The Senate

Taxation Laws Amendment Bill (No. 1) 1995

Second Reading Speech

The bill will amend the taxation laws in a number of respects. It will give effect to announcements which have been made by the Government including some of the decisions made in response to the Report of the Joint Committee of Public Accounts into the administration of the tax system.

Taxation Ombudsman

The bill will establish a Taxation Ombudsman within the office of the Commonwealth Ombudsman.

This measure and the allocation of additional resources to the Ombudsman for review of ATO action will improve equity in the taxation system.

The measure will not involve any cost to the revenue.

Notice of Rulings

The bill will change the rules for making a public taxation ruling by the Commissioner of Taxation so that a ruling is made when it is published and notice of the ruling is published in the Commonwealth Gazette. This measure removes any uncertainty about when a public ruling is made.

The measure will not involve any cost to the revenue.

Civil penalties and taxation offences

The third measure in the bill arising out of the JCPA Report will remove the power of the Commissioner to impose or reimpose an administrative penalty where a prosecution for the same act or omission is withdrawn.

The bill also makes related amendments to ensure taxpayers are not exposed to administrative penalties for an act or omission for which the taxpayer is being prosecuted.

There is an unquantifiable impact on the revenue for these measures.

Social Security Changes

In the 1993-94 Budget the Government announced details of a disability wage supplement which began on 1 July 1994.

The wage supplement seeks to promote workforce participation by people with a disability. The wage supplement is subject to essentially the same eligibility criteria as the disability support pension.

This bill proposes to exempt the wage supplement from income tax for those recipients under age pension age. The wage supplement for recipients who are above age pension age will be taxable but they will be eligible for a beneficiary rebate. The rebate will negate the tax on the wage supplement for a full-rate recipient.

Measures in the bill will also ensure that bereavement payments related to the wage supplement are given similar tax treatment to bereavement payments related to the disability support pension.

The bill also makes some minor technical amendments to the tax treatment of other social security payments.

The financial impact of these measures is not significant for 1994- 95 and estimated to be less than $1 million for 1995-96.

Life Insurance Companies

Two measures contained in this bill relating to life insurance companies give effect to an announcement made by me on 30 June 1994.

The first measure relates to dividends payable to life insurance companies satisfied through the issue of bonus shares which form part of the assets of the insurance funds of a life insurance company. The normal situation with dividends paid to companies is that they are subject to the inter-corporate dividend rebate. Because of this, where bonus shares are issued in satisfaction of a dividend, the amount of the dividend is not treated as constituting part of the cost of the shares when calculating any profit or loss on their disposal.

With a life insurance company, however, no inter-corporate dividend rebate is available for dividends paid to its insurance funds. This results in an element of double taxation. The bill will correct this unintended result in respect of bonus shares disposed of from 1 July 1994.

The second measure concerns the rate of the inter-corporate dividend rebate allowable to a life insurance company in respect of non-insurance fund dividends included in its taxable income. These dividends are eligible for the inter-corporate dividend rebate, but the rate of rebate currently allowable is the average rate of tax paid on the total income of a life insurance company. The average rate is lower than the rate paid on non-fund dividends. The bill will ensure that, from the 1994-95 year of income, the rate of rebate equals the rate of tax actually paid.

Neither measure is expected to result in significant costs to revenue.

Eligible Investment Income of Registered Organisations

This bill will include in the assessable income of friendly societies and certain other registered organisations income derived from certain assets of the organisation. The purpose of the amendment is to ensure that the provisions of Division 8A of the Income Tax Assessment Act 1936 are not circumvented by the holding of assets separate from the eligible insurance business of the organisation. The amendments will apply to income derived from eligible investment assets derived or purchased on or after 1 July 1994 by a registered organisation.

It is not possible to reliably estimate the revenue impact of this measure; however, the measure has the potential to prevent a significant future loss to revenue.

Privatised State Bank of NSW

The bill will also deal with three transitional tax issues that will be faced by the State Bank of NSW after it is sold to private interests and loses its tax exempt status as a public authority.

First, the bill will ensure that any gains or losses accrued in assets or liabilities of the bank at the time when it is sold, will not be taken into account in determining the bank's taxable income after it is sold. This will be achieved by treating the assets as having been sold and the liabilities met at the time of the sale and then having been bought or assumed again immediately after the sale.

Another measure will ensure that superannuation deductions are not tax deductible after the sale if they are made to satisfy a liability that accrued when the bank was exempt from tax.

The final measure will deny deductions for bad debts written off after the bank's sale to the extent that they were already considered by the bank to be doubtful debts before the sale occurred.

These measures will simply clarify the tax treatment of the State Bank of NSW in respect of the three transitional issues. They will not have any direct financial impact of their own.

Cost Price of Natural Increase of Live Stock

This bill will make amendments to the income tax law to ensure that natural increase of live stock for which no minimum value is prescribed is valued at its actual cost, where taxpayers elect to value such stock at cost. I announced the proposed amendments on 30 June 1994.

The effect of the amendments is to eliminate an inappropriate deferral of tax. For classes of live stock for which no minimum value is prescribed, the existing law allows some producers to use historical costs that have become negligible compared to actual costs. This substantially defers tax, and gives these producers a corresponding advantage over competitors who must use costs at, or close to, actual costs.

The amendments will apply to natural increase occurring after 30 June 1994.

As this measure is designed to eliminate the deferral of taxation revenue, there will be an increase in revenue in the first year of income. The amount of the increase cannot be quantified.

Capital Gains Tax

The bill proposes an amendment to the capital gains provisions to ensure that there will be liability to capital gains tax where an asset is created and held by its creator as the trustee of a discretionary trust. An example of the created assets to which the amendment will apply is a future interest in a professional partnership.

The financial impact of this proposal is unquantifiable.

Deductions for Gifts

The bill will also amend the gift provisions of the income tax law to allow deductions for gifts of $2 or more made to five organisations or funds. The amendment gives effect to announcements made by the Treasurer during 1994.

The impact of the amendments on revenue is not expected to be significant.

Superannuation Guarantee

The bill proposes to extend the present annual superannuation guarantee contribution requirement for the superannuation guarantee regime to the 1994-95 year and later years until the regime is more established. This extension was announced in the Treasurer's Superannuation Policy Statement of 28 June 1994.

There is no cost to the revenue from the change.

Panel Vans and Utility Trucks

A further measure in the bill will ensure that panel vans and utility trucks that carry one tonne or more are treated in the same manner throughout the tax law irrespective of whether or not they are derived from passenger motor vehicles.

The bill proposes to amend the depreciation, capital gains and related miscellaneous `rollover' provisions. As a result, all of the above class of vehicles (`one tonners') will qualify for accelerated depreciation rates rather than general rates. The amendment will also achieve better consistency of language between capital gains and related `rollover' provisions.

The cost to the revenue is estimated to be $1 million in 1994-95, $2 million in 1995-96 and $3 million in 1996-97.

Payments of Instalments by Companies

The bill will make a number of small amendments to the new company tax instalment arrangements contained in the income tax law. These new instalment arrangements commence for small and medium taxpayers from the 1994-95 year of income and for large taxpayers from the 1995-96 year of income.

The existing anti-avoidance provision in the law is to be replaced with three separate measures which more effectively target avoidance arrangements.

The bill also inserts a provision to allow the tax amount on which instalments are based to be varied by regulation where tax rates have changed.

The bill will also make consequential amendments to the provisions which impose penalty for late payment and interest on underpayments so that the penalty and interest calculations are made from the due date of the final instalment.

These amendments will not change the original revenue estimates for the new company tax instalment arrangements.

Deemed Assessments of Companies

The bill will amend the income tax law to allow an assessment to be deemed to have been made by the Commissioner of Taxation at the time when returns are lodged by companies and by trustees of certain funds. This amendment, which applies to taxpayers under both the existing and new company tax instalment regimes, will allow those taxpayers to obtain any refund due on assessment without delay. Under present provisions, refunds can be delayed when returns are lodged early.

This amendment has a minimal effect on revenue.

Passive Income of Controlled Foreign Companies

Special rules are contained in the controlled foreign company (CFC) measures of the income tax law to provide concessional treatment to Australian taxpayers who are shareholders of offshore general insurance companies and life insurance companies which are CFCs.

The bill will amend the CFC provisions relating to general insurance companies to replace the definitions of `tainted calculated liabilities' and `calculated liabilities' with definitions that reflect the concept of `outstanding claims'--a concept used in the general insurance industry as opposed to the life insurance industry.

This measure will not involve any cost to the revenue.

Rounding Down of Tax Liabilities

Finally, the bill will amend the Taxation Administration Act 1953 to give the Commissioner of Taxation the authority to round down to the nearest multiple of five cents the final amount of a taxation liability due and payable under any act or Regulation which the Commissioner administers.

Full details of the amendments are contained in the explanatory memorandum circulated to honourable senators.

I commend the bill to the Senate.