Senate

Explanatory Memorandum

(Circulated by authority of the Minister representing the Treasurer, Senator the Hon. Peter Walsh)

GENERAL OUTLINE

TAXATION LAWS AMENDMENT BILL (NO.5) 1988

This Bill will amend:

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the Income Tax Assessment Act 1936:

Gold mining (1988 May Economic Statement announcement)

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to repeal, with effect from 1 January 1991, the exemption from taxation of income from gold mining;

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to provide transitional arrangements to allow:

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notional deductions for certain capital expenditure incurred by gold miners prior to 1 January 1991 in order to determine actual deductions for such expenditure after that date;

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exploration or prospecting expenditure incurred after 25 May 1988 and before 1 January 1991 to be carried forward for deduction after that date, subject to a seven year limit;

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to ensure that, as from 1 January 1991, the exemption from tax on income derived from the sale of gold mining rights is subject to the same arm's length requirements currently applying to the sale of mining rights for other relevant minerals;

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to ensure that any capital gains tax liability on disposal of other relevant gold mining assets is entirely prospective;

Lump sum payments in arrears (1988-89 Budget announcement)

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to introduce a rebate of tax for taxpayers who receive, in arrears, a lump sum payment of certain kinds of income on or after 1 July 1986, to limit the tax payable on the arrears component of the lump sum to an amount comparable to the amount that would have been payable had the income been received in the year in which it accrued;

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to authorise regulations to prescribe a special rate for the deduction of tax instalments from such lump sums;

Employee share acquisition schemes (1988 May Economic Statement announcement)

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to exclude from assessability under section 26AAC up to $200 per year of discounts on shares or rights acquired by an employee under certain employee share acquisition schemes, with effect from 1 July 1988;

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to reduce the cost base of shares or rights, for the purpose of determining capital gains or losses, by the amount of discount that is excluded from assessability under section 26AAC;

Imputation credits (1988 May Economic Statement announcement)

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to reduce the amount of imputation credits that attach to certain dividends paid before 1 July 1989 by early balancing companies, and provide transitional franking credit rules for companies in receipt of such dividends;

Research and development: prepaid expenses (proposal announced on 20 November 1987 and 17 April 1988)

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to provide for certain research and development expenditure, incurred in advance for the provision of services, to be deductible over the period during which the services are provided;

Films (1988 May Economic Statement announcement)

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to reduce the rate of deduction for investment in Australian films from 120 per cent to 100 per cent;

Debt creation involving non-residents

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to remedy a technical deficiency in Division 16G, which deals with debt creation involving non-residents;

Gifts to the Australian National Gallery Foundation (1988-89 Budget announcement)

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to allow income tax deductions for gifts to the Australian National Gallery Foundation from 26 September 1988, the date of incorporation of the Foundation;

Cash grants under the Defence Service Homes Scheme (1987-88 Budget announcement and announcement of 9 December 1987)

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to exempt from tax certain cash grants made under the Defence Service Homes Scheme;

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the Fringe Benefits Tax Assessment Act 1986:

Foreign source income fringe benefits

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so as not to reduce the taxable value, under the 'otherwise deductible' rule, of certain property fringe benefits and residual fringe benefits which are provided in relation to foreign source income liable to be quarantined under the foreign tax credit system;

Overseas travel fringe benefits

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to remove, with effect from 1 July 1986, the requirement for a crew member of an international flight to keep a travel diary and furnish it to his or her employer so that the employer may reduce the taxable value of a property or residual fringe benefit associated with overseas travel; and

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the Sales Tax Assessment Act (No.1) 1930:

Refunds of sales tax

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to ensure that refunds of sales tax overpaid where the tax has been passed on to others are available only if all persons to whom the tax was passed on have been recompensed.

SALES TAX (EXEMPTIONS AND CLASSIFICATIONS) AMENDMENT BILL (NO.2) 1988

This Bill will amend the Sales Tax (Exemptions and Classifications) Act 1935:

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to ensure that goods used by retailers to wrap or secure goods for marketing are subject to tax at the 20 per cent rate;

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to ensure that thick shake mixes used in the manufacture of thick shakes and ice creams are subject to tax at the 10 per cent rate; and

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to ensure that accessories to take-away food containers such as spoons and serviettes are taxable at the 10 per cent rate.

INCOME TAX RATES AMENDMENT BILL 1988

This Bill will amend the Income Tax Rates Act 1986:

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to declare the rates of tax payable for the 1989-90 and subsequent financial years by companies and by trustees of prescribed unit trusts; and

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to declare the rate of tax payable for the 1988-89 and subsequent financial years by trustees in respect of trust income of non-resident company beneficiaries of trust estates.