Senate

Revised Explanatory Memorandum

Circulated by the authority of the Treasurer, the Hon Wayne Swan MP

General outline and financial impact

Amounts misappropriated by an employee or agent

Schedule 1 to this Bill amends the Income Tax Assessment Act 1997 to allow taxpayers to:

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claim a deduction in relation to an amount misappropriated by an employee or agent following the disposal of an asset that has been dealt with under the uniform capital allowance provisions;

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recognise the misappropriation under the capital gains tax provisions; or

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both claim a deduction and recognise the misappropriation as discussed above (depending on whether the use of the asset was for taxable purposes or not).

Date of effect: These amendments commence on the date this Bill receives Royal Assent and apply to amounts misappropriated in the 2007-08 and later years of income.

Proposal announced: This measure was announced on 8 May 2007 in the 2007-08 Budget.

Financial impact: Unquantifiable, but is expected to be negligible.

Compliance cost impact: Minimal to nil.

Extending the superannuation guarantee late payment offset

Schedule 2 to this Bill amends the Superannuation Guarantee (Administration) Act 1992 to extend the period within which an employer can make a contribution - after the due date - and still be eligible to use the late payment offset to reduce their superannuation guarantee (SG) charge liability. This measure will reduce the incidence of employers having to potentially pay the same amount twice, once when they make a late contribution to the employee's fund and again when they are assessed with an SG charge for making the contribution late.

Date of effect: These amendments apply from the date of Royal Assent.

Proposal announced: This measure was announced in the then Minister for Revenue and Assistant Treasurer's Press Release No. 121 of 2 October 2007.

Financial impact: Minimal.

Compliance cost impact: Low. These amendments affect employers who make a late contribution. There will be a low increase in implementation compliance costs arising from the need for some employers to be aware of these changes. There will be a low ongoing compliance cost impact arising from the need for some employers to make an election before being able to use the late payment offset. It is anticipated that the measure will affect a small proportion of the average 15,000 employers per quarter who incur liability for the SG charge.

Capital gains tax market value substitution rule for interests in certain companies and trusts

Schedule 3 to this Bill amends the Income Tax Assessment Act 1997 so that the market value substitution rule in section 116-30 does not apply when capital gains tax (CGT) event C2 occurs in relation to interests in certain companies and trusts.

Date of effect: These amendments apply to CGT events happening during and after the 2006-07 income year.

Proposal announced: This measure was announced by the then Minister for Revenue and Assistant Treasurer in Press Release No. 128 of 16 October 2007.

Financial impact: Unquantifiable but insignificant.

Compliance cost impact: This measure is expected to have a small impact on implementation compliance costs and result in nil ongoing compliance costs.

Income tax exemption of the Endeavour Executive Award and research fellowships under the Endeavour Awards

Schedule 4 to this Bill amends the Income Tax Assessment Act 1997 to ensure that the Endeavour Executive Award and research fellowships under the Endeavour Awards scholarship program are exempt from income tax.

Date of effect: This measure applies to fellowships and awards received in the 2007-08 income year and later income years.

Proposal announced: This measure was announced in the 2007-08 Mid-Year Economic and Fiscal Outlook (MYEFO) report.

Financial impact: This measure will have these revenue implications:

Compliance cost impact: Minimal.

Early completion bonuses for apprentices

Schedule 5 to this Bill amends the Income Tax Assessment Act 1997 to extend an income tax exemption to early completion bonuses paid to apprentices by State and Territory governments.

Date of effect: This measure applies to early completion bonuses received in the 2007-08 and later income years.

Proposal announced: This measure was announced on 23 October 2007 in the Pre-Election Economic and Fiscal Outlook .

Financial impact: This measure will have these revenue implications:

Compliance cost impact: Negligible.

Deductible gift recipients

Schedule 6 to this Bill amends the Income Tax Assessment Act 1997 to update the list of deductible gift recipients (DGRs) to include nine new DGRs and extend the time period of four existing DGRs.

Date of effect: There are various dates of effect based upon each of the individual organisation's DGR start date. The nine new DGRs are listed below:

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AE 2 Commemorative Foundation Ltd - 29 February 2008;

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Ian Thorpe's Fountain for youth Limited - 29 February 2008;

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Wheelchairs for Kids Incorporated - 29 February 2008;

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Amy Gillett Foundation - 14 September 2007;

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The Spirit of Australia Foundation - 11 September 2007;

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World Youth Day 2008 Trust - 5 September 2007;

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Memorials Development Committee Ltd - 5 September 2007;

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The Council for Jewish Community Security - 10 August 2007; and

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Playgroup Australia Incorporated - 3 August 2006.

In addition this Schedule extends the DGR listing of the:

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Dunn and Lewis Youth Development Foundation

Limited - 1 January 2008;

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Finding Sydney Foundation - 28 August 2007;

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Xanana Vocational Education Trust - 21 July 2007; and

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Australia for UNHCR - 28 June 2007.

Proposal announced: The deductibility of gifts to the following organisations were announced by the former Minister for Revenue and Assistant Treasurer:

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AE 2 Commemorative Foundation Ltd - Press Release No. 131 of 17 October 2007;

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Ian Thorpe's Fountain for youth Limited - Press Release No. 126 of 16 October 2007;

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Wheelchairs for Kids Incorporated - Press Release No. 126 of 16 October 2007;

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Amy Gillett Foundation - Press Release No. 116 of 14 September 2007;

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The Spirit of Australia Foundation - Press Release No. 113 of 11 September 2007;

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World Youth Day 2008 Trust - Press Release No. 110 of 11 September 2007;

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Memorials Development Committee Ltd - Press Release No. 108 of 10 September 2007; and

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The Council for Jewish Community Security - Press Release No. 098 of 10 August 2007.

The deductibility of gifts to Playgroup Australia Incorporated was announced in the then Minister for Revenue and Assistant Treasurer's Press Release No. C059/04 of 25 June 2004.

In addition the former Minister for Revenue and Assistant Treasurer announced the extension of the following DGR listings:

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Dunn and Lewis Youth Development Foundation

Limited - Press Release No. 129 of 17 October 2007;

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Finding Sydney Foundation - Press Release No. 126 of 16 October 2007;

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Xanana Vocational Education Trust - Press Release No. 112 of 11 September 2007; and

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Australia for UNHCR - Press Release No. 102 of 17 August 2007.

Financial impact: This measure will have these revenue implications:

Compliance cost impact: Nil.

Superannuation lump sum paid to a person with a terminal medical condition

Schedule 7 to this Bill amends the Income Tax Assessment Act 1997 and the Income Tax (Transitional Provisions) Act 1997 so that a superannuation lump sum paid to a person who has a terminal medical condition is tax free.

Date of effect: These amendments apply to payments made on or after 1 July 2007. As the amendments remove tax on the affected payments, the retrospective application of the changes will not disadvantage taxpayers.

Proposal announced: This measure was originally announced in the then Minister for Revenue and Assistant Treasurer's Press Release No. 111 of 11 September 2007.

Financial impact: This measure will have these revenue implications:

Compliance cost impact: Negligible.

Capital expenditure for the establishment of trees in carbon sink forests

Schedule 8 to this Bill amends Division 40 of the Income Tax Assessment Act 1997 to provide a deduction for capital expenditure for the establishment of trees in carbon sink forests.

Expenditure incurred on establishing trees in a carbon sink forest will be immediately deductible in the period 2007-08 to 2011-12. After this initial period, establishment expenditure will be deductible under a write-off rate of 7 per cent per annum.

During both the initial period and after, the conditions for the deduction will be analogous with the horticultural plant provisions.

Date of effect: Amendments provided for the income years 2007-08 to 2011-12 (inclusive) apply to the 2007-08 income year and later income years.

Amendments provided for the income year 2012-13 and later years apply to the 2012-13 income year and later income years.

Proposal announced: This measure was announced in the then Treasurer's Press Release No. 39 of 8 May 2007.

Financial impact: This measure will have these revenue implications:

Compliance cost impact: Low.

Extension of the beneficiary tax offset to the Equine Workers Hardship Wage Supplement Payment

Schedule 9 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 individuals in receipt of the Equine Workers Hardship Wage Supplement Payment (the Supplement).

Date of effect: The beneficiary tax offset applies to payment of the Supplement made during the 2007-08 income year and later income years.

Proposal announced: This measure was part of a broader Equine Influenza assistance package which was announced in the then Minister for Agriculture, Fisheries and Forestry's Press Release No. DAFF07/136PM of 9 September 2007.

Financial impact: Nil.

Compliance cost impact: Negligible.

Tax-free grants for certain tobacco growers

Schedule 10 to this Bill amends the Income Tax Assessment Act 1997 to provide tax-free grants, under the Tobacco Growers Adjustment Assistance Programme 2006, to tobacco growers who undertake to exit all agricultural enterprises for at least five years.

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

Proposal announced: This measure was announced in the 2007-08 Budget.

Financial impact: This measure will have a cost to revenue of $1.3 million in each of the 2007-08 and 2008-09 income years.

Compliance cost impact: Negligible.

Farm management deposits

Schedule 11 to this Bill amends the farm management deposit scheme in the Income Tax Assessment Act 1936 to align the tax law with the guidelines for declaring either all primary producers in a geographical area, or specified classes of primary producers within a geographical area, to be in exceptional circumstances.

Date of effect: This measure will commence from 1 July 2002. This will ensure that those taxpayers that were previously disadvantaged by this inconsistency get the opportunity to receive the tax benefit.

Proposal announced: This amendment was previously introduced into the House of Representatives on 13 September 2007 as part of the Tax Laws Amendment (2007 Measures No. 6) Bill 2007.

Financial impact: The revenue cost of this measure is expected to be nil. However, there may be a small cost to revenue if taxpayers need to amend their prior tax assessments.

Compliance cost impact: Nil.