Senate

Supplementary Explanatory Memorandum

Amendments, requests for amendments and new item to be moved on behalf of the Government(Circulated by authority of the Treasurer,the Hon Ralph Willis, MP)

General outline and financial impact

Capital gains tax - amendments relating to value shifting

Proposes technical amendments to Schedule 1 of the Bill which introduces amendments to Division 19A of Part IIIA of the Act.

Date of effect: 7.30pm AEST on 9 May 1995.

Amendments announced: Not previously announced.

Financial impact: None overall

Compliance cost impact: The amendments to Division 19A contained in the Bill are intended to reduce compliance costs for taxpayers who undertake company group reorganisations. The amendments to the Bill only effect technical corrections.

Demutualisation of insurance companies

Amends proposed new Division 9AA of Part III of the Act which provides for the taxation consequences of certain transactions undertaken in the course of, or as a consequence of, the demutualisation of a mutual life or general insurance company. The proposed amendments to the Bill will ensure that the demutualisation provisions operate appropriately in all cases.

Date of effect: The amendments apply to mutual insurance companies and mutual affiliate companies which were in existence at 7.30pm AEST on 9 May 1995.

Amendments announced: Not previously announced.

Financial impact: The nature of the demutualisation measures are such that any cost to revenue cannot be reliably estimated.

Compliance cost impact: Most costs incurred in the demutualisation process will be incurred irrespective of the taxation consequences. The proposed amendments to the Bill are compliance cost neutral.

Trust losses

Amends the trust loss provisions set out in Schedule 7 of the Bill. These amendments:

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provide a start-up period for the purposes of testing continuity of ownership for unlisted very widely held trusts;

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alter the pattern of distributions test to provide that where a person who has in the past received distributions from the trust is no longer able to receive distributions because of death or divorce, those past distributions will be ignored in determining whether the pattern of distributions has changed. Any distribution flowing from fixed entitlements to the estate or heirs of a deceased person will also be ignored;

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provide that for the purpose of calculating the fixed entitlements held by the beneficiaries of a complying superannuation fund or complying approved deposit fund in a trust in which the fund holds an interest, each of the beneficiaries will be deemed to have an equal fixed entitlement to the income and capital of the fund;

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provide that for the purpose of calculating the fixed entitlements held by members and life policy holders of a mutual insurance company or a mutual affiliate company in a trust in which the company holds an interest, each of the members or non-member life policy holders will be deemed to have an equal fixed entitlement to the income and capital of the company;

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amend the definition of 'family trust' so that a trust will still be a family trust if, subject to an anti-avoidance rule, the trustee is able to make a distribution to a fund, authority or institution listed under subsection 78(4) or mentioned in paragraph 78(5)(a) of the Act;

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alter the definition of 'excepted trust' to include a unit trust in which all the units are held, directly or indirectly, by a company, trust, society or other body which is exempt from tax under section 23 of the Act;

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amend the definition of 'unlisted very widely held trust' to remove the requirement that units must be redeemable 'at any time';

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alter the transitional provision for family trusts to provide that a trust can become a family trust during a transitional period if the majority of both income and capital distributions made by the trust in the 6 years prior to the test time were received, directly or indirectly, by family members with a special rule applying where no distributions have been made; and

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provide a transitional provision for a fixed trust, some or all of the fixed entitlements of which are held by a non-fixed trust, so that the fixed trust can carry forward losses incurred in the 1994-95 or earlier years if there are no changes to the trusts, the beneficiaries or their interests;

Date of effect: Subject to transitional arrangements, 7.30 pm AEST on 9 May 1995.

Amendments announced: Not previously announced.

Financial impact: The amendments ensure that the provisions operate as intended. Accordingly, there is no additional financial impact.

Compliance cost impact: No additional compliance cost impact. The amendments are likely to reduce compliance costs.