxation system. The Government has taken measures before to ensure business structures comparable to companies are accorded comparable tax treatment. In 1985, provisions were introduced to ensure public trading trusts were taxed as companies. The previous Government had introduced similar measures in relation to corporate unit trusts.

A limited partnership has more in common with a company than with a conventional partnership. Where partners in a conventional partnership are individually and collectively liable to meet partnership debt and make good partnership losses, the liability of limited partners is limited (generally to their investment).

Limited partnerships formed prior to 19 August 1992 will be subject to the same taxation provisions as companies from the 1995-96 year of income.

Limited partnerships formed prior to 19 August 1992 may continue to be treated as partnerships for taxation purposes until the 1995-96 year of income. If they do not continue to carry on the same business, or if their ownership changes beyond a limited extent, they will be treated as companies for the year of income in which they change and all later years.

Limited partnerships that are subject to the new arrangements will be known as corporate limited partnerships.

The new arrangements are likely to have a revenue benefit; however, a reliable estimate cannot be made. This is because in some States legislation authorising the formation of limited partnerships has been enacted only recently.

Prescribed Payments System

The Bill also contains the amendments to the Prescribed Payments System which were announced by the Treasurer on 1 July 1992. The amendments are designed to reduce the administrative burden on payers, payees and the ATO.

The amendments, which will not directly affect the revenue, replace the current monthly reporting arrangements for payers with annual reporting.

The amendments proposed will also modify the current arrangements for deduction variation and exemption certificates and approvals to quote reporting exemption numbers.


The gift provisions of the income tax law are being amended to reflect a change in name of the College of Pathologists of Australia to the Royal College of Pathologists of Australasia. The change will have no impact on revenue.

Exemption for income tax of family payment advance

From 1 January 1993 the recipients of family payment will be able to have the payment made in a lump sum up to six months in advance. This Bill will amend the income tax law to exempt the family payment advance from income tax. As the regular instalments of family payment are already exempt from income tax there is no cost to revenue.

I present the Explanatory Memorandum which contains more detailed explanations of the provisions of the Bill.

I commend the Bill to the Senate.