The Senate

Taxation Laws Amendment Bill (No. 1) 1996

Second Reading

Senator KEMP (Victoria--Manager of Government Business in the Senate) (4.03 p.m.)--I move:

That this bill be now read a second time.

I seek leave to have the Second Reading Speech read as follows--

The bill will amend the taxation laws relating to provisional tax, share buy-backs and gifts. The share buy-back and gift measures were introduced into the Parliament late last year but were not debated.

Provisional tax

The bill will give effect to the coalition's election commitment to reduce the provisional tax uplift factor for the 1996-97 income year to 6 per cent.

Under Labor the uplift factor was set at 8 per cent for the previous three income years. This rate exceeded growth in income subject to provisional tax in these years--more than double the rate of actual income growth in one of these years. It was merely a tax grab and a way to bring forward revenue collections. It placed a heavy cashflow burden on small business and self-funded retirees.

The amendment is an important example of the coalition delivering on its election promises. The government is committed to the small business sector and self-funded retirees, both of whom will benefit from this measure.

Share buy-backs

The bill will give effect to the 1995-96 Budget announcement that the full buy-back price of a share in an off-market share buy-back is to be treated as consideration for ordinary income and capital gain purposes. Relief from double taxation is provided by reducing the amount of the ordinary income gain or capital gain by the amount of the dividend included in assessable income or paid out of profits. If the dividend is rebatable, it will not create or increase a capital loss or allowable deduction.

A market value rule is also to apply to off-market share buy-backs. Any excess over the market value of a share that is a dividend will not be frankable.

These amendments will apply to share buy-backs that take place after 7.30 p.m. AEST on 9 May 1995, unless they occur under certain transitional arrangements. The amendments have the potential to prevent a future loss to the revenue.

Deductions for gifts

The bill will amend the gift provisions of the income tax law to allow deductions for gifts of $2 or more to The Polly Farmer Foundation, the Australian Games Uniform Company Limited and the Cobram and District War Memorial Incorporated Fund. The bill also extends the time for tax deductibility of donations to the Shrine of Remembrance Restoration and Development Trust and The Sandakan Memorials Trust Fund.

I commend the bill to the Senate.