Tax Laws Amendment (2010 Measures No. 1) Bill 2010

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon Wayne Swan MP)
Amendments to be moved on behalf of the Government

General outline and financial impact

Amendments 1 to 7 to Schedule 3 - Managed investment trusts: capital treatment and taxation of carried interests

Amendments 1 to 7 amend Schedule 3 to the Tax Laws Amendment (2010 Measures No. 1) Bill 2010, including some technical corrections.

Certain provisions dealing with trusts that are to be treated in the same way as a managed investment trust (MIT) will be removed. As a consequence of these amendments a 'closely held' test in relation to trusts that are treated in the same way as a MIT will no longer be required. Therefore, the closely held trust provision in Schedule 3 will also be removed.

It is proposed that trusts, that would have been treated in the same way as a MIT under the removed provisions, will be covered by proposed changes to the general definition of 'managed investment trust' in Subdivision 12-H of Schedule 1 to the Taxation Administration Act 1953 , to be introduced into Parliament at a later date.

Date of effect: The changes made by Amendments 2, 3, 5, 6 and 7 will apply from the 2008-09 income year.

Amendments 1 and 4 simply remove provisions from Schedule 3 to the Tax Laws Amendment (2010 Measures No. 1) Bill 2010.

Proposal announced: These amendments were announced in the Assistant Treasurer's Media Release No. 020 of 10 February 2010 and released for public consultation on 16 April 2010.

Financial impact: Nil.

Compliance cost impact: Low.

Amendments 8 to 18 to Schedule 5 - Consolidation

Amendments 8 to 18 amend various Parts of Schedule 5 to the Tax Laws Amendment (2010 Measures No. 1) Bill 2010, which amends the consolidation regime. The amendments:

clarify the treatment of the tax cost setting amount allocated to assets that are rights to future income in Part 1;
ensure that the amendments in Part 16, which make it easier for widely held companies to satisfy the loss multiplication rules, apply appropriately to foreign owned consolidated groups;
alleviate concerns that the amendments in Part 18, which relates to consolidation choices, could have an adverse retrospective impact on taxpayers in some very limited circumstances; and
make some technical corrections.

Date of effect: The amendments apply from the date of effect of the relevant Parts of Schedule 5 to the Bill.

Proposal announced: The amendments have not previously been announced.

Financial impact: The explanatory memorandum to the Bill states that the amendments in Schedule 5 to the Bill, other than Part 20, have a small but unquantifiable cost to revenue. Since the Bill was introduced, more information has become available which impacts on the financial impact of the amendments in Schedule 5.

First, it has become apparent that the amendments in Part 1 (use of the tax cost setting amount) will have a significant but unquantifiable cost to revenue. Amendments 8 to 12 will reduce that revenue impact. However, the revenue impact will still be significant.

Second, it also has become apparent that the amendments in Part 20 (non-membership equity interests) are expected to have a greater revenue gain than was previously expected. The revenue gain, as revised, is expected to be:

2009-10 2010-11 2011-12 2012-13 2013-14
- $25m $50m $110m $200m

Compliance cost impact: Low.

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