Senate

Revised Explanatory Memorandum

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

General outline and financial impact

Extension of the beneficiary tax offset to Cyclone Larry and Cyclone Monica income support payments

Schedule 1 to this Bill amends the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997 to extend eligibility for the beneficiary tax offset to farmers and small business owners in receipt of Cyclone Larry and Cyclone Monica income support payments.

Date of effect: The beneficiary tax offset applies to Cyclone Larry and Cyclone Monica income support payments for the 2005-06, 2006-07 and 2007-08 years of income.

Proposal announced: The amendments that relate to extending the beneficiary tax offset to Cyclone Larry and Cyclone Monica income support payments have not previously been announced.

Cyclone Larry income support payments were announced by the Prime Minister on 22 March 2006 and Cyclone Monica income support payments were announced by the Prime Minister on 26 May 2006.

Financial impact: This measure has an estimated impact on revenue of nil in 2006-07 and a cost of $0.5 million in 2007-08.

Compliance cost impact: Negligible.

Cyclones Larry and Monica: Assistance for affected businesses

Schedule 2 to this Bill provides tax-free status for certain Australian Government payments to businesses adversely affected by Cyclone Larry, and by flooding due to the combined impacts of Cyclones Larry and Monica.

Date of effect: This measure will apply to all relevant payments made in 2005-06 and 2006-07 income years.

Proposal announced: This measure was announced by the Prime Minister in his press releases of 22 and 26 March 2006, and 26 May 2006.

Financial impact: This measure will have these revenue implications:

Compliance cost impact: The implementation costs related to this measure are expected to be small, and the ongoing compliance costs are expected to be minimal.

Extension of the beneficiary tax offset to interim income support payments

Schedule 3 to this Bill amends the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997 to extend eligibility for the beneficiary tax offset to drought affected taxpayers in receipt of interim income support payments.

Date of effect: The beneficiary tax offset applies to interim income support payments for the 2005-06 income year and later income years.

Proposal announced: This measure was announced in the 2006-07 Budget and the Minister for Revenue and Assistant Treasurer 's Press Release No. 016 of 9 May 2006.

Financial impact: This measure will have these revenue implications:

Compliance cost impact: Negligible.

Simplified imputation system (share capital tainting rules)

Schedule 4 to this Bill amends the Income Tax Assessment Act 1997 to ensure that a company's share capital account will become tainted if it transfers certain amounts to that account. If a company taints its share capital account, a franking debit arises in the company's franking account. If the company chooses to untaint its share capital account, an additional franking debit may arise and untainting tax may be payable.

Date of effect: The new share capital tainting rules will apply to transfers made to a company's share capital account after the day this Bill is introduced into Parliament. Some consequential amendments apply from 1 July 1998.

Proposal announced: This measure was announced in the then Minister for Revenue and Assistant Treasurer's Press Release No. C104/02 of 27 September 2002.

Financial impact: Negligible.

Compliance cost impact: Nil.

Government grants

Capital gains tax exemption of expense-reimbursing government grants

Schedule 5 to this Bill amends the Income Tax Assessment Act 1997 to exempt the recipients of the Unlawful Termination Assistance Scheme, the Alternative Dispute Resolution Assistance Scheme and similar expense-reimbursing government grants from capital gains tax (CGT).

This Schedule makes a further amendment to ensure capital losses, and not just capital gains, are exempt from CGT.

Date of effect: These amendments will apply to income tax assessments from 1 July 2005.

Proposal announced: This measure has not previously been announced.

Financial impact: Negligible.

Compliance cost impact: Negligible.

Medicare levy surcharge lump sum payment in arrears offset

Schedule 6 to this Bill amends the Income Tax Assessment Act 1997 to provide an offset to certain taxpayers in respect of their Medicare levy surcharge liability where that liability arose, or significantly increased, as a result of the taxpayer receiving an eligible lump sum payment in arrears.

Date of effect: These amendments will apply to assessments for income years commencing on or after 1 July 2005.

Proposal announced: This measure was announced in the then Minister for Revenue and Assistant Treasurer's Press Release No. 029 of 10 May 2005.

Financial impact: This measure will have these revenue implications:

Compliance cost impact: Minimal.

Reporting of employer superannuation contributions by superannuation providers

Schedule 7 to this Bill amends the Superannuation Guarantee (Administration) Act 1992 to require superannuation providers to report details of superannuation contributions to the Australian Taxation Office.

Date of effect: This measure applies to the 2005-06 income year and later years.

Proposal announced: This measure was announced in the Minister for Revenue and Assistant Treasurer's Press Release No. 001 of 3 February 2006.

Financial impact: Nil.

Compliance cost impact: Negligible.

Exclusion for fringe benefits to address personal security concern

Schedule 8 to this Bill amends the Fringe Benefits Tax Assessment Act 1986 to exclude from reporting, fringe benefits provided to address certain security concerns relating to the personal safety of an employee, or an associate of the employee, arising from the employee's employment.

Date of effect: 1 April 2004.

Proposal announced: This measure was announced in the then Minister for Revenue and Assistant Treasurer's Press Release No. 079 of 8 September 2005.

Financial impact: This measure will have these revenue implications:

Compliance cost impact: Minimal.

Pre-1 July 1988 funding credits

Schedule 9 to this Bill amends the Income Tax Assessment Act 1936 to:

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prevent the inappropriate use of pre-1 July 1988 funding credits (funding credits) by ensuring that superannuation schemes can only use them to reduce their taxation liability in respect of contributions made for the purpose of funding benefits that accrued before 1 July 1988; and

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allow regulations to be made to provide guidance to the trustee of a superannuation scheme on how to work out the amount of funding credits that can be applied to reduce the taxation liability of the trustee in respect of contributions made and to allow other methods of working out how the trustee of a superannuation scheme can apply funding credits.

Date of effect: These amendments apply to the use of funding credits on or after 9 May 2006 the date this measure was announced in the 2006-07 Budget. In addition, any new or outstanding objections or amendments to past assessments will only be able to amend funding credit use for that year/s up to the amount that can be claimed under the new law.

Proposal announced: This measure was announced in the 2006-07 Budget and the Treasurer's Press Release No. 036 of 9 May 2006.

Financial impact: This measure will have these revenue implications:

Compliance cost impact: Minimal.

Allow certain funds to obtain an Australian Business Number

Schedule 10 to this Bill amends the A New Tax System (Goods and Services Tax) Act 1999 and the A New Tax System (Australian Business Number) Act 1999 to allow certain funds that raise money for other deductible gift recipients, to obtain an Australian Business Number so that those funds can be exempt from income tax and receive input tax credits for goods and services tax (GST) paid and other GST benefits.

Date of effect: 1 July 2005.

Proposal announced: This measure was announced in the 2006-07 Budget.

Financial impact: The financial impact of this measure is unquantifiable but is expected to have an insignificant impact on income tax and GST revenue.

Compliance cost impact: Minimal.

New deductible gift recipient categories

Schedule 11 to this Bill amends the Income Tax Assessment Act 1997 to create five new general categories of deductible gift recipient to cover war memorials, disaster relief, animal welfare, charitable services and educational scholarships.

Date of effect: 1 July 2006.

Proposal announced: These amendments were announced by the Government in the 2005-06 Budget and in the Treasurer's Press Release No. 49 of 10 May 2005.

Financial impact: This measure will have these revenue implications:

Compliance cost impact: Minimal.

GST treatment of gift-deductible entities

Schedule 12 to this Bill amends the A New Tax System (Goods and Services Tax) Act 1999 to ensure that:

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the goods and services tax (GST) charity concessions apply as originally intended; and

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charities operating retirement villages, like other charities, are required to be endorsed in order to access the GST charitable retirement village concession.

Date of effect: These amendments will apply for tax periods that begin on or after Royal Assent.

Proposal announced: The amendment dealing with gift-deductible entities was announced in the Treasurer's Press Release No. 049 of 29 August 2002. The amendment dealing with the endorsement of charitable institutions was announced in the Treasurer's Press Release No. 031 of 11 May 2004.

Financial impact: These amendments are expected to result in a small but insignificant gain to GST revenue.

Compliance cost impact: This measure is not expected to impact significantly on compliance costs.

Technical clarification of time for certain amended assessments

Schedule 13 to this Bill amends the Tax Laws Amendment (Improvements to Self Assessment) Act (No. 2) 2005 to clarify that the repeal of the six-year amendment period for general anti-avoidance (Part IVA) amendments only applies to assessments for the 2004-05 income year and later income years, as originally intended by the Government.

Date of effect: This amendment will apply immediately after the commencement of the Tax Laws Amendment (Improvements to Self Assessment) Act (No. 2) 2005 , (19 December 2005).

Proposal announced: This measure was announced in the 2006-07 Budget.

Financial impact: Nil.

Compliance cost impact: Nil.

Increase in wine equalisation tax producer rebate

Schedule 14 to this Bill enhances the Government's assistance to the wine industry by increasing the maximum amount of wine equalisation tax (WET) producer rebate claimable by a wine producer (or group of producers) each financial year.

The WET producer rebate scheme was announced by the Government in the 2004-05 Budget. The scheme commenced on and from 1 October 2004 to provide assistance to each wine producer (or group of producers) of up to $290,000 in WET rebates per annum. This effectively exempts $1 million in domestic wholesale wine sales by a producer each year.

From 2006-07, each wine producer or group of wine producers will be able to claim up to $500,000 in WET rebates each year. This means the effective WET-free threshold for a producer with respect to their domestic wholesale wine sales in each financial year will be around $1.7 million.

The existing framework of eligibility rules and claiming arrangements will not be altered by these amendments.

Date of effect: This measure takes effect on and from 1 July 2006.

Proposal announced: This measure was announced in the 2006-07 Budget and the Treasurer's Press Release No. 035 of 9 May 2006.

Financial impact: This measure will have these revenue implications:

Compliance cost impact: This measure is not expected to impose any additional costs to WET producer rebate claimants as it is an increase in an amount that current claimants may claim, via the existing claiming mechanism.

GST treatment of residential premises

Schedule 15 to this Bill amends the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to ensure that following the decision of the Full Federal Court of Australia in Marana Holdings Pty Ltd v Commissioner of Taxation
[2004] FCAFC 307 supplies of certain types of real property continue to be input taxed. This confirms the Government's policy intent.

Date of effect: 1 July 2000.

Proposal announced: This measure was announced in the Minister for Revenue and Assistant Treasurer's Press Release No. 006 of 27 February 2006.

Financial impact: Nil.

Compliance cost impact: Nil.