House of Representatives

Explanatory Memorandum

(Circulated by authority of the Assistant Treasurer and Minister for Financial Services, the Hon Stephen Jones MP)

General outline and financial impact

Schedule 1 - Build to rent developments

Outline

Schedule 1 to the Bill aims to increase the supply of rental housing, including affordable tenancies, by improving incentives for institutional investors to support the construction of new BTR developments. Schedule 1 to the Bill increases the capital works deduction rate from 2.5 per cent to 4 per cent per year for eligible new BTR developments. Schedule 1 to the Bill also reduces the final withholding tax rate on eligible fund payments from MIT investments for eligible new BTR developments from 30 per cent to 15 per cent.

The Imposition Bill ensures the integrity of these tax concessions by providing for the levy of a misuse tax in the event that an entity improperly claims one or both of the tax concessions.

Date of effect

The Imposition Bill commences on the first 1 January, 1 April, 1 July or 1 October to occur after the day that Bill receives Royal Assent.

Schedule 1 to the Bill commences at the same time as the Imposition Bill. However, the provisions of the Bill do not commence at all if the Imposition Bill does not commence.

The amendments in Schedule 1 to the Bill (other than the amendments to section 12-450 in Schedule 1 to the TAA 1953) apply to capital works that commenced after 7:30 pm, by legal time in the Australian Capital Territory, on 9 May 2023. The amendment of section 12-450 in Schedule 1 to the TAA 1953 made by Schedule 1 to the Bill apply to an amount that is referrable to a payment of rental income made on or after 1 July 2024; or an amount that is, or is attributable, to a capital gain, or part of a capital gain, from a CGT event that happens on or after 1 July 2024.

Proposal announced

The Imposition Bill and Schedule 1 to the Bill fully implement the 'Housing (Build-To-Rent Developments) – accelerating tax deductions and reducing managed investment trust withholding tax rate' measure in the 2023-2024 Budget.

Financial impact

Schedule 1 to the Bill is estimated to decrease receipts by $30.0 million.

All figures in this table represent amounts in $m, rounded to the nearest tenth of a million each year.

Impact Analysis

The Impact Analysis addressing the reducing managed investment trust withholding tax rate aspect of Schedule 1 has been included in Attachment 1.

Human rights implications

Schedule 1 to the Bill raises human rights issues and the Imposition Bill does not raise any human right issues. See the Statement of Compatibility with Human Rights — Chapter 8.

Compliance cost impact

This measure is expected to result in a small overall compliance cost impact, comprising a small implementation impact and a small increase in on-going costs.

Schedule 2 – Buy Now, Pay Later

Outline

Schedule 2 to the Bill extends the application of the Credit Code to BNPL contracts and establishes LCCCs as a new category of regulated credit. LCCCs are continuing or non-continuing credit contracts for providing credit to consumers on a low cost basis. Most BNPL contracts will be regulated as LCCCs. Schedule 2 to the Bill amends the Credit Act to establish an optional modified RLO framework available to LCCCs. Schedule 2 to the Bill also creates new regulation-making powers in respect of LCCCs. The overarching aim of this measure is to provide appropriate and proportionate protections to consumers who enter LCCCs, while maintaining the benefits of consumer access to these kinds of credit products.

Date of effect

Part 1 of Schedule 2 to the Bill commences the day after Royal Assent.

Parts 2 to 10 of Schedule 2 to the Bill commence on a single day to be fixed by Proclamation. However, if the provisions do not commence within 6 months from the day of receiving Royal Assent, they commence on the day after that 6-month period.

Proposal announced

The Government undertook public consultation on a potential regulatory framework for BNPL from 21 November 2022 to 23 December 2022. The amendments in Schedule 2 to the Bill were announced by the Assistant Treasurer on 22 May 2023 in an address to the Responsible Lending & Borrowing Summit.

Financial impact

Schedule 2 to the Bill will have no or minimal financial impact.

Impact Analysis

The Impact Analysis relating to Schedule 2 to the Bill has been included at Attachment 2.

Human rights implications

Schedule 2 to the Bill does not raise any human rights issues because, to the extent that it may limit human rights, those limitations are reasonable, necessary and proportionate. See Statement of Compatibility with Human Rights — Chapter 8.

Compliance cost impact

Schedule 2 to the Bill is expected to have a moderate impact on compliance costs.

Schedule 3 — Medicare levy exemption for lump sum payments

Outline

Schedule 3 to the Bill amends the Medicare Levy Act to make changes to how certain eligible lump sum payments in arrears are assessed for the purposes of the Medicare levy.

The changes ensure low-income taxpayers are not denied concessional Medicare levy treatment solely as a result of receiving an eligible lump sum payment, for example as compensation for past underpaid wages. This amendment seeks to put eligible recipients of lump sum payments in arrears into a similar position that they would have been had they been paid correctly.

Date of effect

Schedule 3 to the Bill commences on the first 1 January, 1 April, 1 July or 1 October to occur after the date the Bill receives Royal Assent.

Proposal announced

Schedule 3 to the Bill implements the measure Personal Income Tax – exempting lump sum payments in arrears from the Medicare levy from the 2023-24 Budget.

Financial impact

This measure is estimated to decrease taxation receipts by $2.0 million over the 5 years from 2022–23.

All figures in this table represent amounts in $ million.

Human rights implications

Schedule 3 to the Bill is compatible with human rights. See Statement of Compatibility with Human Rights — Chapter 8.

Compliance cost impact

Low.

Schedule 4 — Multinational tax transparency – country by country reporting

Outline

Schedule 4 to the Bill implements Australia's public CBC reporting regime by amending the TAA to require certain large multinational enterprises (defined as CBC reporting parents) to publish selected tax information on a CBC basis for specified jurisdictions, and on either a CBC basis or an aggregated basis for the rest of the world. The information is to be published on an Australian government website, with publication facilitated by the Commissioner. The objective of these amendments is to improve information flows to help the public, including investors, to compare entity tax disclosures, to better assess whether an entity's economic presence in a jurisdiction aligns with the amount of tax they pay in that jurisdiction.

Date of effect

Schedule 4 to the Bill will commence on the first 1 January, 1 April, 1 July or 1 October to occur after Royal Assent. The amendments apply to reporting periods commencing on or after 1 July 2024.

Proposal announced

Schedule 4 to the Bill partially implements the 'Multinational Tax Integrity Package – improved tax transparency' measure from the October 2022-23 Budget.

Financial impact

This measure is estimated to have an unquantifiable impact on receipts.

Impact Analysis

The Impact Analysis relating to the amendments in Schedule 4 to the Bill has been included in Attachment 3.

Human rights implications

Schedule 4 to the Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights — Chapter 8.

Compliance cost impact

The measure is expected to have an initial compliance cost as affected entities familiarise themselves with the new reporting requirements. However, the design approach adopted is intended to minimise the cumulative cost on tax entities by aligning, to the extent possible, with existing reporting and governance processes. The compliance cost is expected to decrease over time as it becomes part of standard reporting requirements.

Schedule 5 – Deductible gift recipients

Outline

Schedule 5 to the Bill amends the ITAA 1997 to list as deductible gift recipients:

•

Australian Democracy Network Ltd; and

•

Australian Science Media Centre Incorporated; and

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Centre for Australian Progress Ltd; and

•

Combatting Antisemitism Fund Limited; and

•

Ethnic Business Awards Foundation Limited; and

•

International Campaign to Abolish Nuclear Weapons, Australia Inc.; and

•

Ourschool Ltd; and

•

Susan McKinnon Charitable Foundation Ltd; and

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Tasmanian Leaders Inc.; and

•

The Hillview Foundation Australia Limited.

Date of effect

The amendments in Schedule 5 to the Bill apply to gifts made in the period on or after:

•

1 July 2023 and on or before 30 June 2028 to Susan McKinnon Charitable Foundation Ltd; and

•

1 July 2024 and on or before 30 June 2029 to all other entities listed in the Schedule.

Proposal announced

Schedule 5 to the Bill partially implements:

•

the Philanthropy – updates to the list of specifically listed deductible gift recipients measure in the 2023-24 Budget;

•

the Philanthropy – updates to the list of specifically listed deductible gift recipients measure in the 2023-24 MYEFO; and

•

the Philanthropy – updates to the list of specifically listed deductible gift recipients measure in the 2024-25 Budget.

Financial impact

Schedule 5 to the Bill is estimated to decrease the underlying cash balance by $4.3 million over the five years from 2023-24.

All figures in this table represent amounts in $m.

Human rights implications

Schedule 5 to the Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights — Chapter 8.

Compliance cost impact

The measure has a low compliance cost impact.

Schedule 6 - National skills and workforce development payments

Outline

Schedule 6 to the Bill amends the FFR Act to support Commonwealth payments to the States in accordance with the National Skills Agreement and any successor agreements.

Date of effect

Schedule 6 to the Bill commences the day after Royal Assent. The amendments apply in relation to the 2024-25 financial year and later financial years. The amendments provide for transitional arrangements in relation to the 2023-24 and 2024-25 financial years.

Proposal announced

Schedule 6 to the Bill supports the National Skills Agreement which was announced on 17 October 2023.

Financial impact

Nil.

Human rights implications

Schedule 6 to the Bill raises human rights issues. See Statement of Compatibility with Human Rights — Chapter 8.

Compliance cost impact

Nil.

Schedule 7 - $20,000 instant asset write-off for small business entities

Outline

Schedule 7 to the Bill amends the IT(TP) Act to extend the $20,000 instant asset write-off by 12 months until 30 June 2025. This will allow small businesses (with an aggregated annual turnover of less than $10 million) to immediately deduct the full cost of eligible depreciating assets costing less than $20,000 that are first used or installed ready for use on or before 30 June 2025. The extension will improve cash flow and reduce compliance costs for small businesses.

Date of effect

Schedule 7 to the Bill commences on the later of:

•

the first 1 January, 1 April, 1 July or 1 October to occur after the day the Bill receives the Royal Assent; and

•

immediately after the commencement of Schedule 1 to the Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Act 2024.

However, Schedule 7 to the Bill does not commence at all if Schedule 1 to the Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Act 2024 does not commence.

Proposal announced

Schedule 7 to the Bill fully implements the 'Small Business Support – $20,000 instant asset write-off' measure in the 2024-25 Budget.

Financial impact

Schedule 7 to the Bill is estimated to decrease receipts by $290.0 million over the five years from 2023-24.

All figures in this table represent amounts in $m.

Human rights implications

Schedule 7 to the Bill does not raise human rights issues. See Statement of Compatibility with Human Rights — Chapter 8.

Compliance cost impact

Schedule 7 to the Bill is expected to have a minimal regulatory impact.