House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

General outline and financial impact

This Bill makes a number of minor amendments and technical corrections to the ITAA 1936, the ITAA 1997 the FBTAA 1986 and other tax-related legislation. The technical corrections are dealt with in Chapter 2.

Self-assessment measures

Amends the ITAA 1936 so that:

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the interest payable on distributions received by companies and superannuation funds from non-resident trust estates, that are not taxed at a comparable rate in foreign countries, is subject to the self-assessment process;

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various elections no longer have to be in writing and given to the Commissioner; and

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the Commissioner can amend an assessment outside the usual time period, to give effect to a private ruling.

Date of effect: The change to allow the Commissioner to amend an assessment to give effect to a private ruling will apply to any ruling issued on or after 1 July 1992. The other amendments will apply from the date of Royal Assent.

Financial impact: The cost to revenue as a result of the Commissioner being able to amend an assessment to give effect to a private ruling is unquantifiable, but it is not expected to be significant. The other measures will have no financial impact.

Compliance cost impact: There will be a reduction in compliance costs where taxpayers no longer have to prepare written notices of elections. The self-assessment of the interest charge will have no effect on compliance costs as it is consistent with current administrative practice. The changes to the rulings system will have no effect on compliance costs.

Company current year loss rules - film losses

Amends the company current year loss provisions in the ITAA 1997 to ensure that the film component of a company's tax loss for an income year is calculated in the same way it is calculated under the ITAA1936.

The amendment will also apply for the purpose of the proposed trust loss rules contained in Taxation Laws Amendment (Trust Loss and Other Deductions) Bill 1997 . The Bill will repeal the existing provision in these rules which calculates the film component of a tax loss for an income year.

Date of effect: From the 1997-98 income year.

Financial impact: Nil.

Compliance cost impact: Nil.

Amendments to the FBTAA 1986 and related amendments to the ITAA 1936

Amends the FBTAA 1986 to make corrections to provisions dealing with the retention of statutory evidentiary records.

Amendments will also be made to Division 4A of Part III of the ITAA 1936 which sets out the rules for calculating the amount of the deduction for car parking expenses incurred by self-employed persons.

Date of effect: One of the minor amendments to the FBTAA 1986 will apply to fringe benefit tax (FBT) assessments for the 1995-96 FBT year and later FBT years. The other minor amendment to the FBTAA 1986 will apply to FBT assessments for the 1998-99 FBT year and later FBT years. Two of the minor amendments to the ITAA 1936 will apply to expenses incurred on and from 12December1995. The other minor amendments to the ITAA 1936 will apply from the date of Royal Assent.

Financial impact: The amendments to the FBTAA1986 will have no revenue impact. The amendments to the ITAA1936 will result in a negligible loss to the revenue.

Compliance cost impact: The amendments to the FBTAA1986 make the law easier to understand, resulting in a small reduction in compliance costs. The amendments to the ITAA 1936 will have minimal impact on compliance costs.

Superannuation

Amends the ITAA 1936 to ensure that the rollover of the post-June 1994 invalidity component of an eligible termination payment to purchase an annuity or superannuation pension does not change the 'tax free' status of the component.

Amends the TAA 1953 to permit regulations to provide that a decision by the Commissioner of Taxation is reviewable by the Administrative Appeals Tribunal under Part IVC of the TAA 1953.

Date of effect: Royal Assent.

Financial impact: The cost to revenue is expected to be minimal.

Compliance cost impact: Compliance costs are expected to be minimal.

Bankrupt estates - treatment of registered trustee in bankruptcy

Amends the trust provisions in the ITAA 1936 to ensure that bankrupt estates administered by a registered trustee will be given the same tax treatment as estates administered by the Official Receiver.

Date of effect: From the 1996-97 year of income.

Financial impact: Nil.

Compliance cost impact: Nil.

Public trading trusts - eligible investment business; meaning of security

Amends the definition of 'eligible investment business' in Division 6C of Part III of the ITAA 1936 (Income of Certain Public Trading Trusts) to ensure that the definition specifically includes secured loans. The amendment reflects the underlying policy of the original legislation, namely, not to apply company tax arrangements to unit trusts of the more traditional kind that invest in property, equities or securities.

Date of effect: The amendment is to apply from 16 December 1985, the date on which Division 6C commenced operation.

Financial impact: Nil.

Compliance cost impact: There will be a minimal reduction in compliance costs.

Demutualisation of insurance companies

Amends the demutualisation provisions in the ITAA 1936 to put beyond any doubt that the franking surplus of a demutualising life or general insurance company, a mutual affiliate company, or wholly-owned subsidiary is to be reduced to nil.

Date of effect: The amendment will have effect from the date the original provisions took effect, that is, 7.30 pm AEST on 9 May 1995.

Financial impact: Nil.

Compliance cost impact: Nil.

Spouse rebate

Amends the ITAA 1936 to ensure that the spouse rebate is reduced by a taxpayer's entitlements to certain benefits paid by the Department of Social Security.

Date of effect: The amendment will apply to assessments for the first whole year of income that begins after the date of commencement of the amending Act and later years of income.

Financial impact: This amendment will rectify an anomaly in the existing law and will result in a minimal gain to revenue.

Compliance cost impact: The compliance costs to taxpayers of this change are minimal and are limited to learning about the change.

Foreign source income measures

Foreign tax credit for Australian tax paid by a FIF

Amends the ITAA 1936 to provide a foreign tax credit for Australian tax paid by a foreign investment fund (FIF).

Date of effect: This amendment will apply from 1 January 1993 (the date of commencement of the FIF measures).

Financial impact: The cost to revenue is expected to be minimal.

Compliance cost impact: Compliance costs are expected to be minimal.

Definition of associates - section 318 of the ITAA 1936

Amends the definition of associate in section 318 of the ITAA 1936 to correct a drafting error in Taxation Laws Amendment (Foreign Income) Act 1990 .

Date of effect: Royal Assent.

Financial impact: Nil.

Compliance cost impact: Nil.

Franking rebates for life assurance companies, superannuation funds, registered organisations and pooled superannuation trusts

Amends the franking rebate provisions in the ITAA 1936 to ensure that life assurance companies, superannuation funds, registered organisations and pooled superannuation trusts holding shares indirectly through a trust or partnership receive the same franking benefits as those who hold the shares directly.

Date of effect: The amendments are to apply in relation to dividends paid on or after 1 July 1988.

Financial impact: Nil.

Compliance cost impact: Nil.

Capital gains tax roll-over relief for small business

Amends the capital gains tax (CGT) provisions in the ITAA 1936 to provide that where a beneficiary of a discretionary trust has an interest in a public entity and the trust deed provides that the entity is a potential beneficiary of the trust, then the entity will not be deemed to control the trust for the purposes of the $5 million threshold test.

As a result, the assets of that public entity will not be taken into account in determining whether the trust satisfies the $5 million threshold test.

Date of effect: The amendment will apply to disposals of assets from 1July 1997.

Financial impact: There should be no impact on revenue as the amendment merely ensures the CGT provisions operate as originally intended.

Compliance cost impact: There should be no impact on compliance costs as the amendment merely clarifies the operation of the provisions.

Reportable payments system

Amends the ITAA 1936 to clarify that a payment received by a person from the sale of a debt that would otherwise be a reportable payment is subject to the reportable payments system.

Date of effect: Royal Assent.

Financial impact: It is not expected that this clarification of the law will have any impact on revenue.

Compliance cost impact: A minimal compliance cost saving will result, as the law has been made easier to understand.

Provisional tax

Amends the ITAA 1936 so that provisional tax credits cannot be applied against provisional tax notified for a later year that is not due and payable.

Date of effect: The amendment commences on 1 July 1998.

Financial impact: This amendment will have minimal revenue implications. It simply involves a deferral of revenue until later in the same financial year.

Compliance cost impact: Nil.