House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

General outline and financial impact

Religious practitioners

Schedule 1 to this bill amends the TAA 1953, the ITAA 1997, the FBTAA 1986, the GST Act and the ABN Act to clarify the treatment of religious practitioners under the new tax system. The amendments will broadly ensure that religious practitioners who are not employees are treated in the same way as employees and office holders.

The amendments do not affect the legal status of religious practitioners. Those who are not employees continue not to be employees.

Under the new rules an entity will be required to withhold, under the PAYG withholding system, from payments to a religious practitioner for activities done in the pursuit of a vocation as a religious practitioner, and as a member of a religious institution.

In addition, there will be amendments so that:

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religious practitioners will not be eligible for (or need) an ABN for activities done in pursuit of a vocation as a religious practitioner, and as a member of a religious institution;

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payments to a religious practitioner for activities done in pursuit of a vocation as a religious practitioner, and as a member of a religious institution will not be subject to the No ABN withholding arrangements;

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benefits provided by a religious institution to a religious practitioner for pastoral or related duties will continue to be exempt from tax under the FBT law; and

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activities done in pursuit of a vocation as a religious practitioner, and as a member of a religious institution will not be subject to GST.

The amendments also include a number of minor consequential amendments about the tax treatment of religious practitioners.

Date of effect: The PAYG withholding obligations will apply to payments made on or after 1 July 2002. The amendments to the GST, ABN and FBT law will apply from 1 July 2000.

Proposal announced: The proposal was announced in Assistant Treasurers Press Release No. 33 of 28 June 2000.

Financial impact: The amendments are expected to have no effect on estimated revenue.

Compliance cost impact: The amendments will reduce the compliance costs of religious practitioners and institutions by:

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clarifying the tax treatment of the activities of practitioners; and

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ensuring that practitioners do not need to obtain and quote an ABN, or register for GST, in relation to activities done in the pursuit of a vocation of a religious practitioner, and as a member of a religious institution.

Change in status of constitutionally protected superannuation funds

Schedule 2 to this bill amends the income tax law and the superannuation surcharge legislation to facilitate the change in status of constitutionally protected superannuation funds that elect to become taxed superannuation funds. The amendments will ensure that members of constitutionally protected superannuation funds which have changed status, are treated similarly for income tax and superannuation surcharge purposes with members who rollover benefits from an untaxed source to a taxed source.

Date of effect: 1 July 2000.

Proposal announced: Assistant Treasurers Press Release No. 27 of 16 June 2000.

Financial impact: Revenue of $25 million will be brought forward in the 2001-2002 year. Consequently, there will be a loss to revenue of $1 million per annum from 2002-2003.

Compliance cost impact: There will be some compliance costs associated with determining the amount to be included in assessable income of the fund when it ceases to be a constitutionally protected superannuation fund. In addition, the fund will need to lodge income tax returns as it has to pay tax. The superannuation provider will also have to calculate certain benefit components for each member and report for superannuation surcharge purposes accordingly. However, the amendments will apply only if a fund that is a constitutionally protected superannuation fund elects to change its status.

CGT event E4

Schedule 3 to this bill amends the ITAA 1997 to ensure that CGT event E4:

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does not apply to payments of CGT discount amounts made by trustees to beneficiaries;

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does not apply to payments of CGT discount amounts made by trustees to beneficiaries that are trustees of trusts in chains of trusts;

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applies to payments associated with building allowances made by trustees to beneficiaries; and

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has its intended effect by making minor amendments.

Date of effect: A transitional measure that corrects the chain of trusts deficiencies applies to payments made by trustees on or after 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999 and before 1 July 2001. The remaining amendments apply to payments made by trustees on or after 1 July 2001.

Proposal announced: That part of the proposal relating to payments of CGT discount amounts and payments associated with building allowances was announced in Treasurers Press Release No. 16 of 22 March 2001. That part of the proposal relating to chains of trusts was detailed in Assistant Treasurers Press Release No. 33 of 31 July 2001. The technical amendments have not previously been announced.

Financial impact: The financial impact of this measure as it relates to payments of CGT discount amounts was included in the estimates for providing CGT concessions in the New Business Tax System (Integrity and Other Measures) Act 1999 .

This measure, as it relates to payments associated with building allowances, is estimated to raise revenue of $5 million in 2002-2003, rising to $40 million per annum after 10 years.

Compliance cost impact: There will be minimal compliance costs for investors associated with this measure. There may be some additional costs for managed funds from implementing changes to their systems.

Summary of regulation impact statement

Regulation impact on business

Impact: The measure contained in this bill provides taxpayers with greater access to the benefits of the CGT discount.

Main points:

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The measure has the support of industry who have been consulted during ongoing development and finalisation of the measure.

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Compliance costs for investors will be minimal. There may be additional compliance costs for managed funds associated with implementing the changes.

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This change provides for increased levels of investment and diversification of investment for Australian investors.

Gifts or contributions

Schedule 4 to this bill amends the ITAA 1997 to allow income tax deductions for certain gifts of $2 or more made to the organisations listed below.

Date of effect: Applies to gifts made to:

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Southcare Helicopter Fund after 11 September 2000;

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Breast Cancer Network Australia after 22 May 2001;

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Australian Nuffield Farming Scholars Association after 16 April 2001;

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Dymocks Literacy Foundation Limited after 4 January 2001;

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The Sir Earl Page Memorial Trust after 6 May 2001;

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Research Australia Limited after 26 June 2001;

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Reconciliation Australia Limited after 6 December 2000;

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The RSL Foundation after 20 September 2000;

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Australian Chinese Ex-Services National Reunion War Memorial Fund after 14 December 2000 and before 16 December 2002;

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Royal Australian Airforce (RAAF) Memorial Trust Fund after 16 November 2000 and before 18 November 2001;

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Voluntary Service to Indigenous Communities Foundation after 16 April 2001;

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Australia for UNHCR after 27 June 2001 and before 28 June 2002;

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The Bradman Memorial Fund after 24 February 2001;

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The Foundation for Young Australians after 6 May 2001; and

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Visy Cares after 19 June 2001.

Proposal announced: The Prime Minister announced in Parliament on 7 December 2000 income tax deductibility for certain gifts of $2 or more made to Reconciliation Australia Limited. The Assistant Treasurer announced the other organisations by Press Releases during 2000 and 2001.

Financial impact: Unquantifiable, but insubstantial, cost to the revenue.

Compliance cost impact: Nil.

Information and communications technology, etc

Schedule 5 to this bill amends the ITAA 1997 to exempt from income tax the income of a non-profit society or association established for the purpose of promoting the development of Australian ICT resources.

This bill also amends the FBTAA 1986 to provide a rebate of FBT to an employer which is a non-profit society or association established for the purpose of promoting the development of the ICT, aquaculture and fishing resources of Australia.

Date of effect: The exemption of income tax for a society or association engaged in ICT applies from 1 July 2000. The FBT rebate for such employers applies from 1 April 2000, and the amendments in relation to the aquaculture and fishing resources apply from 1 April 1999.

Proposal announced: The measures in relation to the ICT resources were announced in a joint press release by the Assistant Treasurer and the Minister for Communications, Information Technology and the Arts on 29 March 2001. The rebate from FBT for non-profit employers engaged in the development of Australian aquaculture and fishing resources has not previously been announced.

Financial impact: Unquantifiable, but insubstantial, cost to the revenue.

Compliance cost impact: Nil.