Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon. P.J. Keating MP.)MAIN FEATURES
The main features of this Bill are as follows :
Redundant Acts and provisions (Part 7 and Schedule 1)
The Bill proposes the repeal of a large number of redundant provisions of the Income Tax Assessment Act 1936, and of some Acts that were related to the operation of that Act and that are now also redundant. Numerous consequential amendments are also proposed.
Taxation of traditional securities (Clauses 10, 11, 13 and 18)
This Bill will exclude from the capital gains and capital losses provisions of the income tax law gains or losses on the disposal or redemption of traditional securities acquired by a taxpayer after the date of introduction of the Bill.
The Bill will include in the law specific provisions to tax gains on the disposal or redemption of traditional securities.
Under the existing law, certain gains and losses arising on the disposal or redemption of traditional financial securities are dealt with in accordance with the capital gains and capital losses provisions of Part IIIA of the Income Tax Assessment Act 1936. These provisions operate where traditional securities are acquired after 19 September 1985. The amendments will exclude traditional financial security transactions from Part IIIA where the security is acquired after the date of introduction of this Bill.
Traditional securities acquired after the date of introduction of this Bill will be dealt with in accordance with new provisions. Broadly, gains on such securities will be included as assessable income and losses will be allowable as a deduction. Interest payable in relation to traditional securities will continue to be taxable in accordance with the provisions of section 25 of the Income Tax Assessment Act 1936.
Traditional securities are defined in the Bill as, broadly, securities in the form of debentures, bonds and other loans that do not have a deferred interest element. Generally, they include those securities that do not fall within Division 16E of the Income Tax Assessment Act 1936. Shares in the issued capital of a company are outside the definition of securities. The amendments will not effect the exemption from tax under section 23E for the redemption of Special Bonds nor will they apply to any prescribed securities within the meaning of section 26C or where a security is trading stock of a taxpayer.
Principal Residence Exemption (Clauses 19 and 22)
The existing law excludes from the operation of the capital gains tax provisions a capital gain or capital loss on the disposal of a dwelling owned by a taxpayer to the extent that it was used as his or her sole or principal residence. This exemption is available only where the dwelling is owned under certain specified forms of title i.e. an estate in fee simple, a lease in perpetuity, a lease for a term of at least 99 years, a Crown lease, or via a share in a company carrying entitlement to occupy a flat or home unit in a building owned by the company under such a form of title.
The amendment proposed by clause 19 of the Bill will extend the scope of the principal residence exemption to cover a legal or equitable estate or interest in land on which a dwelling is erected, a licence or right to occupy a dwelling, or a share in a company that confers a right to occupy a flat or home unit in a building owned by the company under a legal or equitable estate or interest. Examples of assets that will now be subject to the principal residence exemption include rights or licences to occupy units in retirement homes and any form of residential leases.
The Bill also proposes a consequential amendment to the existing provisions under which the exemption extends (for up to four years) to vacant land acquired by a taxpayer on which a dwelling is subsequently constructed and becomes the taxpayer's sole or principal residence. Exemption is currently not available for a period during which the taxpayer or his or her spouse owned another dwelling occupied as the sole or principal residence of either of them.
The extension of the concept of 'ownership' of a dwelling to include a licence or right of occupation would have precluded the principal residence exemption from applying to vacant land on which a dwelling is constructed where the taxpayer had a licence or right to occupy another dwelling. To prevent this occurring the requirement that the taxpayer or his or her spouse not own another dwelling will be removed. However, to obtain the exemption for vacant land on which a dwelling is subsequently constructed the taxpayer will now be required to make an election. Where the election is made, no other dwelling will qualify as the taxpayer's sole or principal residence.
These amendments will apply from 20 September 1985 when application of the capital gains tax provisions commenced.
Clause 22 of the Bill contains transitional measures to preserve any entitlement to a capital loss where a dwelling was acquired by a taxpayer after 19 September 1985 and disposed of before 22 November 1988.
Maintenance payments (Clauses 9, 12 and 20)
At present, periodical payments of maintenance are exempt from income tax when received from a husband or former husband. This Bill will extend the exemption to payments received from a wife or former wife, or by a person from a de facto spouse or former de facto spouse. The amendments will also ensure that periodical payments of child maintenance received by or on behalf of a child will be exempt from tax. The exemption will not apply if that the payer has divested himself or herself of an income producing asset or diverted otherwise taxable income in order to make the maintenance payment.
A consequential amendment will ensure that an income tax deduction is denied for expenditure or payments in respect of the maintenance of a spouse, a defacto spouse or a family member under 16 years.
The exemption of periodical payments of maintenance will apply to payments received on or after 1 July 1988. The amendment that denies a deduction for expenditure or payments in respect of maintenance will apply to payments made on or after the date on which the amending Act receives Royal Assent.
Minors in receipt of child disability allowance (Clauses 15, 20 and 21)
The Bill will amend Division 6AA of Part III of the Principal Act which sets out the rules for taxing the unearned income of certain minors which is subject to the maximum marginal rate of personal tax.
The amendment will take account of a change in the Social Security Act 1947 whereby an allowance is now payable to a child who satisfies the definition of a disabled child in place of the allowance previously paid in respect of a handicapped, or severely handicapped, child.
Division 6AA does not apply to income received by a child in a year of income in respect of whom a handicapped child's allowance under the Social Security Act 1947 is payable in respect of a period that included the last day of the year of income and who is the subject of a medical certificate certifying the child to be a handicapped child, or a severely handicapped child, within the meaning of Part XII of that Act.
The amendments will insert new references in Division 6AA to account for the payment of an allowance to a disabled child, as defined in the Social Security Act 1947.
They will have effect for the 1987-88 and subsequent income years as payments of the new allowance under the Social Security Act began on 15 November 1987.
Beneficiary Rebate (Clauses 16 and 20)
The Bill proposes to increase for 1988-89 and subsequent income years the maximum rebate of tax, and the income level above which the rebate shades-out, for taxpayers, other than married (including de facto married) taxpayers, in receipt of a social security unemployment, sickness or special benefit, a Formal Training Allowance or an allowance paid under certain Commonwealth educational schemes. The rebate will increase from $260 to $262 and will shade-out at the rate of 12.5 cents for each dollar of taxable income in excess of $6192, so that no rebate will be available where taxable income exceeds $8287.
Gifts (Clause 14)
The Bill will give effect to the proposal announced on 16 December 1988 to authorise deductions for gifts of the value of $2 or more made to a public fund established or maintained exclusively for the relief of persons affected by the earthquakes in the Armenian Soviet Socialist Republic. Gifts made for the relief of persons affected by the earthquakes will qualify for deduction where made between 8 December 1988 and 30 June 1989.
The Bill will also admit the Australian Ireland Fund to the gift provisions so that gifts made to the Fund after 9 May 1989 will qualify for deduction.
Tax sparing (Clause 17)
A technical amendment is to be made to section 160AFF of the Income Tax Assessment Act 1936 which authorises the making of regulations so as to grant a foreign tax credit in respect of tax forgone by a developing country under a development incentive. The amendment will permit such tax sparing regulations to apply from the commencement of the 1987/88 income year rather than from 1 July 1987 to meet cases where a taxpayer has adopted for the 1987/88 income year a substituted accounting period that commenced before 1 July 1987.
Use of taxation information (Part 5)
Law Enforcement Agency access to taxation information
The Taxation Administration Act 1953 will be amended to allow the Commissioner of Taxation to provide taxation information relating to serious offences to certain law enforcement agencies, and to restrict the use that may be made of the information.
The amendments will permit the Commissioner at his discretion to provide the information if he is satisfied that the information is relevant to determining whether a serious offence - that is an indictable offence - has been or is being committed or is relevant to proceeds of crime proceedings.
Taxation sourced information provided under these amendments may be used for investigation purposes but cannot be used as evidence in a court for non tax prosecutions, except in relation to a proceeds of crime order where a person has been convicted of a serious offence. Information concerning a person convicted of a serious offence is to be available for use as evidence in post- conviction confiscation and restraining order proceedings under the Proceeds of Crime Act 1987, corresponding State and Territory legislation or under Division 3 of Part XIII of the Customs Act 1901.
The Commissioner's decisions whether to provide information to a law enforcement agency are to be outside the review procedures of the Administrative Decisions (Judicial Review) Act 1977.
The Commissioner will be required to specify in his Annual Report to the Parliament the number of requests for information received from each law enforcement agency and the number of occasions on which information has been provided.
Australian Customs Service access to taxation information
The Taxation Administration Act 1953 will be amended to allow the Commissioner of Taxation to disclose information acquired under a taxation law to the Comptroller-General of Customs. There is already authority to do this in relation to information acquired under the sales tax laws.
Australian Customs Service officers who receive taxation information will only be permitted to communicate such information to persons, authorities or courts and administrative bodies, as may be necessary for the purpose of carrying into effect provisions of the customs and excise laws.
A more detailed explanation of the provisions of the Bill is contained in the following notes.