Senate

Taxation Laws Amendment Bill (No. 2) 2001

Supplementary Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)
Requestes for amendments to be moved on behalf of the Government

Chapter 2 - Spreading deductions for property gifts and conservation covenants

Outline of chapter

2.1 Amendment 2 inserts Schedule 8 to this bill, which will amend the ITAA 1997 to allow the apportionment, over a period of up to 5 income years, of deductions for:

gifts of property valued at more than $5,000; and
conservation covenants entered into in perpetuity with deductible gift recipients.

The amendments will apply to deductions for gifts made, and conservation covenants entered into, on or after 1 July 2002.

Context of amendments

2.2 In 1999, the Prime Minister announced that the Government would implement measures proposed by the Prime Ministers Community-Business Partnership to encourage greater corporate and personal philanthropy in Australia. As a result, amendments were made to Division 30 of the ITAA 1997 (which deals with deductions for gifts or contributions) including the insertion of Subdivisions 30-DB, 30-DC and 30-DD. These Subdivisions allow, respectively, the apportionment of deductions for certain cultural, environmental and heritage gifts of property over a period of up to 5 income years.

2.3 On 30 March 2001, the Prime Minister announced that another initiative of the Prime Ministers Community-Business Partnership would be implemented. The new measure will make it more attractive for taxpayers to donate property. Income tax deductions for donations of certain property to all other deductible gift recipients will be able to be spread over a period of up to 5 income years. For example, deductions for certain gifts of property made to health, education, research and welfare recipients will be apportionable under this measure.

2.4 A further announcement was made by the Prime Minister on 20 August 2001 to provide incentives for land owners to enter into conservation covenants. As part of this incentive, the Prime Minister announced that deductions relating to these conservation covenants would also be eligible to be apportioned over a period of up to 5 income years.

Summary of new law

2.5 Schedule 8 to this bill will amend the ITAA 1997 to allow taxpayers to spread deductions for certain gifts of property, or for entering into conservation covenants, over a period of up to 5 income years.

Detailed explanation of new law

Gifts of property

2.6 From 1 July 2002, taxpayers may choose to apportion deductions for certain gifts of property allowed under section 30-15 of the ITAA 1997 over a period of up to 5 income years. [Amendment 2, Schedule 8, item 2, Subdivision 30-DE and section 30-249F]

2.7 Amounts eligible for apportionment must be allowable deductions (under Division 30 of the ITAA 1997) for gifts of property:

made to a fund, authority or institution that is listed either generally or specifically in Subdivision 30-B (item 1 in the table to section 30-15) [amendment 2, Schedule 8, item 2, subparagraph 30-249G(1)(a)(i)] ; or
made to a public fund or a prescribed private fund established and maintained under a will or instrument of trust solely for the purpose of:

-
providing money, property or benefits to a fund, authority or institution listed in Subdivision 30-B and for any of the purposes listed in Subdivision 30-B that covers the fund, authority or institution; or
-
establishing such a fund, authority or institution (item 2 in the table to section 30-15) [amendment 2, Schedule 8, item 2, subparagraph 30-249G(1)(a)(i)] ;

valued by the Commissioner at more than $5,000 (in accordance with the property valuation procedures set out in section 30-212 of the ITAA 1997) [amendment 2, Schedule 8, item 2, subparagraph 30-249G(1)(a)(ii)] ; and
that are not currently apportionable under Subdivision 30-DB (cultural gifts), 30-DC (environmental gifts) or 30-DD (heritage gifts) [amendment 2, Schedule 8, item 2, subparagraph 30-249G(1)(a)(iii)] .

2.8 Under these circumstances, a taxpayer may elect for the allowable deduction to be apportioned over a period of up to 5 income years. The election must be made in writing in the approved form. The Commissioner may require that the approved form sets out the percentage of the deduction to be claimed in each income year. If an election is made, the apportionment will commence in the year in which the gift is made and may cover up to 4 of the immediately following income years. [Amendment 2, Schedule 8, item 2, subsection 30-249G(1)]

2.9 The election must be made before the income tax return is lodged for the income year in which the gift is made. [Amendment 2, Schedule 8, item 2, subsection 30-249G(2)]

2.10 The election may be varied at any time in the approved form. The variation can only apply to the percentage to be deducted in income years for which an income tax return has not been lodged. [Amendment 2, Schedule 8, item 2, subsection 30-249G(4)]

Example 2.1 In the 2002-2003 income year, Rochelle donates a vehicle to a deductible gift recipient. The vehicle is valued by the Commissioner at $7,000. Rochelle decides to spread the deduction over the 5 income years available for the apportionment. The first income year in which she can claim a portion of the deduction is 2002-2003.Rochelle decides to apportion her deduction for the donation of the vehicle in the following manner.

2002-2003 2003-2004 2004-2005 2005-2006 2006-2007
10% 30% 20% 20% 20%

2.11 As a result of the election, the taxpayer cannot deduct the amount allowable as a deduction under section 30-15 in the income year in which the gift was made [amendment 2, Schedule 8, item 2, subsection 30-249H(2)] . Instead, the taxpayer can deduct the corresponding percentage specified in the election for each of the income years over which the deduction is apportioned as set out in the approved form [amendment 2, Schedule 8, item 2, subsection 30-249H(1)] .

Conservation covenants

2.12 From 1 July 2002, taxpayers may choose to apportion, over a period of up to 5 income years, deductions allowable for entering into certain conservation covenants. [Amendment 2, Schedule 8, item 2, Subdivision 30-DE and section 30-249F]

2.13 A taxpayer entitled to a deduction under Division 31 of the ITAA 1997 for entering into a conservation covenant may make a written election in the approved form to apportion the deduction over the current income year and up to 4 of the immediately following income years. [Amendment 2, Schedule 8, item 2, paragraph 30-249G(b)]

2.14 Division 31 allows a deduction when a taxpayer enters into a conservation covenant over land owned by the taxpayer and when certain conditions are met. [Amendment 1, Schedule 7, item 4, subsection 31-5(2)]

2.15 Conservation covenant is defined in subsection 995-1(1) to have the meaning given by section 31-5 [amendment 1, Schedule 7, item 4] . Subsection 31-5(5) provides that a conservation covenant over land is a covenant that:

restricts or prohibits certain activities on the land that could degrade the environmental value of the land;
is permanent and is registered on the title to the land (if registration is possible); and
is either entered into under a program approved in writing by the Minister for the Environment and Heritage, or is individually approved in writing by the Minister [amendment 1, Schedule 7, item 4, subsection 31-5(5)] .

2.16 The election to apportion the deduction must be made before the income tax return is lodged for the income year in which the conservation covenant is entered into. [Amendment 2, Schedule 8, item 2, subsection 30-249G(2)]

2.17 The taxpayer must give a copy of the election to the Environment Secretary before lodging the income tax return for the year in which the covenant is entered into [amendment 2, Schedule 8, item 2, subsection 30-249G(3)] . Environment Secretary is defined in subsection 995-1(1) to mean the Secretary of the Department that administers the Environment Protection and Biodiversity Conservation Act 1999 .

2.18 The election may be varied at any time in the approved form. The variation can only apply to the percentage to be deducted in income years for which an income tax return has not been lodged. [Amendment 2, Schedule 8, item 2, subsection 30-249G(4)]

2.19 A copy of the variation must be given to the Environment Secretary before the income tax return is lodged for the first income year to which the variation applies. [Amendment 2, Schedule 8, item 2, subsection 30-249G(5)]

Example 2.2 In the 2002-2003 income year, Katy enters into a conservation covenant for which she receives a deduction of $6,500. Katy decides to spread the deduction over 3 income years. The first income year in which she can claim a portion of the deduction is the 2002-2003 income year.Katy decides to apportion her deduction for the conservation covenant in the following manner.

2002-2003 2003-2004 2004-2005 2005-2006 2006-2007
50% 25% 25% 0% 0%

2.20 As a result of the election, the taxpayer cannot deduct the amount allowable as a deduction under Division 31 in the income year in which the conservation covenant was entered into [amendment 2, Schedule 8, item 2, subsection 30-249H(2)] . Instead, the taxpayer can deduct the corresponding percentage specified in the election for each of the income years over which the deduction is apportioned as set out in the approved form [amendment 2, Schedule 8, item 2, subsection 30-249H(1)] .

Application and transitional provisions

2.21 The amendments apply to gifts made, or conservation covenants entered into, on or after 1 July 2002. [Amendment 2, Schedule 8, item 4]

Consequential amendments

2.22 Subsection 30-5(4B), which provides a guide to Division 30, is amended to include a reference to the apportionment of deductions for gifts under new Subdivision 30-DE, as inserted by this bill. [Amendment 2, Schedule 8, item 1]

2.23 Subsection 30-315(2) contains an index to Division 30 of the ITAA 1997. Item 112AA in the table to subsection 30-315(2) is amended to include a reference to the apportionment of deductions under Subdivision 30-DE. [Amendment 2, Schedule 8, item 3]


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