House of Representatives

Explanatory Memorandum

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

GENERAL OUTLINE

TAXATION LAWS AMENDMENT BILL (NO.4) 1988

This Bill will amend various taxation Acts to give effect to a number of announced proposals as outlined below:

Income Tax Assessment Act 1936

Business Tax Review - 1988 May Economic Statement

Depreciation changes

•

to repeal, with effect from 26 May 1988:

-

the general 5/3 accelerated depreciation concession for plant;

-

the special 5 year depreciation concession for certain primary production plant; and

-

the special write-off allowed for capital expenditure on plant used in general mining or petroleum mining activities, except for expenditure on plant for use in exploration or prospecting;

and to replace those arrangements with depreciation at effective life rates;

•

to increase, with effect from 26 May 1988, the existing special loading on effective life depreciation rates from 18% to 20%;

•

to require, from 26 May 1988, a taxpayer to adopt a uniform depreciation method to apply to all plant that first becomes depreciable in any income year;

Prepaid expenses

•

to provide for certain expenditure incurred in advance to be deductible over the period during which the relevant services are to be provided, subject to a maximum write-off period of 10 years;

Dividends paid by tax-exempt entities

•

to deny the intercorporate dividend rebate in respect of dividends paid by tax-exempt entities;

Unfranked dividends received by private companies

•

to deny, with certain exceptions, the intercorporate dividend rebate in respect of the unfranked part of dividends received by private companies;

Termination of section 26AAA

•

to abolish, for property disposed of after 25 May 1988, the provision which includes as assessable income profits on the sale of property within 12 months of purchase, and so bring short term property sales within the ambit of the general capital gains and capital losses provisions;

Mains electricity

•

to replace the immediate write-off for capital expenditure on certain mains electricity facilities with a write-off over 10 years;

Cost-price of natural increase

•

to permit a taxpayer to bring natural increase of live stock to account at actual cost of production if the taxpayer can demonstrate the actual cost is less than the minimum values prescribed in respect of natural increase of live stock; and

Pensioner rebate

•

to increase the level of the pensioner rebate of tax from $250 ($308 for service pensioners) to $430, and the income level above which the rebate begins to shade-out.

1988-89 Budget

Beneficiary rebate

•

to increase from $430 to $600 for married taxpayers (and de facto couples), and from $180 to $260 for other taxpayers, the rebates of tax (and increase the income levels above which they shade-out) available for taxpayers wholly or mainly dependent on social security unemployment, sickness or special benefits, Formal Training Allowances or certain Commonwealth educational allowances;

Special temporary allowance

•

to exempt from tax the special temporary allowance payable to certain social security or repatriation pensioners; and

1988-89 provisional tax

•

to provide the method of calculating provisional tax for the 1988-89 income year.

Other proposals

Non-cash business benefits

•

to tax non-cash business benefits that are in the nature of income (proposal announced on 4 February 1985);

•

to exclude from deductible business expenditure the arm's length value of any private non-cash benefit, including any other non-deductible benefit, received by a taxpayer as a result of incurring the business expenditure;

Debt creation arrangements

•

to deny deductions for interest incurred by non-resident companies and foreign controlled Australian companies on borrowings made in connection with the acquisition of assets from related parties (proposal announced on 30 April 1987);

Public trading trusts

•

to extend the range of business activities that may be conducted by the trustee of a public unit trust without the trust being taken to be a public trading trust, the trustee of which is taxed as a company (proposals announced on 24 February 1988 and 1 July 1988);

Substantiation rules

•

to replace the requirement that information in respect of income tax deduction claims for car expenses be specified in income tax return forms with a requirement that the information be specified, in a form approved by the Commissioner of Taxation, in records retained by the taxpayer; and

Gifts

•

to amend the income tax gift provisions to reflect the change in name of an organisation (the Duke of Edinburgh's Study Conference Account) currently listed in the provisions.

Fringe Benefits Tax Assessment Act 1986

Remote area housing

•

to introduce rules for the amortisation, over a period of 5 to 7 years, of the taxable value of housing assistance provided to employees under a remote area home ownership scheme (proposal announced on 29 October 1986);

•

to extend the existing 50% discounting of the taxable value of benefits relating to the provision of remote area housing to:

-

the acquisition of land on which, broadly, an employee builds a home within 6 to 18 months of acquisition;

-

an employer's reimbursement, in whole or part, of expenditure incurred by an employee to acquire or construct a home;

-

the payment, by an employee to an employer, of an option fee in return for a right to purchase (or repurchase) the employee's home;

-

the purchase of an employee's home by his or her employer; and

•

to allow an employer's fringe benefits taxable amount to be reduced appropriately when, under a remote area home ownership scheme, that employer purchases an employee's home at less than its market value.

Taxation Administration Act 1953

Repeal of section 14ZKA

•

to repeal Section 14ZKA of the Act which modifies the State and Territory limitation laws applying to the recovery of tax debts.

INCOME TAX AMENDMENT BILL 1988

This Bill will amend the Income Tax Act 1986 to formally impose tax payable for the 1988-89 financial year and the subsequent year, at the rates of tax declared by the Income Tax Rates Act 1986.

MEDICARE LEVY AMENDMENT BILL 1988

This Bill will amend the Medicare Levy Act 1986 -

•

to impose a basic rate of Medicare levy of 1.25 per cent for 1988-89 and the subsequent income year; and

•

to exempt from the levy individuals with taxable incomes of $9,560 or less and families and sole parents with family incomes of $16,110 or less; the family or sole parent threshold to be raised by a further $2,100 for each dependent child or student (1988-89 Budget announcement).