House of Representatives

Tax Laws Amendment (2011 Measures No. 9) Bill 2011

Explanatory Memorandum

(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

Chapter 8 - Miscellaneous amendments to the tax laws

Outline of chapter

8.1 Schedule 6 to this Bill makes miscellaneous amendments to the taxation laws.

Context of amendments

8.2 These amendments essentially seek to ensure the taxation law operates as intended. They correct technical or drafting defects, removing anomalies and addressing unintended outcomes. These amendments are part of the Government's commitment to the care and maintenance of the taxation laws.

8.3 Miscellaneous amendment packages include addressing issues raised through the Tax Issues Entry System (TIES).

The TIES website (www.ties.gov.au), which the Australian Taxation Office (ATO) and Treasury jointly operate, provides a way for tax professionals and the general public to raise issues relating to the care and maintenance of the tax system. Relevant parts of this chapter identify TIES issues.

Summary of new law

8.4 These amendments deal with issues including:

correcting grammatical, referencing and asterisking errors;
clarifying the operation and application of the tax law;
ensuring that provisions are consistent with their original policy intent; and
repealing inoperative provisions.

8.5 Table 8.1 maps the content of this Schedule.

Table 8.1
Part Title
1 Corrections to cross-references
2 Repeal of references to Cultural Bequests Program and redundant subsection numbers
3 List of tax offsets
4 Taxation Administration Act 1953
5 Foreign superannuation funds
6 Asterisks
7 References to Acts
8 Extensions of time
9 Cessation of membership of GST groups etc.
10 Small business participation percentage
11 Exempt income
12 Complying superannuation/First Home Saver Account life insurance policies
13 Applications for tax file numbers
14 Taxable professional income
15 Consolidated groups
16 Demutualisation
17 Mining and quarrying definitions
18 BAS amount
19 Corporate tax rate
20 United Kingdom wounds and disability pension
21 Repeal of redundant provisions
22 Limited amendment period
23 Definition of managed investment trust
24 Equivalent foreign collective investment vehicles
25 Self managed superannuation funds
26 Untaxed plan cap
27 Correction of a typographical errors
28 Foreign income tax offset, the Medicare levy and the Medicare levy surcharge
29 Adjusted tax
30 Section 109CA of the Income Tax Assessment Act 1936
31 Franking debits

8.6 More significant amendments include:

providing the Commissioner of Taxation (Commissioner) with a discretion to extend the two-year ownership period in which the trustee of a deceased estate or beneficiary of such an estate must dispose of their interest in the deceased's dwelling to access either a full or a more generous partial capital gains tax (CGT) main residence exemption (Part 8, comprising items 94 to 96);
ensuring that taxpayers can have a non-zero direct small business participation percentage. This may occur in situations where shares in a company are held jointly by taxpayers and a discretionary trust has not make a distribution in an income year where the trust had a tax loss or no net income for that year. (This issue was identified through TIES issues 0002-2010 and 0003-2011 ) (Part 10, comprising items 106 to 116);
allowing a complying superannuation/ First Home Saver Account life insurance policy to include a deferred annuity policy held by an individual that was purchased before 1 July 2007 from an eligible termination payment. (This issue was identified through TIES issue 0037-2009 ) (Part 12, comprising items 149 to 152);
enabling lost policy holders with an interest in a demutualisation receive equal CGT treatment to other policy holders where the other relevant conditions are satisfied. The amendment will apply in relation to demutualisations occurring on or after 1 July 2008, so that demutualisations that have already applied the demutualisation concessions can benefit from this amendment (Part 16, comprising items 162 and 163); and
ensuring that the continuity of ownership test applies to payments made on or after 1 July 2009 and not from the time that the company acquired the dwelling. The intent of the continuity of ownership test is to ensure that the ownership of a dwelling does not change on or after 1 July 2009 rather than before 1 July 2009 (Part 30, comprising items 252 and 253).

8.7 All of the amendments in Schedule 6 apply from the date of Royal Assent unless otherwise stated.

Detailed explanation of new law

Schedule 6 - Miscellaneous amendments

Part 1 - Corrections to cross-references

Division 1

Table 8.2 : Amendments to the Income Tax Assessment Act 1936
Provision being amended What the amendment does
Income Tax Assessment Act 1936

102MA(2)(a)

102MA(2)(b)

[Schedule 6, items 1 and 2]

Corrects the cross-references in these provisions.

Division 2

Table 8.3 : Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Act 1997

207-59(1)

230-380(2) and (3)

230-380(6)(a)

995-1(1)(definition of 'non-arm's length limited resource debt')

[Schedule 6, items 3 to 6]

Corrects the cross-references in these provisions.

Division 3 - Citizenship

Table 8.4 : Amendments to the Income Tax Assessment Act 1997 and the Tax Laws Amendment (2006 Measures No. 3) Act 2006
Provision being amended What the amendment does
Income Tax Assessment Act 1997

30-37(a)

Tax Laws Amendment (2006 Measures No . 3) Act 2006

2(1)(item 10 in the table)

Item 3 of Schedule 11

Corrects the reference which should refer to the Australian Citizenship Act 2007 .
[Schedule 6, items 7 to 9]

Division 4 - Tax-related liabilities

Table 8.5 : Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Act 1997

721-25(1A)(a)

Corrects the cross-reference in this provision.
[Schedule 6, item 10]

Part 2 - Repeal of references to Cultural Bequests Program and redundant subsection numbers

Division 1 - Cultural Bequest Program

Table 8.6 : Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Act 1997

30-5(1)

30-5(1)(note 1)

30-5(1)(note 2)

30-15(2)(note 1)

30-15(2)(note 2)

30-115

30-D

30-315(item 41 in the table)

104-185(2)(c)

112-48(item 1 in the table)

118-60(1)

[Schedule 6, items 11 to 20]

Removes references to the now inoperative Cultural Bequests Program.

Table 8.7 : Amendments to the Income Tax (Transitional Provisions) Act 1997
Provision being amended What the amendment does
Income Tax (Transitional Provisions) Act 1997

30-10

30-15

30-20

[Schedule 6, item 21]

Removes references to the now inoperative Cultural Bequests Program.

Division 2 - Redundant subsection numbers

Table 8.8 : Amendments to the A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999
Provision being amended What the amendment does
A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999

11(1)

[Schedule 6, item 22]

Removes a redundant subsection number.

Table 8.9 : Amendments to the Superannuation Industry (Supervision) Act 1993
Provision being amended What the amendment does
Superannuation Industry (Supervision) Act 1993

252(1)

[Schedule 6, item 23]

Removes a redundant subsection number.

Table 8.10 : Amendments to the Superannuation (Self Managed Superannuation Funds) Supervisory Levy Act 1991
Provision being amended What the amendment does
Superannuation (Self Managed Superannuation Funds) Supervisory Levy Act 1991

7(1)

[Schedule 6, item 24]

Removes a redundant subsection number.

Part 3 - List of tax offsets

Table 8.11 : Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Act 1997

13-1

[Schedule 6, items 25 and 26]

Updates the list of tax offsets to include references to 'film' and to 'life insurance company.

As a result of this amendment, the list of tax offsets includes references to 'film' covered in Division 376 and to 'life insurance company subsidiary joining consolidated group' in subsection 713-545(5).

Part 4 - Taxation Administration Act 1953

Table 8.12 : Amendments to the Taxation Administration Act 1953
Provision being amended What the amendment does
Taxation Administration Act 1953

2(1)

3AA(1A)

[Schedule 6, items 27 and 28]

This amendment makes it explicit that expressions used in the body of the Taxation Administration Act 1953 (TAA 1953) do not take the meaning given by definitions in the Income Tax Assessment Act 1997 (ITAA 1997) (or in Schedule 1 to the TAA 1953), except where specific provision is made to the contrary.

This separation of definitions is consistent with a similar separation of definitions between the ITAA 1997 and the Income Tax Assessment Act 1936 (ITAA 1936): see subsection 995-1(2) of the ITAA 1997 and subsection 6(1AA) of the ITAA 1936. One reason for this is that the ITAA 1936 does not follow the 'one expression, one meaning' approach generally adopted in the ITAA 1997.

The body of the TAA 1953 also does not follow the 'one expression, one meaning' approach. By contrast, Schedule 1 to the TAA 1953 is effectively incorporated into the ITAA 1997, and does follow that approach.

Taxation Administration Act 1953

8C(1)(a)

[Schedule 6, item 29]

The object of section 8C of the TAA 1953 is to make it an offence to fail to comply with requirements under the taxation law. Paragraph 8C(1)(a) is intended to make it an offence to fail to provide any information or document to the Commissioner as required under a taxation law.

The purpose of this amendment is to clarify that an offence under paragraph 8C(1)(a) is not limited to failure to furnish an approved form as defined in Schedule 1 to the TAA 1953, or any other particular form. For example, it would include a failure to lodge a Superannuation Guarantee statement as required under the Superannuation Guarantee (Administration) Act 1992 .

Part 5 - Foreign superannuation funds

Division 1 - Pensions and annuities

Table 8.13 : Amendments to the Income Tax Assessment Act 1936
Provision being amended What the amendment does
Income Tax Assessment Act 1936

603(1)(h)

[Schedule 6, items 30 and 31]

Ensure that amounts paid from foreign superannuation funds are not subject to double taxation on distribution where amounts were subject to tax under the attribution rules contained in the former foreign investment fund provisions.

The amendment applies to the 2007-08 and later income years. The amendment will allow the law to operate as intended and will not have a detrimental effect on taxpayers.

Division 2 - Superannuation lump sums

Table 8.14 : Amendments to the Income Tax (Transitional Provisions) Act 1997
Provision being amended What the amendment does
Income Tax (Transitional Provisions) Act 1997

Div 305

[Schedule 6, item 32]

Ensure that amounts transferred from foreign superannuation funds are not subject to double taxation on distribution where amounts were subject to tax under the attribution rules contained in the former foreign investment fund provisions.

Section 305-80 is a continuation of the deduction previously allowable under former section 533B of Part XI of the ITAA 1936.

The amendment applies to the 2010-2011 and later income years. The amendment will allow the law to operate as intended and will not have a detrimental effect on taxpayers.

Part 6 - Asterisking

Division 1 - A New Tax System (Wine Equalisation Tax) Act 1999

Table 8.15 : Amendments to the A New Tax System (Wine Equalisation Tax) Act 1999
Provision being amended What the amendment does
A New Tax System (Wine Equalisation Tax) Act 1999

19-20(1)(a)

33-1 (definition of 'connected with')

[Schedule 6, items 33 and 34]

Asterisks the term 'ITAA 1997', as it is a defined term.

Division 2 - Trading stock and revenue assets

Table 8.16 : Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Act 1997

28-170(3)(item 2 in the table, column 2)

28-175(3)(b)

70-30(5)

70-35(1)(b)

70-100(6)(b) and 10(b)

165-115BB(2) (paragraph (a) of the definition of 'previous capital losses, deductions or trading stock losses')

165-115F(3) and (4)

385-135(3)(b)(ii)

715-145(2)(item 2 in the table, column headed 'If:')

723-50(2)(a)

723-50(2)(b)

725-225(5)

725-245(item 1 in the table, column headed 'Up interest')

725-245(item 2 in the table, column headed 'Up interest')

725-245(item 3 in the table, column headed 'Up interest')

725-310(2)

725-315

725-315(a)

725-315(2)

725-335(3)( item 2 in the table, column headed 'To:')

725-335(3)(items 4 to 6 in the table, column headed 'To:')

977-25(3)(b)

977-35(2)(b)

995-1(1)(paragraph (b) of the definition of 'apportionable deductions')

995-1(1)(paragraph (b) of the definition of 'consideration receivable')

[Schedule 6, items 35 to 59]

Ensures that the terms 'trading stock' and 'revenue assets' are correctly asterisked.

Division 3 - Other amendments

Table 8.17 : Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Act 1997

36-25(item 5 in the table relating to tax losses of companies)

36-25(item 1 in the table relating to tax losses of corporate tax entities)

36-25(item 1 in the table relating to tax losses of entities that become foreign hybrids)

70-80(3)(a)

115-228(1) (definition of 'net financial benefit')

124-445(a)

216-10(1)(b)

216-30

[Schedule 6, items 60 to 67]

Corrects the asterisking of the references to: 'capital gain', 'corporate tax', 'excess franking offsets', 'foreign hybrid', 'life insurance company', 'member', 'tax loss', 'business', 'securities lending arrangement' and 'securities lending arrangements'.

Part 7 - References to Acts

Table 8.18 : Amendments to the A New Tax System (Goods and Services Tax) Act 1999, to the Income Tax Assessment Act 1997 and to the Taxation Administration Act 1953
Provision being amended What the amendment does
A New Tax System (Goods and Services Tax) Act 1999

9-20(1)(d)

113-5(1)

177-12(4)(b)

195-1(definition of 'non-cash benefit')

195-1(definition of 'withholding payment' covered by a particular provision in Schedule 1 to the Taxation Administration Act 1953)

195-1(definition of 'withholding payment')

Income Tax Assessment Act 1997

995-1 (Various definitions)

Taxation Administration Act 1953

426-1 in Schedule 1

426-5(a) in Schedule 1

426-5(b) in Schedule 1

426-40(1) in Schedule 1 (paragraph (a) of note 1)

426-55(1) in Schedule 1 (paragraph (a) of note 1)

426-65(1)(a) in Schedule 1

426-65(1)(b) in Schedule 1

446-5(6) in Schedule 1 (items 9 and 10 in the table )

850-100(8)(a) in Schedule 1 (example)

850-100(8)(b) in Schedule 1 (example)

[Schedule 6, items 68 to 93]

Replaces references to the A New Tax System (Goods and Services Tax) Act 1999 and to the Income Tax Assessment Act 1997 with the asterisked acronyms of '*GST Act' and '*ITAA 1997' respectively, as these are defined terms.

Part 8 - Extensions of time

Table 8.19 : Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Act 1997

118-195(1) (at the end of the cell in item 1 in the table, column headed 'And also one of these items')

118-200(3)

[Schedule 6, items 94 to 96]

Income Tax Assessment Act 1936

170

170A

[Schedule 6, subitem 4(1) and item 188]

Subsection 118-195(1) of the ITAA 1997 (all references in this Part are to this Act) provides a CGT exemption to a beneficiary or trustee of a deceased estate where a CGT event happens to a dwelling (or an ownership interest in a dwelling) acquired from a deceased estate. An exemption is provided where the following conditions are satisfied:

the beneficiary or trustee's ownership interest in the dwelling ends within two years of the deceased's death; and
just before the deceased's death, for post-CGT dwellings:

-
the dwelling was their main residence; and
-
it was not then being used to produce assessable income.

Where a trustee or beneficiary of a deceased estate cannot access a CGT exemption under section 118-195, section 118-200 may provide a partial exemption.

In particular, subsection 118-200(3) ensures that for post-CGT dwellings, where the trustee or beneficiary's ownership interest ends within two years of the deceased's death, the period between the deceased's death and when their ownership interest ends can be ignored when calculating a capital gain or capital loss.

The amendments give the Commissioner discretion to extend the time period in subsections 118-195(1) and 118-200(3) where the trustee or beneficiary of a deceased estate's ownership interest ends after two years from the deceased's death.

The Commissioner would be expected to exercise discretion in situations such as where:

the ownership of a dwelling or a will is challenged;
the complexity of a deceased estate delays the completion of administration of the estate;
a trustee or beneficiary is unable to attend to the deceased estate due to unforeseen or serious personal circumstances arising during the two-year period (for example, the taxpayer or a family member has a severe illness or injury); or
settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control.

These examples are not exhaustive.

In exercising this discretion, the Commissioner is expected to consider whether and to what extent the dwelling is used to produce assessable income and the period that the trustee or beneficiary held the ownership interest in the dwelling.

The amendments will apply in relation to CGT events that happen in the 2008-09 income year and later income years. The amendments are beneficial to taxpayers.

The operation of section 170 of the ITAA 1936 is modified so that taxpayers are able to seek an amended assessment to take advantage of these amendments where their original assessment was made before the commencement of these amendments but their period for seeking an amendment to their tax return has expired. Broadly, taxpayers are able to seek an amended assessment in these circumstances within two years of that commencement.

Part 9 - Cessation of membership of GST groups etc.

Table 8.20 : Amendments to the A New Tax System (Goods and Services Tax) Act 1999
Provision being amended What the amendment does
A New Tax System (Goods and Services Tax) Act 1999

48-110(1)

48-115(1)(b)

48-110(2)(b)

51-110(1)

51-115(1)(b)

51-115(2)(b)

195-1 (definition of 'cease to be a member of a GST group')

195-1 (definition of 'cease to be a participant of a GST joint venture')

[Schedule 6, items 97 to 105]

These amendments give effect to the suggestion made through TIES issue 0013-2010 .

Section 195-1 of the GST Act defines the terms 'cease to be a member of a GST group' and 'cease to be a participant of a GST joint venture' by reference to the Commissioner's approval of revocation of a member of a GST group or a participant of a GST joint venture respectively. These amendments remove these definitions as they are no longer needed following the introduction of a self-assessment system for GST groups and GST joint ventures by the Tax Laws Amendment (2010 GST Administration Measures No. 2) Act 2010 .

These amendments also make consequential amendments to Division 48 (GST groups) and Division 51 (GST joint ventures) by deleting the asterisk in front of the words 'cease to be a member of a GST group' and 'cease to be a participant of a GST joint venture' respectively.

Part 10 - Small business participation percentage

Division 1 - Companies

Table 8.21 : Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Act 1997

152-70(2) and (3)

[Schedule 6, items 106 to 109]

Income Tax Assessment Act 1936

170

170A

[Schedule 6, subitem 4(2) and item 188]

These amendments give effect to the suggestion made through TIES issue 0003-2011 .

Division 152 of the ITAA 1997 (all references in this Part are to this Act unless otherwise stated) provides four small business CGT concessions. To access these concessions in relation to a share in a company, it is necessary for that company to have one or more significant individuals. The significant individual test represents a readily verifiable proxy for active participation in a small business.

However, where shares are jointly held, those joint holders may be unable to qualify as a significant individual. To qualify as a significant individual, the individual's direct and indirect small business participation percentage in the company must be at least 20 per cent (sections 152-55 and 152-65).

Under subsection 152-70(1), an entity's direct small business participation percentage in a company is the smallest of the entity's percentage of:

the voting power in the company the entity is entitled to exercise;
any dividend payment that the entity is entitled to receive; and
any capital distribution that the entity is entitled to receive.

Where shares are jointly held, it is arguable that each joint holder in their own right has a zero percentage of voting power as no joint holder individually controls the voting power bestowed on the jointly held shares. This gives each joint holder a direct small business participation percentage of zero in relation to those jointly held shares and consequently may exclude them from qualifying for the small business CGT concessions.

These amendments switch off the voting power calculation in subsection 152-70(1) to accommodate joint shareholders for the purpose of qualifying for the small business CGT concessions. This has the effect that joint shareholders calculate their small business participation percentage based on the lesser of their percentage entitlement to any dividend or capital distribution of the company.

These amendments apply to CGT events happening in the 2006-07 income year and later income years, in line with the commencement of the original provisions. These amendments are beneficial for taxpayers.

The operation of section 170 of the ITAA 1936 is modified so that taxpayers are able to seek an amended assessment to take advantage of these amendments where their original assessment was made before the commencement of these amendments but their period for seeking an amendment to their tax return has expired. Broadly, taxpayers are able to seek an amended assessment in these circumstances within two years of that commencement.

Division 2 - Discretionary trusts

8.8 These amendments give effect to a suggestion made through TIES issues 0002-2010 and 0002-2011 .

8.9 Section 152-120 currently treats a trust (where entities do not have entitlements to all of the income and capital of the trust) as if it had a significant individual during an income year in which the trustee did not make a distribution of income or capital if the trust had a tax loss or no taxable income for that year. This applies only for the purposes of meeting the condition required in particular circumstances in the small business 15-year exemption that a trust must have a significant individual for at least 15 years - see paragraphs 152-105(c) and 152-110(1)(c).

8.10 However, section 152-120 does not work for indirectly held entities as it does not give the assumed significant individual a direct small business participation percentage in the first entity in the chain (the trust of the kind mentioned in the previous paragraph), which is needed to calculate their small business participation percentage in the final entity in the chain (the indirectly held entity).

8.11 Also, section 152-120 does not work in relation to paragraphs 152-110(1)(d) and 152-125(1)(b) for directly-held entities where a trust (of the kind mentioned in paragraph 8.9) does not make a distribution in the income year that the relevant CGT event happens (the CGT event year). This is because those paragraphs require the trust to have respectively a significant individual or a CGT concession stakeholder just prior to the CGT event who must also satisfy other conditions (such as an age condition). By deeming there to be a significant individual but not identifying that individual, these conditions cannot be satisfied.

8.12 The issues with section 152-120 are effectively issues with the operation of section 152-70. Section 152-70 provides that an entity's small business participation percentage at the relevant time in a trust (of the kind mentioned in paragraph 8.9) is equal to the smaller of the percentage of income or capital distribution the entity was beneficially entitled to during the income year in which that time occurs.

8.13 A problem arises when the trustee of the trust does not make a distribution in an income year, which results in the trust not having a significant individual, apart from the assumed significant individual mentioned in paragraph 8.9, or any CGT concession stakeholders for that income year. This is particularly problematic if the income year is the CGT event year because access to the small business CGT concessions in particular circumstances requires an entity to have a significant individual or a CGT concession stakeholder (for example, see subsection 152-10(2) and paragraph 152-305(2)(b)).

8.14 The amendments allow, for the purpose of accessing the small business CGT concessions, an entity to work out their direct small business participation percentage in a trust (of the kind mentioned in paragraph 8.9) at the relevant time if during the income year that includes that time (the relevant year), the trustee of the trust:

does not make a distribution of income; and
does not make a distribution of capital.

However, an entity is able to work out a direct small business participation percentage greater than zero only if the trust did not have net income or had a tax loss for the relevant year. [Schedule 6, item 112, subsections 152-70(4) and (6)]

8.15 Following on from the previous paragraph, if the trustee of the trust made a distribution in the CGT event year, the entity's direct small business participation percentage at the relevant time is worked out via item 3 in the table in subsection 152-70(1) using the percentage of the distributions the entity was beneficially entitled to in the CGT event year. This is achieved by treating, if the trustee made a distribution in the CGT event year, the references in that item to the 'relevant year' as being references to the CGT event year, which means the relevant time at which the small business participation percentage is being calculated is treated as occurring during the CGT event year. If the trustee of the trust did not make a distribution in the CGT event year, the entity's direct small business participation percentage at the relevant time is worked out using the percentage of the distributions the entity was beneficially entitled to in the last income year before the CGT event year in which the trustee made a distribution. [Schedule 6, item 112, subsection 152-70(5)]

Example 8.19 XYZ trust is a trust where entities do not have entitlements to all of the income and capital of the trust. XYZ trust operates a business and owns land that it has used in the course of carrying on its business for the last 20 years. Evan, Mario, Denise and Katrina are all objects of XYZ trust and have been so for the last 20 years.After suffering a bad trading year, XYZ trust decides to sell the land. XYZ trust's aggregated turnover for the income year in which it sells the land (the CGT event year) is less than $2 million. XYZ trust wants to exempt the capital gain under the small business 15-year exemption and pay out the exempt amount to Evan, Mario, Denise and Katrina.In order for XYZ trust to meet the conditions of the small business 15-year exemption, Evan, Mario, Denise and Katrina have to work out a small business participation percentage in XYZ trust.The trustee of XYZ trust did not make a distribution in the CGT event year and the trust had a tax loss for that year. The trustee made a distribution of income in the year prior to the CGT event year with Evan being beneficially entitled to 40 per cent of the income and Mario, Denis and Katrina each being beneficially entitled to 20 per cent of the income. The trustee did not make a distribution of capital in that year.In all the other income years except the income year 14 years before the CGT event year, the trustee of XYZ trust made a distribution and XYZ trust had a significant individual. In the income year 14 years before the CGT event year, the trustee did not make a distribution and the trust had a tax loss for that year.The amendments allow a direct small business participation percentage to be calculated for Evan, Mario, Denise and Katrina for the CGT event year and for the income year 14 years before the CGT event year. As there is no distribution in the CGT event year, the focus shifts to the last income year before the CGT event year in which there was a distribution - that is, the income year prior to the CGT event year. Therefore, in the CGT event year and in the income year 14 years before the CGT event year the direct small business participation percentages are as follows: 40 per cent for Evan; and 20 per cent for each of Mario, Denise and Katrina.In the circumstances of this example, the amendments allow XYZ trust to have a significant individual in the two tax-loss years. As Mario was 60 years of age just before the land was sold, XYZ trust would be able use the small business 15-year exemption to exempt the capital gain on the sale of the land so long as the other relevant conditions of the small business 15-year exemption are met.

8.16 If a trust (of the kind mentioned in paragraph 8.9) had net income for the relevant year and did not have a tax loss for that year, an entity's direct small business participation percentage at the relevant time in the trust is zero, as the trustee has decided not to distribute the net income. [Schedule 6, item 112, paragraph 152-70(6)(a)]

8.17 An entity's direct small business participation percentage at a relevant time in a trust (of the kind mentioned in paragraph 8.9) is also zero if the trustee did not make a distribution at any time before the end of the CGT event year. This would apply where the trustee of the trust had never made a distribution in the income years (including the CGT event year) that the entity was an object of the trust and the trust had no net income or had a tax loss in each of those income years.

A distribution by the trustee during the CGT event year of some or all of the capital gain made from the CGT event is a distribution for the purpose of assigning an small business participation percentage in that income year to the objects of the trust. Trust law would determine whether the distribution is a distribution of income or capital.

[Schedule 6, item 112, paragraph 152-70(6)(b)]

8.18 The amendments also enable an entity to calculate a small business participation percentage in another entity in which it has an indirect interest. For example, suppose an entity is an object of Trust A (which is a trust of the kind mentioned in paragraph 8.9) that owns an interest in Trust B (which is a trust of the kind mentioned in item 2 in the table in subsection 152-70(1)) that carries on a business. If the trustee of Trust A did not make a distribution in an income year and Trust A had a tax loss or did not have net income for that income year, the amendments allow the entity to calculate its direct small business participation percentage in Trust A as long as the trustee made a distribution to the entity while it was an object of the trust. The entity can then use its direct small business participation percentage in Trust A and Trust A's direct small business participation percentage in Trust B to calculate the entity's small business participation percentage in Trust B.

8.19 The amendments repeal section 152-120 as it is no longer required and repeal notes elsewhere in the legislation that refer to that section. The amendments replace the term 'current year' in item 3 in the table in subsection 152-70(1) with 'relevant year', as 'current year' is a defined term in section 995-1. [Schedule 6, items 110 and 111 and 113 to 115, subsection 152-70(1) (paragraph (a) in the cell in item 3 in the table, column headed 'Is:'), subsection 152-70(1) (paragraph (b) in the cell in item 3 in the table, column headed 'Is:'), paragraph 152-105(c)(note), paragraph 152-110(1)(c)(note) and section 152-120]

8.20 The amendments generally apply in relation to CGT events happening in the 2006-07 income year and later income years to align with the date of effect of the amendments that introduced the 'significant individual' test. [Schedule 6, subitem 116(1)]

8.21 The operation of section 170 of the ITAA 1936 is modified so that taxpayers are able to seek an amended assessment to take advantage of these amendments where their original assessment was made before the commencement of these amendments but their period for seeking an amendment to their tax return has expired. Broadly, taxpayers are able to seek an amended assessment in these circumstances within two years of that commencement. [Schedule 6, subitem 4(3), item 188]

Part 11 - Exempt income

Division 1 - Repeal of spent provisions

Table 8.22 : Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Act 1997

11-15(item in the table headed 'family assistance')

11-15(item in the table headed 'social security or like payments')

52-10(1)(b)

52-10(1B) and (1C)

52-65(1)(bb) and (c)

52-65(1B) and (1C)

52-75(item 1C in the table)

52-75(cell in item 1 in the table, column headed 'Payment made because of a person's death')

52-75(cell in item 3 in the table, column headed 'Payment made because of a person's death')

52-75(cell in item 6 in the table, column headed 'Payment made because of a person's death')

52-75(cell in item 7 in the table, column headed 'Payment made because of a person's death')

52-75(cell in item 9 in the table, column headed 'Payment made because of a person's death')

52-150(1)

52-150(2)

[Schedule 6, items 117 to 131]

Ensures the income tax law contains only one provision dealing with exempt payments to individuals.

Repeals certain provisions from Division 52 that exempt payments from income tax which are no longer being made.

Division 2 - Lists of exempt incomes

Table 8.23 : Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Act 1997

6-20(1)(note)

11-1

11-1(b) and (c)

11-10

11-15(heading)

11-15(after items in the table headed 'family assistance ' and 'foreign aspects of income taxation')

11-15(after item in the table headed 'health')

11-15(after item in the table headed 'life-insurance companies')

11-15(after item in the table headed 'social security or like payments')

11-15(after item in the table headed 'superannuation and related business')

[Schedule 6, items 132 to 142]

Combines the lists that were previously in sections 11-10 and 11-15, and ensures that the references are correct.

Division 3 - Australian Victim of Terrorism Overseas Payment

Table 8.24 : Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Act 1997

11-15(item in the table headed 'social security or like payments')

[Schedule 6, item 143]

Inserts a reference to 'Australian Victim of Terrorism Overseas Payment', as they also qualify as a social security payment.

Division 4 - Amendments contingent on the Clean Energy (Household Assistance Amendments) Act 2011

Table 8.25 : Amendments to the Clean Energy (Household Assistance Amendments) Act 2011
Provision being amended What the amendment does
Clean Energy (Household Assistance Amendments) Act 2011

Item 16 of Schedule 10 (heading)

Item 2 of Schedule 10

11-15(item in the table headed 'family assistance')

11-15(at the end of item in the table headed 'family')

[Schedule 6, items 144 and 145]

Income Tax Assessment Act 1997

11-15(item in the table headed 'family assistance')

11-15(item in the table headed 'social security or like payments')

[Schedule 6, items 146 to 148]

This amendment ensures that numbering and references are correct.

Part 12 - Complying superannuation / First Home Saver Account life insurance policies

Divisions 1 and 2 - Virtual pooled superannuation trust life insurance policies and complying superannuation/ First Home Saver Account life insurance policies

Table 8.26 : Amendments to the Income Tax Transitional Provisions Act 1997
Provision being amended What the amendment does
Income Tax Transitional Provisions Act 1997

320F

320-180

320-180(1)

[Schedule 6, items 149 to 152]

This amendment gives effect to the suggestion made through TIES issue 0037-2009 .

The amendment ensures that a deferred annuity policy held by an individual that was purchased before 1 July 2007 from an eligible termination payment is included in the complying superannuation business of life insurance companies.

Prior to the introduction of the First Home Saver Account life insurance policies rules, deferred annuity policies were treated as virtual pooled superannuation trust policies. When the First Home Saver Account life insurance policies rules were introduced, virtual pooled superannuation trust policies were changed to complying superannuation / First Home Saver Account life insurance policies. Therefore from that time deferred annuity policies will be treated as complying superannuation / First Home Saver Account life insurance policies.

This amendment requires retrospective application from the 2007-08 income year, as that is when the Better Super reforms commenced. This amendment will be beneficial to affected taxpayers.

Part 13 - Applications for tax file numbers

Table 8.27 : Amendments to the Income Tax Assessment Act 1936
Provision being amended What the amendment does
Income Tax Assessment Act 1936

202B(2)

[Schedule 6, items 153 to 156]

This amendment gives effect to the suggestion made through TIES issue 0052-2009 and makes a minor change to the existing TFN application process to remove the requirement for documentary evidence of the applicant's identity to be attached to the electronic TFN application form.

In particular, the Commissioner will be able to determine the most efficient application method and how the documentary evidence is to be provided. This will enable electronic lodgment of applications and ensure there is clear and consistent direction as to the manner in which a TFN application is to be made.

Part 14 - Taxable professional income

Table 8.28 : Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Act 1997

405-45 (formula in step 2 in the method statement)

[Schedule 6, items 157 and 158]

Certain taxpayers such as sportspersons, inventors and artists can have significant fluctuations in their income. Division 405 of the ITAA 1997 provides a regime to lessen the impact of these fluctuations on marginal tax rates in the income years when a taxpayer's taxable professional income is above their average as determined under that Division. Section 405-45 of the ITAA 1997 shows how to work out taxable professional income. Step 2 of the formula in section 405-45 is used to determine the amount of certain apportionable deductions (such as gifts and donations) that can be allocated to a taxpayer's assessable professional income and other income. This calculation is relevant for the purposes of determining taxable professional income. Taxable professional income is then subject to averaging for the purposes of determining whether a taxpayer has above average professional income.

Division 405 of the ITAA 1997 was enacted by the Tax Law Improvement Act (No. 1) 1998 . Section 405-45 was designed to replace section 158J of the ITAA 1936. Section 158J contained a formula to allocate apportionable deductions between the taxpayer's special professional income and their other income. When the section 158J formula was reproduced in section 405-45, the denominator was transcribed incorrectly such that '+' became '-'.

Both before and after 1998, the ATO systems have consistently calculated taxable professional income using a '+' in the denominator when applying the formula. A retrospective amendment would ensure that the formula contained in the Act accords with the intent of the law, and ATO processing of tax returns.

Part 15 - Consolidated groups

Division 1 - Partnerships

Table 8.29 : Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Act 1997

713-265(heading)

[Schedule 6, item 159]

This amendment gives effect to a suggestion made through TIES issue 0005-2009 to modify the heading to section 713-265, so that it refers to a partner (rather than a partnership) that leaves the group.

Division 2 - Amendments applying from 1 July 2002

Table 8.30 : Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Act 1997

715-90(2)

[Schedule 6, items 160 and 161]

This amendment gives effect to a suggestion made through TIES issue 0029-2010 to clarify how the same business test applies when an entity leaves a consolidated group for the purposes of determining whether the integrity rules relating to unrealised net losses apply.

The amendment ensures that the leaving entity can apply the assumptions that are ordinarily applied in respect of trading stock losses for the purposes of determining whether it satisfies the same business test.

This amendment applies from the commencement of section 715- 90, which was 1 July 2002. The amendment is beneficial to taxpayers, as it will make it easier for them to satisfy the same business test (and therefore avoid the operation of the integrity rules).

Part 16 - Demutualisation

Table 8.31 : Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Act 1997

316-155(2)

[Schedule 6, items 162 and 163]

Division 316 of the ITAA 1997 (all references in this Part are to this Act) disregards various capital gains and capital losses that may arise when a friendly society demutualises to become a 'for profit' entity.

Demutualisation involves the participants of a friendly society giving up the right to benefit in the future from any accumulated mutual surplus that has been (or may be) built up in the fund. Upon demutualisation there is effectively a distribution of any accumulated mutual surplus to the participants. Ordinarily, this triggers a CGT taxing point as participants may receive shares, rights to acquire shares or cash.

There are different conditions to access the CGT concessions under Division 316 depending on if the demutualising friendly society has lost policy holders or not. If a mutual fund does not have lost policy holders, there is no requirement that the demutualisation scheme be court-approved. If a friendly society has lost policy holders, the demutualisation scheme must be court-approved and a lost policy holders' trust must be established to hold distributed assets or cash on the behalf of the lost policy holders (subsection 316-155(2)).

Since the introduction of Division 316, it has become apparent that where there are lost policy holders a demutualisation can proceed without court approval. Accordingly, the requirement in subsection 316-155(2) for court approval is an unnecessary impediment to demutualisations where there are lost policy holders.

The amendments will remove the requirement in subsection 316-155(2) that the lost policy holders' trust has to exist under a scheme approved by a court. This will ensure that lost policy holders that have an interest in the demutualisation will receive equal CGT treatment to other policy holders where the other relevant conditions are satisfied.

The amendment applies in relation to demutualisations occurring on or after 1 July 2008 so that demutualisations that have already applied the demutualisation concessions may benefit from this amendment.

Part 17 - Mining and quarrying definitions

Table 8.32 : Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Act 1997

40-80(1)(c)(i)

40-95(11)(b)

40-110(3B)

40-740(1)(d)

124-710(1)(a)

855-20(b)

995-1 (definition of 'exploration or prospecting')

995-1(1) (paragraph (b) of the definition of 'housing and welfare')

995-1 (definition of 'minerals')

995-1 (definition of 'mining operations')

995-1 (definition of 'mining, quarrying or prospecting information')

995-1 (definition of 'mining, quarrying or prospecting rights')

995-1 (definition of 'natural resources')

995-1 (definition of 'petroleum')

[Schedule 6, items 164 to 176]

Improve the definitions of: 'exploration or prospecting', 'minerals', 'petroleum', 'mining operations', and 'mining, quarrying or prospecting information' which pointed the reader to definitions in section 40-730, by referring to the relevant subsections.

The amendments also fix the asterisking of the terms 'minerals' and 'petroleum'.

Corrects the spelling of the word 'education' in paragraph (b) of the definition of 'housing and welfare'.

Part 18 - BAS amount

Table 8.33 : Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Act 1997

995-1(1)

[Schedule 6, items 177 and 178]

This amendment converts the definition of the term 'BAS amounts' into the singular 'BAS amount'.

Part 19 - Corporate tax rate

Table 8.34 : Amendments to the Income Tax Assessment Act 1997 and to the Taxation Administration Act 1953
Provision being amended What the amendment does
Income Tax Assessment Act 1997

705-115(1) (formula)

711-45(1)

711-45(3) (formula)

Taxation Administration Act 1953

288-80(3) in Schedule 1 (formula)

[Schedule 6, items 179 to 182]

Substitutes the term '*corporate tax rate' in place of '*general company tax rate' to ensure that the correct term is used in the formulae in the legislation.

Part 20 - United Kingdom wounds and disability pension

Table 8.35 : Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Act 1997

53-10 (paragraph (a) of the cell in item 5 in the table, column headed '... is exempt subject to these exemptions and special conditions:')

[Schedule 6, item 183]

This amendment gives effect to the suggestion made through TIES issue 0012-2010 .

This amendment ensures that an income tax exemption for a United Kingdom wounds and disability pension paid to members of the armed services continue. The reference to 'subsection 315(2) of the Income and Corporation Taxes Act 1988 of the United Kingdom' in column 3 of item 5 in the table in section 53-10 is being replaced with the reference to 'section 641 of the Income Tax (Earnings and Pensions) Act 2003 (UK) '.

Part 21 - Repeal of redundant provisions

Table 8.36 : Amendments to the A New Tax System (Goods and Services Tax) Act 1999
Provision being amended What the amendment does
A New Tax System (Goods and Services Tax) Act 1999

195-1(definition of 'electronic signature')

[Schedule 6, item 184]

This amendment repeals the definition of the term 'electronic signature', as this term is not used in the GST Act.

Table 8.37 : Amendments to the Income Tax Rates Act 1986
Provision being amended What the amendment does
Income Tax Rates Act 1986

22

[Schedule 6, item 185]

This amendment repeals a redundant provision.

Table 8.38 : Amendments to the Taxation Administration Act 1953
Provision being amended What the amendment does
Taxation Administration Act 1953

45-910(3)(c) in Schedule 1

45-910(3) in Schedule 1 (note)

[Schedule 6, items 186 and 187]

This amendment repeals a redundant provision and ensures that the numbering is correct.

Part 22 - Limited amendment period

Table 8.39 : Amendments to the Income Tax Assessment Act 1936
Provision being amended What the amendment does
Income Tax Assessment Act 1936

170A

[Schedule 6, items 188 and 189]

This amendment gives effect to the suggestion made through TIES issue 0022-2010 .

A taxpayer can take advantage of retrospective changes to the law provided the ATO processes their request for an amendment to an assessment and issues an amended assessment.

The Commissioner can amend an ordinary assessment after a limited amendment period expires if, broadly, the taxpayer has raised an issue affecting the assessment before the period expires and the Commissioner is still considering the issue. Therefore, it is proposed to allow the Commissioner to amend an assessment after the two-year period that commences from the date of Royal Assent to the amending Act to allow a taxpayer to take advantage of the retrospective change in circumstances.

This amendment ensures that taxpayers are not unfairly disadvantaged if the ATO is unable to issue an amended assessment, despite the request for amendment being lodged and having been considered, within a two-year period.

Example

Tax Laws Amendment (2010 Measures No. 1) Act 2010 inserted section 716-860 (which is about CGT events which straddle the time that an entity joins or leaves a consolidated group) into the ITAA 1997.

Section 4 of the Tax Laws Amendment (2010 Measures No. 1) Act 2010 provides for the amendment of assessments in respect of section 713-725. It effectively requires that an amended assessment must be made by 3 June 2012, two years after Royal Assent.

Head Co lodges a request for a private ruling on 1 June 2012. The private ruling is for the purpose of amending their assessment in respect of section 713-725.

Section 170A extends the period in which the Commissioner has to amend Head Co's assessment beyond 3 June 2012.

Part 23 - Definition of managed investment trust

Table 8.40 : Amendments to the Tax Laws Amendment (2010 Measures No. 3) Act 2010
Provision being amended What the amendment does
Tax Laws Amendment (2010 Measures No . 3) Act 2010

7-1 of Schedule 5

[Schedule 6, item 190]

There is some doubt as to whether the application and transitional provisions of the Tax Laws Amendment (2010 Measures No. 3) Act 2010 apply for the purposes of Division 275 of the ITAA 1997 as intended in relation to trusts in existence in the 2008-09 and 2009-10 income years. That could mean, for example, that a trust in existence in the 2008-09 and/or the 2009-10 income year could use the definition of a 'managed investment trust' that applied before the amendments made by the Tax Laws Amendment (2010 Measures No. 3) Act 2010 for the purpose of making an election under Division 275 of the ITAA 1997.

The amendment, to insert subitem 7(2), ensures that the transitional rules do apply as intended to ensure a trust that was in existence in either (or both) of the 2008-09 and 2009-10 income years and that was a managed investment trust within the meaning of section 12-400 in Schedule 1 to the TAA 1953 immediately before the commencement of Schedule 5 to the Tax Laws Amendment (2010 Measures No. 3) Act 2010 , can make an election under Division 275 of the ITAA 1997.

Part 24 - Equivalent foreign collective investment vehicles

Table 8.41 : Amendments to the Taxation Administration Act 1953
Provision being amended What the amendment does
Taxation Administration Act 1953

12-402(3)(e) in Schedule 1

[Schedule 6, items 191 and 192]

There is some doubt as to whether paragraph 12-402(3)(e) in Schedule 1 to the TAA 1953 is applying as intended. That could mean that an entity that is recognised under a foreign law as being used for collective investment may not qualify under paragraph 12-402(3)(e) if the foreign law itself does not specify the entity must have at least 50 members.

The amendment to paragraph 12-402(3)(e) ensures that the paragraph is applying as intended, to include an entity that is recognised under a foreign law as being used for collective investment by pooling the contribution of its members, provided the entity has at least 50 members and the contributing members that have acquired rights to benefits produced by the entity do not have day-to-day control over the entity's operation. A contributing member would include members who have acquired interests in the entity from the initial pooling of contributions or subsequently from one or more other members (for example, in the case of a limited partnership where a partner acquires rights to benefits produced by a limited partnership when taking up the interests of a retiring limited partner).

Part 25 - Self managed superannuation funds

Division 1 - Definition of self managed superannuation fund

Table 8.42 : Amendments to the Superannuation Industry (Supervision) Act 1993
Provision being amended What the amendment does
Superannuation Industry (Supervision) Act 1993

10(1) (definition of 'self managed superannuation fund')

17(A)(heading)

17(A)(1)

17(a)(2)

17A(3)(c)

17B

[Schedule 6, items 193 to 199]

This amendment gives effect to the suggestion made through TIES issue 0017-2010 .

Amends paragraph 17A(3)(c) so that if the trustee of the self managed superannuation fund is a body corporate, a parent or guardian can be director of the body corporate in place of a member who is a minor and does not have a legal personal representative.

The definition of 'self managed superannuation fund' includes that all members must be a trustee of the fund or a director of the corporate trustee. Paragraph 17A(3)(c) contains an exception where a parent or guardian can be trustee in place of a member who is a minor and does not have a legal personal representative. This amendment corrects an oversight when this paragraph was inserted so that the exception also applies to self managed superannuation funds with a corporate trustee.

This amendment applies from 8 October 1999, because that is when paragraph 17A(3)(c) was inserted.

This amendment clarifies that the prohibition on the remuneration of trustees and directors of a body corporate that is trustee of the fund applies only to duties or services performed in the capacity of trustee or in the capacity of director and in connection with the body corporate's capacity of trustee.

The definition of 'self managed superannuation fund' specifies that trustees or directors of the body corporate, if the trustee is a body corporate, cannot receive remuneration for duties or services performed in relation to the fund.

Section 17B also places certain restrictions on trustee remuneration for non-trustee duties and services. The purpose of these restrictions is to ensure that trustee remuneration is not used by trustees to obtain access to their superannuation benefits before they are eligible.

Trustees and directors may be remunerated for non-trustee duties or services, provided that:

they are appropriately qualified and licensed to perform the duties or services;
the duties or services are performed as part of a business through which the trustee or director provides the same services to the public; and
the remuneration is on an arm's length basis.

Subsection 17B(1), which applies to remuneration of trustees, applies from 8 October 1999 because this is when paragraphs 17A(1)(f) and (2)(c) were inserted.

Subsection 17B(2), which applies to the remuneration of a director of a body corporate that is trustee of the fund, applies to the 2007-08 income year and later income years because those are the income years to which paragraphs 17A(1)(g) and (2)(d) apply.

These amendments ensure that the law operates as it was intended will not have detrimental effects on taxpayers.

Division 2 - References to self managed superannuation funds

Table 8.43 : Amendments to references to self managed superannuation funds
Provision being amended What the amendment does
Income Tax Assessment Act 1997

210-70(1)(b)(i)

210-70(1)(b)(ii)

210-170(2)(a)

210-170(2)(b)

[Schedule 6, items 200 to 203]

Superannuation Industry (Supervision) Act 1993

6(1)(note)

17A(6)(notes 1 and 2)

29N(1A)

35B(heading)

35D(heading)

229(1)(aa)(i)

229(3) and 231(3)

327 (paragraph (aa) of the definition of 'modifiable provision')

[Schedule 6, items 204 to 211]

Taxation Administration Act 1953

355-65(3) in Schedule 1 (paragraph (a) in the cell in item 8 in the table, column headed 'and the record or disclosure...')

355-65(3) in Schedule 1 (paragraphs (b) and (c) in the cell in item 8 in the table, column headed 'and the record or disclosure...')

[Schedule 6, items 212 and 213]

Updates the references to the definition of 'self managed superannuation fund'.

Corrects references to 'self managed superannuation fund' that incorrectly used a hyphen.

Part 26 - Untaxed plan cap

Table 8.44 : Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Act 1997

307-350(2)

307-350(2A)

[Schedule 6, items 214 to 216]

Clarifies that when a person receives a superannuation lump sum that contains an untaxed element, the person's untaxed plan cap amount is only reduced by the untaxed element of a superannuation lump sum, rather than by the whole lump sum.

Updates a reference to the amended subsection 307-350(2).

These amendments apply on and after 1 July 2007 because that is when subsection 307-350(2) was inserted. These amendments do not have an adverse effect on taxpayers.

Part 27 - Correction of typographical errors

Table 8.45 : Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Act 1997

775-205(c)(i)

[Schedule 6, item 217]

Fixes a typographical error.

Table 8.46 : Amendments to the Taxation Administration Act 1953
Provision being amended What the amendment does
Taxation Administration Act 1953

16-153(2)(c)

[Schedule 6, item 218]

Fixes a typographical error.

Part 28 - Foreign income tax offset, the Medicare levy and the Medicare levy surcharge

Table 8.47 : Amendments to the Income Tax Assessment Act 1997, the Income Tax Assessment Act 1936, the Taxation Administration Act 1953 and the Taxation (Interest on Overpayments and Early Payments) Act 1983
Provision being amended What the amendment does
Income Tax Assessment Act 1997

63-10(1)

770-5

770-10(1)

995-1(1)

Income Tax Assessment Act 1936

6(1)

160AD

251R

251S(1)

251T

251U

251V

251VA

251W

251X

251Z

Taxation Administration Act 1953 - Schedule 1

11-1(b)

15-30(b)

45-5(1)(b)

45340

45-375

90-1

Taxation (Interest on Overpayments and Early Payments) Act 1983

3(1)

[Schedule 6, items 219 to 248]

There is some doubt whether the ITAA 1997 and Schedule 1 to the TAA 1953 apply, as intended, to the Medicare levy and the Medicare levy surcharge in the same way as they apply to normal income tax. Amendments made in 2010 to insert section 90-1 of Schedule 1 to the TAA 1953 operate to ensure taxpayers calculating the limit on their foreign income tax offset for an income year include the Medicare levy and the Medicare levy surcharge.

Amendments are made to the ITAA 1997 to ensure that any foreign income tax offset for an income year that remains after being applied against a taxpayer's basic income tax liability can be applied first to reduce any liability for the Medicare levy for the income year and if any remains, to reduce any liability for the Medicare levy surcharge for the income year.

Consequential amendments are also made to the ITAA 1936, the TAA 1953, the ITAA 1997 and the Taxation (Interest on Overpayments and Early Payments) Act 1983 to include definitions of the Medicare levy and the Medicare levy (fringe benefits) surcharge in subsection 6(1) of the ITAA 1936, and to include a definition of the 'Medicare levy' in the ITAA 1997.

The amendments apply to income years starting on or after 1 July 2008 - the start date for the new foreign income tax offset rules - to ensure those rules apply, as intended, from their first application.

Part 29 - Adjusted tax

Table 8.48 : Amendments to the Taxation Administration Act 1953
Provision being amended What the amendment does
Taxation Administration Act 1953

45-340 in Schedule 1 (step 4 in the method statement)

45-375 in Schedule 1 (step 4 in the method statement)

[Schedule 6, items 249 to 251]

Corrects the calculation of the adjusted tax on the adjusted taxable income or adjusted withholding income. Family Tax Benefit can no longer be claimed through the ATO when lodging an annual income tax return and Family Tax Benefit is no longer applicable for inclusion in step 4 a calculation which reduces the adjusted tax amount.

This amendment will not have a dertrimental effect on taxpayers. It will apply from 1 July 2009, as that was the date from which claims for Family Tax Benefit, including previous year claims could no longer be accepted by the ATO as a result of the Family Assistance and Other Legislation Amendment (2008 Budget and Other Measures) Act 2009 .

Part 30 - Section 109CA of the Income Tax Assessment Act 1936

Table 8.49 : Amendments to the section 109CA of the Income Tax Assessment Act 1936
Provision being amended What the amendment does
Income Tax Assessment Act 1936

109CA

[Schedule 6, items 252 and 253]

Enables taxpayers to access the exception, where the ownership of a dwelling changed before 1 July 2009.

The amendment fixes an unintended outcome that the continuity of ownership test applies to payments made after 1 July 2009 and not from the time that the company acquired the dwelling. This situation was inappropriate because the intent of the continuity of ownership was to ensure that the ownership of a dwelling does not change on or after 1 July 2009 rather than before 1 July 2009.

This amendment will enable the law to operate as intended and will not have a detrimental effect on taxpayers.

Part 31 - Franking debits

Table 8.50 : Amendments to the Income Tax Assessment Act 1936
Provision being amended What the amendment does
Income Tax Assessment Act 1936

45C(3)(b)

[Schedule 6, items 254 and 255]

Removes an inappropriately onerous outcome for taxpayers. Paragraph 45C(3)(b) is amended to the effect that the amount of the franking debit is the amount that (if the company had paid a dividend of an amount equal to the amount of the capital benefit, etc) would have been the amount of the maximum franking credit on the dividend.

This amendment is to apply to notices of determination, under subsection 45A(2) or 45B(3) of the ITAA 1936, served on or after 1 July 2002. This will ensure that the law operates as it was originally intended.


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