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

Outline

Schedule 1 to the Bill amends the IT(TP) Act to increase the instant asset write-off threshold (the threshold below which amounts can be immediately deducted under the simplified depreciation rules) from $1,000 to $20,000. 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 between 1 July 2023 and 30 June 2024. This is a temporary measure to support small businesses improve their cash flow and reduce compliance costs.

Date of effect

Schedule 1 to the Bill commences on the first 1 January, 1 April, 1 July or 1 October after the day the Bill receives Royal Assent. It applies to eligible depreciating assets first used or first installed ready for use for a taxable purpose in the period from 1 July 2023 until 30 June 2024.

Proposal announced

Schedule 1 to the Bill implements the Small Business Support – $20,000 instant asset write-off measure from the 2023-24 Budget.

Financial impact

Schedule 1 to the Bill is estimated to decrease receipts by $290.0 million over the five years from 2022-23.

All figures in this table represent amounts in $m.

Human rights implications

Schedule 1 to the Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights — Chapter 9.

Compliance cost impact

Schedule 1 to the Bill is expected to have minimal regulatory impact.

Schedule 2 - Small business energy incentive

Outline

Schedule 2 to the Bill amends the IT(TP) Act to provide small and medium businesses (with an aggregated annual turnover of less than $50 million) with access to a bonus deduction equal to 20 per cent of the cost of eligible assets or improvements to existing assets that support electrification or more efficient energy use.

This is a temporary measure to support small and medium businesses to electrify, improve their energy efficiency and save on their energy bills. The bonus deduction applies to the cost of eligible assets and improvements up to a maximum amount of $100,000, with the maximum bonus deduction being $20,000.

Date of effect

Schedule 2 to the Bill commences on the first 1 January, 1 April, 1 July or 1 October after the day the Bill receives Royal Assent. It applies to eligible assets first used or first installed ready for use, and eligible improvement costs incurred, from 1 July 2023 until 30 June 2024.

Proposal announced

Schedule 2 to the Bill implements the Small Business Support – Small Business Energy Incentive measure from the 2023-24 Budget.

Financial impact

Schedule 2 to the Bill is estimated to decrease receipts by $310.0 million over the five years from 2022–23.

All figures in this table represent amounts in $m.

Human rights implications

Schedule 2 to the Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights — Chapter 9.

Compliance cost impact

The measure is expected to have minimal regulatory impact.

Schedule 3 - New class of deductible gift recipients

Outline

Schedule 3 to the Bill facilitates certain community charities ('community charity trusts' and 'community charity corporations') achieving DGR status in recognition of their valuable contribution to their communities and Australian society. A new pathway is created to enable these charities to apply for DGR endorsement by the Commissioner. The charities are specified in two new items in Division 30 of the ITAA 1997, are defined in Division 426 in Schedule 1 to the TAA, and will be specified by name in a ministerial declaration made under that Division. That Division will also set out certain requirements, modelled on those relating to ancillary funds, and a ministerial obligation to make legislative guidelines.

Date of effect

Schedule 3 to the Bill will commence on the day after the Bill receives Royal Assent.

Proposal announced

Schedule 3 to the Bill, together with the legislative instruments empowered by provisions contained in this Schedule, will implement the element of the Philanthropy - updates to specifically listed deductible gift recipients measure dealing with community charities from the 2022-23 Budget, as modified by the 2023-2024 Budget.

Financial impact

Schedule 3 to the Bill is estimated to decrease receipts by $5.4 million over the forward estimates period. All figures in the following table represent amounts in $m.

Human rights implications

Schedule 3 to the Bill does not raise any human rights issues. See the Statement of Compatibility with Human Rights — Chapter 9.

Compliance cost impact

Community charities needing to modify their governing documents or establish a new entity to meet the new endorsement requirements will incur a minor one-off cost.

Schedule 4 - Deductible gift recipients—specific listings

Outline

Schedule 4 to the Bill amends the ITAA 1997 to:

•

list Justice Reform Initiative Limited and Transparency International Australia as DGRs; and

•

extend the DGR listings of Victorian Pride Centre Ltd and Australian Sports Foundation Charitable Fund.

Date of effect

Schedule 4 to the Bill commences on the first 1 January, 1 April, 1 July or 1 October after the day the Bill receives Royal Assent.

The amendments apply to gifts made:

•

in the period on or after 1 July 2023 and on or before 30 June 2028 to Justice Reform Initiative Limited; and

•

on or after 1 July 2023 to Transparency International Australia.

The amendments extend the period of the listing of the Victorian Pride Centre Ltd so that it applies to gifts made on or after 9 March 2023 and on or before 8 March 2028.

The amendments extend the period of listing of the Australian Sports Foundation Charitable Fund so that it applies to gifts made on or after 1 July 2023.

Proposal announced

Schedule 4 to the Bill partially implements the Philanthropy – updates to the list of specifically listed deductible gift recipients measure from the 2023-24 Budget.

Financial impact

The listing of the Justice Reform Initiative Limited, Transparency International Australia, and extending the listing of the Victorian Pride Centre Ltd and the Australian Sports Foundation Charitable Fund was part of the 2023-24 Budget and is estimated to have a minor financial impact, reducing receipts by $4.6 million from 2022-23 to 2026-27.

All figures in this table represent amounts in $m.

Human rights implications

Schedule 4 to the Bill does not raise any human rights issue. See Statement of Compatibility with Human Rights — Chapter 9.

Compliance cost impact

The measure has a low compliance cost impact.

Schedule 5 - Exemption for Global Infrastructure Hub Ltd

Outline

Schedule 5 to the Bill amends the ITAA 1997 to continue to provide the GI Hub with an exemption from the liability to pay income tax on its ordinary and statutory income.

Date of effect

Schedule 5 to the Bill commences on the first 1 January, 1 April, 1 July or 1 October after the day the Bill receives Royal Assent.

Financial impact

Nil.

Human rights implications

Schedule 5 to the Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights — Chapter 9.

Compliance cost impact

Nil.

Schedule 6 - Income tax amendments for updates to accounting standards for general insurance contracts

Outline

Schedule 6 to the Bill amends the income tax law with respect to general insurance to provide broad alignment with the new accounting standard, AASB 17.

The amendments reduce the income tax compliance burden on the general insurance industry caused by the misalignment between the income tax law and the adoption of the new AASB 17.

Date of effect

Schedule 6 to the Bill commences on the first 1 January, 1 April, 1 July or 1 October after the day the Bill receives Royal Assent. The amendments apply to income years starting on or after 1 January 2023.

Proposal announced

Schedule 6 to the Bill fully implements the Amending the tax law to reduce compliance costs for general insurers measure from the 2023-24 Budget.

Financial impact

Schedule 6 to the Bill is estimated to result in an unquantifiable impact on receipts over the five years from the 2022–23 financial year. Financial impacts are expected to first occur in 2023-24.

Human rights implications

Schedule 6 to the Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights — Chapter 9.

Compliance cost impact

The measure reduces the compliance cost burden on general insurers.

Schedule 7 - Non-arm's length expenses of superannuation funds

Outline

Schedule 7 to the Bill limits the amount of non-arm's length income that arises relating to a general non-arm's length expense, to address stakeholder concerns that all superannuation fund income could be taxed at a higher rate due to a general non-arm's length expense which provides an outcome that is disproportionate to any advantage gained. It also narrows the application of the non-arm's length expense provisions so that they no longer apply to expenses incurred before 1 July 2018 or to large APRA-regulated funds, exempt public sector superannuation funds, PSTs and ADFs. This addresses stakeholder concerns around the application of the non-arm's length provisions to expenses incurred before the provisions were enacted, and their application to large superannuation entities that represent a lower risk of gaining an advantage through non-arm's length expenses.

Date of effect

Schedule 7 to the Bill commences on the first 1 January, 1 April, 1 July or 1 October after the day the Bill receives Royal Assent. The amendments apply in relation to income derived in the 2018-19 income year and following income years. This Schedule provides that the non-arm's length expense rules no longer apply to expenses incurred before 1 July 2018 to ensure that expenses incurred before the original non-arm's length expenses provisions were enacted cannot result in non-arm's length income.

Proposal announced

Schedule 7 to the Bill partially implements the Amending measures of the former Government measure from the 2023-24 Budget.

Financial impact

Schedule 7 to the Bill was estimated to have an unquantifiable impact on receipts over the 4 years from 2023-24.

Human rights implications

Schedule 7 to the Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights — Chapter 9.

Compliance cost impact

The amendments are likely to reduce compliance costs on an ongoing basis for superannuation entities and related parties providing services to them, such as administrative companies, wholly owned investment managers, and accountants.

Schedule 8 - AFCA scheme

Outline

Schedule 8 to the Bill amends the Corporations Act to reinstate AFCA's jurisdiction to hear complaints relating to superannuation, whether or not they meet the definition of superannuation complaint in the Corporations Act. This reinstates the original policy intent, following the MetLife decision.

Date of effect

The amendments in Schedule 8 to the Bill (other than the contingent amendments) commence on the day after the Bill receives Royal Assent. They apply to complaints made to AFCA before, on or after the commencement date.

Proposal announced

Schedule 8 to the Bill implements the announcement Ensuring external dispute resolution for consumers of financial services made by the Assistant Treasurer and Minister for Financial Services on 23 May 2023.

Financial impact

Nil.

Human rights implications

Schedule 8 to the Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights — Chapter 9.

Compliance cost impact

There are nil compliance costs associated with this measure.