House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon. P.J. Keating, M.P.)

MAIN FEATURES

The main features of this Bill are as follows:

Capital Gains Tax Commencement date for created assets (Clauses 13, 14 and 29)

This Bill will give effect to a proposal announced in the 1989 Budget to alter the commencement date of the CGT from 20 September 1985 to 23 May 1986 as it applies to deemed disposals of certain assets.

The amendments will have the effect of excluding from the application of the CGT the following transactions:

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the disposal, on or after 20 September 1985 and before 23 May 1986, of legal or equitable estates or interests in or rights, powers or privileges over assets acquired by the taxpayer before 20 September 1985;

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the grant of an option, on or after 20 September 1985 and before 23 May 1986, which binds the grantor to dispose of an asset acquired before 20 September 1985;

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the grant of an option on or after 20 September 1985 and before 23 May 1986, which is not exercised, and which binds the grantor to acquire an asset;

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an act, transaction or event which is deemed a disposal of an asset by subsection 160M(7) of the Income Tax Assessment Act 1936 (the Assessment Act) that occurred on or after 20 September 1985 and before 23 May 1986 in relation to an asset, or which affects an asset that was acquired before 20 September 1985.

These amendments which will change the commencement date of the CGT legislation for leases, options, and subsection 160M(7) will not affect the position of the lessee, grantee, or person acquiring the asset. Although there will no longer be a disposal of an asset to which the CGT provisions apply, there will still be an acquisition of the asset by the person acquiring the lease, option, etc., for CGT purposes.

Reductions of capital gains in certain circumstances (Clauses 16 and 38(9))

The CGT provisions contained in Part IIIA of the Assessment Act apply on the disposal of any asset acquired after 19 September 1985. Where, in respect of the disposal of an asset, an amount is also included in a taxpayer's assessable income under another provision of the Assessment Act, the capital gain realised for the purposes of Part IIIA is reduced to reflect the inclusion of that other amount in assessable income. However, a technical deficiency in the operation of those "no-double-tax provisions" which permit a capital gain to be so reduced has been identified where, on the disposal of an asset, the taxable amount is included in assessable income under a provision which provides for the recoupment of deductions previously allowed for capital expenditure incurred in respect of an asset (eg. depreciation). Where the particular asset had, at an earlier time, been the subject of CGT rollover relief and the market value of the asset at the time of that rollover had exceeded its indexed cost base, an unintended effect of the no double-tax provisions may, in certain circumstances, result in the effective exemption from tax of the capital gain accrued to the time of the rollover. In effecting this change, the proposed amendment will replace existing subsection 160ZA(4) with a new provision which expresses more clearly the way in which the subsection operates. This is achieved by stating that any capital gain on disposal of an asset is reduced by an amount that is assessable as a result of that disposal under a provision of the Assessment Act outside Part IIIA. The only departure from this is where the amount is assessable by way of a recoupment of previously allowed deductions for capital expenses incurred in respect of the asset. The amendment proposed by clause 16 of this Bill, which will apply on the disposal of an asset in these circumstances after 30 November 1989, will overcome this technical deficiency.

Exemption of certain gains and losses (Clause 17)

This clause will modify the exemption from the application of Part IIIA afforded to assets that are "traditional securities", gains or losses on the disposal of which are assessable or deductible under specific provisions of the Assessment Act. The definition of a "traditional security" may extend to loans owed by one group company to another, the cost bases of which are to be reduced on the transfer of a capital loss by the debtor company as a result of amendments proposed by clause 15 of this Bill. Alternatively, the definition would extend to securities that a subsidiary company may receive as consideration for the transfer of an asset to its holding company in respect of which modified rollover relief is to be available under amendments proposed by clause 31 of this Bill. As a result of each of these other amendments, the cost base for capital gains tax purposes of such a loan or security may be less than the cost taken into account in determining a gain on its disposal under the traditional securities provisions. However, the continued availability of the exemption for traditional securities would, in some cases, render ineffective the proposed amendments. Accordingly, under the amendment proposed by clause 17, the exemption from the application of Part IIIA for traditional securities will not apply to a particular asset in respect of which either of the amendments proposed by clauses 23 or 31 has applied. A gain on the disposal of such an asset will therefore be subject to the concurrent application of both the capital gains and capital losses provisions and the traditional securities provisions. However, the amount of any capital gain determined on the disposal of such a traditional security would, in turn, be reduced by any amount included in assessable income in respect of the disposal under the traditional securities provisions.

Consideration in respect of disposal and cost base, indexed cost base and reduced cost base (Clauses 18, 19, 38(10) and 38(11))

These clauses will amend the provisions of the Assessment Act which determine the consideration a taxpayer is taken to have paid in respect of the acquisition of an asset or to have received on the disposal of an asset. The amendments proposed will apply where an asset is acquired or disposed of by a taxpayer in certain circumstances which do not involve the asset's acquisition from, or disposal to, another person. Where the actual consideration received by a taxpayer on the disposal of an asset in these situations is greater than or less than what would have been the asset's market value at that time (but for the pending disposal), the effect of the amendments proposed by these clauses is to enable the substitution of the asset's market value as its disposal consideration.

Correspondingly, where the amount paid by a taxpayer to acquire an asset (where the acquisition did not involve the asset's disposal by another person) exceeds the asset's market value at the time of acquisition, the amount to be taken as having been paid by the taxpayer in respect of the acquisition will be limited to the asset's market value. The amendments to the cost base provisions are to apply to assets acquired after 15 August 1989. The amendments that relate to the consideration on disposal of an asset apply to disposals that occur after 15 August 1989.

Indexation of amounts for purposes of indexed cost base (Clauses 20 and 38(12))

The amount of a capital gain determined under Part IIIA of the Assessment Act on the disposal of an asset that, at the time of disposal, had been owned by a taxpayer for at least 12 months, is the amount by which the consideration in respect of the asset's disposal exceeds its indexed cost base. Broadly speaking, an asset's indexed cost base is the indexed amount of consideration paid in respect of the asset's acquisition, the indexed amount of the incidental costs of acquisition or disposal of the asset and the indexed amount of any capital expenditure incurred in enhancing the value of, or maintaining title to, the asset. In determining these indexed amounts, an adjustment is made to the actual amount paid or incurred to account for inflationary effects. That adjustment is determined by reference to the time at which the liabilities to pay the actual amounts were incurred and the time at which the asset is disposed of.

The amendment proposed by clause 20 will limit the availability of indexation for consideration paid in respect of the acquisition of an asset, where the asset's acquisition did not involve its disposal by another person (for example, on the issue of a share in a company). In these circumstances, indexation is only to be available from the time that the consideration in respect of the acquisition is actually paid.

The amendment will apply to disposals of assets that occurred after 15 August 1989 and will therefore apply to prevent indexation of amounts incurred but unpaid in respect of an asset at that date.

Return of capital on shares and return of capital on investment in trust (Clauses 21, 22, 38(13) and 38(14))

The amendments proposed by these clauses will apply where an amount is paid to a shareholder of a company that is not a dividend, or a tax-free amount is paid to a unitholder or beneficiary of a trust estate. Where the amount paid exceeds the indexed cost base of a particular asset (or the cost base for assets held for less than 12 months at the time the payment is made), the asset's owner is taken to realise a capital gain equal to the excess and to re-acquired the asset for "nil" consideration. However, where the asset's indexed cost base (or cost base, as the case may be) exceeds the amount paid, the taxpayer is deemed to have disposed of the asset at the time of the payment and to have immediately re-acquired the asset for an amount equal to the difference between the amount paid and its indexed cost base (or cost base).

The amendments proposed by clauses 21 and 22 will apply where such amounts are paid within 12 months of the date of acquisition of particular shares, units or interests as a result of which their indexed cost base (or cost base) is reduced. At present, benefits of indexation for those amounts that continue to be included in the asset's cost base are denied up to the point at which the last non-dividend or tax-free payment is made in that first 12 months of ownership. The amendments proposed are intended to ensure that full indexation of these amounts will be available, provided the asset is held by the taxpayer for at least 12 months prior to actual disposal.

These amendments are to apply to any share, unit or interest, disposed of after 15 August 1989.

Transfer of net capital loss within company groups (Clauses 23, 38(15) and 38(16))

Where a company in a company group (ie. a group of companies which, broadly speaking, share 100 per cent common ownership) realises a capital loss, the amount of that loss may, effectively, be transferred to the benefit of any other group company. Such a loss is then taken to be a capital loss of that other group company to be offset against any capital gains that may have accrued to it.

The amendments proposed by clause 23 will limit the amount of a capital loss that is transferable to the total amount of the (unindexed) cost bases of all investments made (ie. shares or loans) after 19 September 1985 by other group companies directly in the group company transferring the loss. However, this restriction is not to apply to losses transferred from a holding company to a subsidiary. In addition, following the transfer of a capital loss, the cost base, indexed cost base or reduced cost base of any shares or loans owned by companies in the group may be reduced by the whole or part of the amount of the transferred loss, proportionate to the extent that the particular shares or loans are representative of the total interests held (whether directly or indirectly) by members of the group in the transferor.

The amendments to limit the transferability of a capital loss apply to notices given after 15 August 1989 to effect the transfer of the loss. The amendments to reduce the cost base, indexed cost base or reduced cost base of shares or loans owned by other members of the group apply to shares or loans disposed of after 15 August 1989, as a consequence of any transfers of capital losses that occurred after 15 August 1989.

Application (Clauses 24, 25, 38(15) and 38(16))

The capital gains and capital losses provisions provide concessional treatment to rights or options to acquire new shares issued by a company to its own shareholders for nil consideration. The rights or options are taken to have been acquired before 20 September 1985 (and therefore effectively CGT exempt) where the original shares in respect of which they are issued were also acquired before that date. Further, on the exercise of rights or options taken to have been acquired before 20 September 1985, an amount equal to their market value at that time is deemed to have been paid as consideration for the acquisition of the new shares.

However, the concessional treatment afforded to rights and options only applies where they are issued by a company to its own shareholders. The amendments proposed by clauses 24 and 25 will extend this treatment to rights or options issued by a company to shareholders of another company, where each of the companies is a "group company" (defined, broadly, as companies sharing 100 per cent common ownership). The amendments are to apply to rights or options issued by a company after 15 August 1989.

Convertible Notes that are Traditional Securities (Clauses 26, 27, and 28)

The Bill will give effect to the Budget announcement of 15 August 1989 that gains will be taxed, and losses will be allowed, under the capital gains tax provisions only to the extent to which those gains are not assessable income under section 26BB or those losses are not deductible under section 70B of the Assessment Act.

By the proposed amendments the capital gains tax provisions of Divisions 12 and 12A of Part IIIA of the Assessment Act will not apply in certain circumstances. Where a convertible note is a traditional security within the meaning of section 26BB, and is acquired after 10 May 1989, the cost base of shares or units acquired by the conversion of the note will be the market value of those shares or units at the time of conversion. Where a note was acquired on or before 15 August 1989, there will be no detriment to taxpayers claiming losses; the cost base of the shares or units acquired by conversion will not be less than the sum of the consideration given by the taxpayer in respect of the acquisition of the convertible note and the amount paid by the taxpayer in respect of the conversion.

Transfer of asset to wholly-owned company (Clauses 30 and 38(10))

The Bill will amend the provisions which permit capital gains tax rollover relief - that is, deferral of tax on accrued capital gains or the retention of the tax-free status of an asset acquired before 20 September 1985 - on the transfer of an asset to a wholly-owned company by an individual, a trustee of a trust estate or the partners of a partnership. Following the transfer, the individual, the trustee or the partners must own 100 per cent of the shares in the transferee company.

At present, the consideration received by the transferor in respect of the transfer of an asset may comprise shares or securities (or both) of the transferee company. The amendments proposed by this clause will limit the permissible consideration to non-redeemable shares in the transferee, although the transferee may now also assume a liability in respect of the transferred asset (not exceeding the market value of the asset if acquired before 20 September 1985 or, in other cases, the asset's indexed cost base or cost base, as the case may be).

A further requirement for the availability of the rollover, as a result of the amendments proposed by clause 30, is that the market value of the shares received in respect of the transfer is substantially the same as that of the asset transferred. This measure is designed to prevent the proportionate value of particular shares in a company (whether acquired before, or on or after, 20 September 1985) from being either reduced or increased on the rollover of an asset pursuant to these provisions. The effect of the requirement is that no change in the proportionate values of any shares will occur by reason of the transfer of an asset to a company in respect of which rollover relief is available. That is, the resultant increase in value of the shares will be evenly spread.

These amendments will apply to assets transferred after 15 August 1989.

Transfer of asset between companies in the same group and from subsidiary to holding company for no consideration (Clauses 31, 32, and 38(10))

The Bill will also modify the availability of rollover relief on the transfer of assets between group companies. A condition for the availability of this relief will now be that the consideration on the transfer of an asset consist of non-redeemable shares in or securities of the transferee equal in value to the market value of the transferred asset.

There will be two exceptions to this requirement. The first is where the transferor is legally prevented from owning shares in the transferee, for example, where the transferor is a subsidiary of the transferee. In these cases, the only permissible consideration on the asset's transfer will be securities in the transferee, subject to the rules proposed requiring the market value of the asset received to equal that of the asset transferred.

The other exception to the requirement permits the transferor to assume a liability in relation to the asset transferred, in which case the market value requirement will be modified to reflect that liability assumed.

The consequences for the transferor of the rollover are also modified by the Bill. The shares or securities received will continue to be taken to have been acquired before 20 September 1985 where the transferred asset was also acquired before that date. In other cases, the asset's cost base, indexed cost base or reduced cost base (net of any assumed liabilities) will be transferred to the new shares or securities acquired.

The Bill will also provide a form of modified rollover relief for in specie distributions made by a subsidiary company to its holding company (e.g., on the liquidation of the subsidiary). In these circumstances, the asset will be taken to have been acquired by the transferee before 20 September 1985 if it was actually acquired by the transferor before that date. In other cases, the asset's cost base, indexed cost base or reduced cost base will be effectively "taken-over" by the transferee. The transferor may also assume liabilities in respect of the transferred asset, the amount of which will reduce the cost bases taken-over.

Where assets are transferred under these provisions, the cost base, indexed cost base or reduced cost base of shares or securities held directly in the transferor will be reduced proportionately to reflect the transfer of the asset. The reduction will be made by reference to the market value of a transferred asset acquired before 20 September 1985 or, for an asset acquired on or after that date, its cost base, indexed cost base or reduced cost base.

Strata title conversions and conversion of incorporated association to company incorporated under company law (Clauses 33 and 38(19))

The Bill will also extend rollover relief to conversions of interests in land to strata title ownership and on the incorporation of an association (e.g., a co-operative) as a company incorporated under company law.

For strata title conversions, the effect of the rollover will be that a new strata title unit will be taken to have been acquired before 20 September 1985 if the original interest owned by the taxpayer was also acquired before that date. The cost base, indexed cost base or reduced cost base of the original interest (which will not be taken to have been disposed of) will be transferred to the new strata title unit. However, a condition for the availability of the rollover is that, broadly speaking, no significant changes occur in the respective rights to occupy particular parts of a building owned by individual taxpayers following the conversion.

Similar relief will be available to the members of associations which become companies incorporated under company law in respect of the shares in the company acquired by the former members.

These amendments apply to any such conversions to strata title or incorporated companies that occurred after 19 September 1985, the effective commencement date of the CGT provisions.

Principal Residence exemption (Clauses 34 and 38(8))

The Bill will amend Division 18 of Part IIIA of the Assessment Act which sets out the rules for exempting a taxpayer's sole or principal residence (PRE) from the capital gains and capital losses provisions. The amendments broadly relate to the availability of the PRE where taxpayers construct dwellings on vacant land, the impact of a taxpayer's death on the principal residence status of the taxpayer's property and the treatment of beneficiaries of trust estates.

The amendments generally will be back-dated to apply to properties acquired on or after 20 September 1985, when application of the capital gains tax provisions commenced.

Under the existing law, where a taxpayer erects a dwelling on vacant land, in order to attract the full exemption from CGT (on both the house and land from the time of acquisition), the taxpayer is required to reside in that dwelling for at least 12 months. Further, the exemption for the construction period where a taxpayer erects a dwelling on vacant land only applies where that dwelling is built on land acquired after 19 September 1985. And, no exemption is available for the construction period of a dwelling where an established dwelling is demolished and replaced with a new home or where a taxpayer acquires and completes a partly constructed dwelling.

Amendments proposed by clause 34 will reduce from 12 months to 3 months the period that a taxpayer is required to reside in the completed dwelling to attract the full exemption (on both house and land). That clause also proposes that the provisions be extended to situations where a taxpayer erects a dwelling on land acquired before 20 September 1985, or constructs a new dwelling following the demolition of an existing dwelling or completes a partially constructed dwelling.

Under the present CGT provisions, no PRE is available if the taxpayer dies during the construction period and only a partial exemption is available if the taxpayer dies within the minimum residency period. Clause 34 proposes that the PRE be available where a taxpayer dies during the period after the commencement of construction of a dwelling on his/her land but prior to fulfilling the now to be three month residency requirement.

Similarly, clause 34 proposes that the PRE be available in situations where a taxpayer dies during a temporary period of absence (of less than four years) from a principal residence. At present, a dwelling will retain tax exempt status as a principal residence where the taxpayer is temporarily absent provided the taxpayer returns to reside in that dwelling within four years and elects, within a prescribed time, that the PRE is to apply to the dwelling. Where the taxpayer dies during a period of absence, this requirement is not met and, for example, a beneficiary may inherit a dwelling with only a partial PRE. The Bill also proposes that the Commissioner of Taxation be allowed to accept late elections from taxpayers (including trustees and surviving joint tenants) for the temporary absence exemption.

The current CGT provisions do not allow a PRE for a home owned by a trustee and occupied by a beneficiary except in certain circumstances where the trustee acquired the dwelling as the trustee of a deceased estate. The Bill proposes that the PRE become available in limited cases where a home is occupied by beneficiaries of certain trust estates for periods where the title to the home remains vested in the trustee.

First, by various amendments to the Assessment Act proposed by clause 34 a PRE is to apply, on the sale of a deceased person's home, for any period, since the date of death, during which the dwelling had been the principal residence of a person who holds a life tenancy under the terms of the deceased's will.

Second, by proposed subsection 160ZZQ(20C) of the Assessment Act, which clause 34 proposes to insert into it, where, in the administration of a deceased estate, the trustee acquires a home to be occupied by a beneficiary in accordance with the terms of the will of the deceased person, that dwelling will be eligible for the PRE for the period it was occupied by the beneficiary.

Third, the effect of proposed subsections 160M(1A) and 160V(1A) of the Assessment Act - which clauses 14 and 15 propose be inserted in that Act - when these subsections are read with existing provisions of the Assessment Act, will be that the actions of the trustee of the estate of a person under a legal disability will be taken for CGT purposes to be actions of the beneficiary, and the transfer of assets between a beneficiary and a trustee and the return of the assets by the trustee will not be taken to be a disposal of the assets. This will have the effect that a PRE will apply for a period where a home is occupied as the sole or principal residence by a beneficiary under a legal disability and the home is sold before title passes to that beneficiary.

Two further amendments which will affect the availability of the PRE for taxpayers who inherit homes are proposed by the Bill.

The first of these amendments is set out in proposed sub-section 160ZZQ(20B), which clause 34 proposes be inserted in the Assessment Act. That subsection will apply where a taxpayer is in a "chain of beneficiaries", that is, where he or she inherited the home from a deceased person who in turn had inherited the home from another deceased person (and so on). Because CGT liabilities do not arise on death, the amendments will apply through an unbroken line of beneficiaries back to the point at which the home was first acquired on or after 20 September 1985.

At present the availability of the PRE is generally determined by reference to use of the home as the principal residence of the person disposing of the home and the person from whom the home was inherited. However, where an asset acquired on or after 20 September 1985 passes through one or more deceased estates, accrued CGT liabilities are effectively 'passed-on' because the cost base of the asset to the beneficiary is its indexed cost base (rather than market value) to the deceased person.

Subsection 160ZZQ(20B) will apply where its effect is to reduce a taxable capital gain realised (or to increase a capital loss incurred) after 19 September 1985 and on or before 15 August 1989 (the date of the announcement of this proposed amendment) but it will not apply in respect of that period where its effect would be to increase a taxable capital gain or to reduce an allowable capital loss. However, for homes disposed of on or after 16 August 1989, the amendments will apply in all cases.

The second amendment relates to the availability of the PRE to surviving joint tenants. The current CGT provisions, which extend the PRE otherwise available to a deceased person to disposals of homes by beneficiaries, apply only where a home passes to the beneficiary under the will of the deceased or under a law relating to intestacy. The provisions do not apply to a surviving joint tenant who previously owned the home jointly with the deceased and who obtains title automatically. By proposed subsection 160ZZQ(6A), which is being inserted in the Assessment Act by clause 34 of the Bill, the PRE provisions apply in that situation in the same way as if the surviving joint tenant acquired the dwelling as the beneficiary in the estate of a deceased person.

Disposal of shares or interest in partnership or trust (Clauses 35 and 38(10))

Clause 35 proposes an amendment to section 160ZZT of the Assessment Act, as it applies where the value of underlying property owned by a private company or private trust estate that was acquired after 19 September 1985 exceeds 75 per cent of its net worth.

In these circumstances, the owner of shares or interests that were acquired before 20 September 1985 (and, therefore, normally excluded from the application of the CGT provisions) may be taken to have realised a capital gain on the disposal of the shares or interests, in proportion to the increase in value of the underlying property acquired by the company or trust on or after that date.

The amendments proposed will ensure that these provisions will also be applicable on the disposal of shares or units in any company or trust that, at any time within 5 years of the date of disposal, had been a "private company" or "private trust estate". Other amendments will ensure that in applying section 160ZZT on the disposal of shares in a non-resident company, that company will be taken to have acquired an asset before 20 September 1985 (where the asset was transferred to it by another group company on or after that date) if the asset was also acquired by the transferor before that date.

These amendments are to apply on the application of section 160ZZT to shares or interests disposed of after 15 August 1989.

Transfers of losses within company groups - dual resident investment companies (Clauses 4, 5, 12, 23(1), and 38(7))

The Bill will amend the group relief provisions of the Assessment Act to deny a dual resident investment company (as defined) the right to transfer "income" losses, and net capital losses, within a company group. The proposed amendments will apply to such losses incurred in the 1989-90 and later income years. (These amendments are the outcome of a review of proposals announced on 17 December 1986).

Under the group relief provisions, an Australian resident company incurring a loss in the course of deriving assessable income in the 1984-85 or later income years may transfer the right to a tax deduction for the loss to another resident company in the same group. Undeducted prior year losses may be so transferred, as well as losses incurred in the year of transfer. In both the transferor and transferee company there must be 100% common ownership of all classes of shares at all times during the loss year, the transfer year and any intervening period. Similarly, a net capital loss incurred by a resident company in a year of income may be transferred to another resident company in the same group for offset against a capital gain accruing to the latter company in the same or a subsequent year of income.

The broad purpose of the amendments is to prevent a company which is a resident of both Australia and another country under their respective income tax laws, and which is essentially a group financing vehicle, from being able to transfer a loss incurred from its activities to other group companies under the group relief provisions.

The proposed amendments will define a dual resident investment company broadly as a company which, under their respective income tax laws, is resident both in Australia and another country, and which either does not carry on business with a reasonable view to profit, or is substantially an investment or financing vehicle for related companies.

The denial of the transfer of losses to another group company will apply where a company is a dual resident investment company in relation to either the year in which it incurred the loss (the loss year) or the year the loss would otherwise be transferred for offset against income derived, or capital gains accrued, by another group company (the "income year" or "gain year" as the case may be).

However, a dual resident investment company will retain the right to carry forward "income" losses or net capital losses for set off respectively against its own future income or capital gains.

Expenditure on research and development activities (Clauses 8 to 10, 13, 38(6) and 43 to 45)

The Bill will implement the proposals announced on 7 September 1989 that amendments would be made to the legislation governing the 150 per cent rate of deduction for research and development (R & D) expenditure.

The proposed amendments will provide that expenditure incurred in acquiring, or acquiring the right to use, pre-existing core technology will be deductible at a reduced rate of 100 per cent.

The amendments will also provide that all receipts from granting access to or the right to use the results of an R & D project are to be included in assessable income where any expenditure on an R & D project has been allowed as a deduction under section 73B of the Assessment Act. Provisions relating to capital gains and capital losses will not, by the amendments, apply to any of the project receipts.

A further amendment will provide that, where there is a guaranteed return on expenditure incurred on an R & D project, the deduction available to the eligible company incurring the expenditure will reduce proportionately from 150 per cent to 100 per cent depending on the element of risk.

The Bill will also remove some restrictions on joint registration of eligible companies which now provide that at least one of the companies for which registration is sought is to be unable to make use of the results of an R & D project in its own business and that that company (or companies) must invest in excess of one million dollars on the project.

Amendments will also be made to the Industry Research and Development Act 1986. The first amendment will provide for certification to the Commissioner of Taxation by the Industry Research and Development Board that a particular technology was core technology in relation to particular R & D activities. The second amendment will remove restrictions on the joint registration of eligible companies which require that at least one of the companies for which registration is sought is to be unable to make use of the results of an R & D project in its business and require that company (or companies) to invest more than $1,000,000 on the project.

Taxation of carer's service pension (Clauses 6 and 38(2))

The purpose of the proposed amendments is to continue the existing income tax treatment of the carer's service pension, entitlement to which has been extended. Following an amendment made to the Veterans' Entitlements Act 1986 by the Social Security and Veterans' Affairs Legislation Amendment Act (No.4) 1989 (Act No. 164 of 1989), operative from 1 November 1989, the carer's service pension, previously payable to a relative who is providing care and attention for a severely handicapped person receiving a service pension, is payable also to a person providing care who is not a relative of the pensioner.

Under the existing law the carer's service pension, payable to a relative of a veteran, is exempt from income tax where both the carer and the veteran being cared for are below age pension age and the veteran is in receipt of a service pension because he or she is permanently incapacitated for work, i.e., the veteran is receiving the equivalent of an invalid pension. In any other case, including that just referred to where the carer or veteran is of age pension age, the carer's service pension is taxable.

The Bill will extend the same exemption from income tax of the carer's service pension where the carer is not a relative. This will ensure consistent taxation treatment of carers whether or not they are related to the veteran.

The amendments will apply to payments of carer's service pension made to a non-relative under a claim for a pension lodged on or after 1 November 1989.

Removal of reference to allowance (Clauses 6 and 38(2))

The provisions in the Assessment Act that determine which pensions are exempt from income tax, include references to an allowance formerly paid under the Tuberculosis Act 1948. Payments of this allowance have now ceased, and the Bill will omit from the Assessment Act the references to that allowance.

Definition of approved actuary (Clauses 7, 37, 38(4), 38(21) and 39)

References in subsection 27H(3) and (4) and subsection 267(1) of the Assessment Act to now inappropriate definitions of the terms "approved actuary" and "actuary " are proposed to be replaced. It is proposed that an actuary be defined as an actuary who is either a Fellow or an Accredited Member of the Institute of Actuaries of Australia.

The Australian Academy of Technological Sciences and Engineering Limited (Clause 11 and 38(5))

At present gifts to the Australian Academy of Technological Sciences are allowable deductions for income tax purposes under the gift provisions of the Assessment Act.

The Academy changed its name on 29 January 1987 to the Australian Academy of Technological Sciences and Engineering Limited. This Bill will amend the gift provisions so that gifts to the re-named organisation are deductible from the date on which it formally changed its name.

Interest payable on certain amended assessments (Clause 36)

The Bill will omit unintended references to the Tax File Number provisions from the provisions of the Assessment Act that provide for the payment of interest on amended assessments which increase the liability of a taxpayer to tax.

A more detailed explanation of the provisions of the Bill is contained in the following notes.