House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon J. B. Hockey MP)

General outline and financial impact

Fairer taxation of excess non-concessional contributions

Schedule 1 to the Tax and Superannuation Laws Amendment (2014 Measures No. 7) Bill 2014 (Bill) amends the Income Tax Assessment Act 1997 (ITAA 1997) and the Taxation Administration Act 1953 (TAA 1953) to make the taxation treatment of individuals with excess non-concessional superannuation contributions fairer.

Date of effect: These amendments apply in the 2013-14 and later financial years. While these changes apply retrospectively, they ensure that no taxpayer need face a disproportionate penalty for exceeding their excess non-concessional cap after the date of announcement.

Proposal announced: This measure was announced in the acting Assistant Treasurer Media Release titled 'Superannuation excess contributions tax' of 13 May 2014.

Financial impact: The measure has a cost of $39.0 million over the forward estimates. This is primarily the result of the large reduction in excess non-concessional contributions tax revenue.

Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 1, paragraphs 1.76 to 1.83.

Compliance cost impact: This measure will impose low additional compliance costs on superannuation providers and individuals.

Summary of regulation impact statement

Regulation impact on business

Impact: Low.

Main points:

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Superannuation providers are already required to process release authorities for members with excess non-concessional contributions, although potentially on a slightly shorter timeframe.

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Individuals can choose to have their excess non-concessional contributions and 85 per cent of an associated earnings amount paid from their superannuation in accordance with a release authority issued by the Commissioner of Taxation. This choice is optional. However, individuals who make this choice will no longer face a disproportionate penalty on their excess non-concessional contributions.

Transferring the tax investigation function to the Inspector-General of Taxation

Schedule 2 to this Bill amends the Inspector-General of Taxation Act 2003 by transferring the tax investigative and complaint handling function of the Commonwealth Ombudsman to the Inspector-General of Taxation (Inspector-General) and merging that function with the Inspector-General's existing function of conducting systemic reviews. This provides taxpayers with a specialised complaint handling process for taxation matters and aligns the systemic review role of the Inspector-General with the correlative powers and functions of the Ombudsman.

Date of effect: Schedule 2 to this Bill commences the later of the 14th day after this Bill receives Royal Assent or 1 May 2015.

Proposal announced: These amendments were announced in the 2014-15 Budget.

Financial impact: The Government will provide an additional $0.1 million over four years from 2014-15 to transfer the tax complaint function.

Human rights implications: This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 2, paragraphs 2.81 to 2.87.

Compliance cost impact: Nil.

CGT exemption for compensation and insurance

Schedule 3 to this Bill amends the ITAA 1997 to ensure that:

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a capital gains tax (CGT) exemption is available to certain trustees and beneficiaries who receive compensation or damages;

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a CGT exemption is available to trustees of complying superannuation entities for insurance policies relating to illness or injury; and

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the CGT primary code rule applies to capital gains and capital losses that are disregarded by complying superannuation entities arising from injury and illness insurance policies, life insurance policies and annuity instruments.

Date of effect: The amendments apply to the 2005-06 income year and later income years. The amendments are consistent with the administrative practice of the Commissioner of Taxation and ensure that taxpayers that could have benefited by relying on the Commissioner's administrative practice are not disadvantaged by this change.

Proposal announced: The Assistant Treasurer announced the Government would proceed with this measure in a Media Release titled Integrity restored to Australia's taxation system of 14 December 2013. The measure was first announced in the 2011-12 and 2012-13 Federal Budgets.

Financial impact: This measure is estimated to have a small but unquantifiable cost to revenue over the forward estimates period.

Human rights implications: This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - paragraphs 3.32 to 3.40.

Compliance cost impact: This measure has a low compliance cost impact as the changes give effect to how the taxation law is administered by the Commissioner of Taxation.

Providing certainty for superannuation fund mergers

Schedule 4 to this Bill amends the ITAA 1997 and ITTPA to ensure that individuals whose superannuation benefits are involuntarily transferred from one superannuation plan to another plan without their request or consent are not disadvantaged through the transfer. Schedule 4 to this Bill will also amend the TAA 1953 to remove the need for a roll-over benefit statement to be provided to an individual whose superannuation benefits are involuntarily transferred.

Date of effect: 1 July 2015.

Proposal announced: The Assistant Treasurer announced in a Media Release titled Integrity restored to Australia's tax system of 14 December 2013 that the Government would proceed with the measure announced by the previous government and contained in Media Release No. 69 of 22 October 2012 from the then Assistant Treasurer.

Financial impact: Nil.

Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 4, paragraphs 4.34 to 4.40.

Compliance cost impact: This measure will only have minor compliance costs for the superannuation industry as it reflects existing industry practice for the transfer of superannuation benefits through a fund merger arrangement. The measure also removes the unnecessary compliance burden for a transferring plan to give a roll-over benefit statement to each individual fund member, depositor or account holder affected by the transfer.

Disclosing tax information relating to proceeds of crime orders

Schedule 5 to this Bill amends the TAA 1953 to allow taxation officers to record or disclose protected information to support or enforce a proceeds of crime order. It also clarifies that all orders relating to unexplained wealth made under a state or territory law are included in the definition of 'proceeds of crime order'.

Date of effect: This measure applies to disclosures made on or after the date of Royal Assent.

Proposal announced: The measure has not previously been announced.

Financial impact: Nil.

Human rights implications: This Schedule raises a human rights issue. See Statement of Compatibility with Human Rights - Chapter 5, paragraphs 5.14 to 5.19.

Compliance cost impact: Nil. This measure does not place any additional compliance costs on individuals or businesses.

Exploration development incentive

Schedule 6 to this Bill and the Excess Exploration Credit Tax Bill 2014 introduce an exploration development incentive by amending the ITAA 1997 and other tax legislation to provide a tax incentive to encourage investment in small mineral exploration companies undertaking greenfields mineral exploration in Australia. Australian resident investors of these companies will receive a tax incentive where the companies choose to give up a portion of their losses relating to their exploration expenditure in an income year.

The total value of the tax incentives available to taxpayers in respect of expenditure in an income year is restricted to $25 million for greenfields minerals expenditure incurred by eligible companies in 2014-15, $35 million for greenfields minerals expenditure incurred in 2015-16 and $40 million for greenfields minerals expenditure incurred in 2016-17.

The incentive is not available for expenditure incurred in income years after 2016-17.

Date of effect: This measure applies to expenditure in the 2014-15, 2015-16 and 2016-17 income years, allowing the distribution of exploration credits in the 2015-16, 2016-17 and 2017-18 income years.

Proposal announced: This measure was announced as part of the 2013 Federal Election in The Coalition's Policy for Resources and Energy (September 2013).

Financial impact: This measure will have the following financial impacts over the forward estimates period ^[1] :

Human rights implications: This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 6, paragraphs 6.235 to 6.242.

Compliance cost impact: The introduction of the exploration development incentive results in a small increase in compliance costs for small mineral exploration companies that choose to participate, estimated to be less than $100,000 per annum combined for all those companies that choose to participate.

Summary of regulation impact statement

Regulation impact on business

Impact: Small.

Main points:

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Small exploration companies have been finding it increasingly difficult to attract capital to undertake greenfields exploration and this has led to concerns about the sustainability of Australian mining in the medium and long term.

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Small exploration companies, with little income to offset against their deductible exploration expenditure, face a tax disadvantage relative to larger mining and exploration companies. They are also subject to significant risks and long delays from creation to discovery.

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The Government is delivering on its election commitment to introduce an exploration development incentive, which is expected to lead to additional investment in small exploration companies undertaking greenfields exploration in Australia and could lead to new mines.

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Exploration companies that choose to participate in the exploration development incentive will face small additional compliance costs as the scheme is voluntary and most of the information required to participate is broadly similar to that already reported by eligible companies.

Miscellaneous amendments

Schedule 7 to this Bill makes a number of miscellaneous amendments to the taxation and superannuation laws. These amendments are part of the Government's commitment to the care and maintenance of the taxation and superannuation systems.

These amendments include style changes, the repeal of redundant provisions, the correction of anomalous outcomes and corrections to previous amending Acts.

Date of effect: These amendments have various application dates that are explained in detail in this explanatory memorandum. While some of these amendments have retrospective application, taxpayers should not be adversely impacted.

Proposal announced: These amendments were released as an exposure draft for public consultation on 30 September 2014.

Financial impact: These amendments are expected to have a minimal or nil revenue impact.

Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 7, paragraphs 7.119 to 7.123.

Compliance cost impact: Negligible.