House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon. P.J. Keating, M.P.)

GENERAL OUTLINE

This Bill will amend:

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the Income Tax Assessment Act 1936 -

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to make the following changes to the capital gains tax (CGT) provisions (proposals announced in the Budget on 15 August 1989) -

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to apply CGT to deemed disposals of certain created assets, e.g. leases, options, restrictive covenants etc. from 23 May 1986 rather than from 20 September 1985;

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to allow the market value of an asset to be used in determining either its cost base or the consideration in respect of its disposal in certain circumstances where it is not acquired from, or disposed to, another person;

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to prevent the indexation of amounts incurred on the acquisition of an asset where the amount remains unpaid and the acquisition of the asset did not involve its disposal by another person;

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to ensure that full indexation is available for amounts that are to be included in the cost base of a share or unit following the payment of an amount that was not a dividend to a shareholder or the payment of a tax-free amount to a unitholder;

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to limit transferable capital losses between group companies to the amount invested by the group in the transferee on transfers made after 15 August 1989;

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to reduce the cost base of direct and indirect shares in, or loans made to, a group company following the transfer of a capital loss after 15 August 1989, to the extent that the loss is attributable to the shares or loans;

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to extend the concessional treatment available on the issue of rights or options by a company to its own shareholders to rights or options issued to shareholders of another group company;

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to prevent the abuse of rollover relief available on the transfer of assets to a wholly-owned company or between companies in the same group;

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to extend rollover relief on the conversion of certain interests in land to strata title;

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to extend rollover relief to shareholders of a newly incorporated company which is the legal successor to an association of which the shareholders were formerly members;

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to overcome technical deficiencies in the operation of a transitional measure that deems a taxpayer to realise a capital gain on the disposal of shares or units in a company or trust that were acquired before 20 September 1985 where the company or trust has made significant new investments on or after that date;

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to prevent double-taxing of gains realised on the disposal of an asset where an amount is taxable under a capital expenditure deduction recoupment provision (this proposal is to apply from 30 November 1989);

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consequential on the amendments relating to the transfer of capital losses and the rollover of assets between group companies, to modify the CGT exemption otherwise available in respect of traditional securities;

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to ensure that the cost base of shares or units acquired by conversion of a convertible note that is a traditional security is based on the market value of the convertible note at the time of conversion;

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to broaden the exemption from the capital gains and capital losses provisions for a taxpayer's sole or principal residence (PRE) and address situations where the PRE provisions could otherwise have operated harshly;

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to deny a dual resident investment company the ability to transfer to other group members, under the group relief provisions of the income tax law, either "income" losses or net capital losses incurred in the 1989-90 and following income years (original proposal announced on 17 December 1986):

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to modify the existing arrangements for the concessional taxation treatment of research and development expenditure (proposals announced on 7 September 1989) by:

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limiting the rate of deduction of expenditure on core technology;

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including in assessable income all receipts from granting access to or the right to use the results of a research and development project where expenditure on the project has been allowed as a deduction;

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reducing the rate of deduction in proportion to the reduced risk where an eligible company is entitled to a guaranteed return on any of its expenditure on a research and development project;

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to continue the existing tax treatment of the carer's service pension following its extension to a carer not related to the veteran cared for;

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to omit references to an allowance formerly paid under the Tuberculosis Act 1948;

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to make a technical amendment to the definition of the term "approved actuary";

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to amend the income tax gift provisions to reflect the change in name of an organisation (the Australian Academy of Technological Sciences) currently listed in the provisions;

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to make a technical amendment to the provisions dealing with interest payable on certain amended assessments.

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the Industry Research and Development Act 1986 -

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to empower the Industry Research and Development Board to certify to the Commissioner of Taxation as to whether particular technology was core technology in relation to particular research and development activities;

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to widen the range of potential investors by deleting the requirement that syndicates of eligible companies must include financial institutions.