House of Representatives

Explanatory Memorandum

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

Chapter 5 Minor amendments

Outline of chapter

5.1 Schedule 5 to this Bill makes various minor amendments to the taxation laws.

Context of amendments

5.2 The amendments seek to ensure the taxation law operates as intended by correcting technical or drafting defects, removing anomalies and addressing unintended outcomes. The minor amendments are part of the Government's commitment to the care and maintenance of the taxation laws.

5.3 Minor amendment packages now include addressing issues raised through the Tax Issues Entry System (TIES). The TIES website (www.ties.gov.au), which the Australian Taxation Office and Treasury jointly operate, provides a vehicle for tax professionals and the general public to raise issues relating to the care and maintenance of the tax system. The relevant part of the explanatory memorandum identifies TIES issues.

Summary of new law

5.4 The issues these minor amendments deal with include:

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rectifying incorrect terminology;

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correcting grammatical errors;

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repealing inoperative material;

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clarifying ambiguities; and

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ensuring provisions are consistent with the original policy intent.

5.5 Part 1 of this Schedule concerns references to Australian Government Ministers, Departments and Secretaries; Part 2 concerns the repeal of Part IV of the Taxation Administration Act 1953 ; Part 3 has amendments relating to foreign income tax offsets and foreign losses; Part 4 has other amendments; and Part 5 is a transitional provision for item 344 relating to determining technical and further education institutions.

5.6 More significant amendments include:

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putting beyond any doubt that 'taxable Australian real property' in the context of Division 855 of the Income Tax Assessment Act 1997 (ITAA 1997), relating to the types of assets known as 'taxable Australian property' on which foreign residents pay capital gains tax (CGT), extends to a lease over land, with application to CGT events happening on or after 20 May 2009 (items 337 and 338);

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amending the rules in the income tax law relating to the foreign income tax offset and foreign losses to ensure that:

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the rules deeming foreign income tax paid by controlled foreign companies (CFCs) and foreign investment funds (FIFs) on attributed amounts apply only to Australian entities;

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relevant foreign losses converted into tax losses can be deducted in calculating a partnership's net income or loss;

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previously recouped foreign losses or CFC losses are not eligible to be convertible foreign losses or convertible CFC losses;

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it is clear beyond any doubt that the deduction limit for convertible foreign losses does not prevent later year tax losses from being deductible in the current year; and

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there is no possible double counting in relation to convertible foreign losses used by an entity before it joined a consolidated group;

with application in relation to income years, statutory accounting periods and notional accounting periods starting on or after 1 July 2008 (Part 3, comprising items 258 to 282);

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ensuring that the capital gains tax small business concessions interact appropriately with Division 149 (loss of pre-CGT status) of the ITAA 1997, with application in relation to payments made by a company or trust on or after the day this Bill receives Royal Assent (this issue having been identified through the TIES system) (items 329 to 336);

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amending the fringe benefits tax (FBT) law to ensure that gifts to deductible gift recipients do not result in an employer having a FBT liability, with application to the FBT year starting on 1 April 2008 and later FBT years (items 304 and 305); and

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ensuring that First Home Saver Account trusts operated by superannuation funds are a 'full self-assessment taxpayer' (as defined) for income tax purposes, with application in relation to the 2009-10 and later income years (items 306 and 307).

5.7 All of the amendments in Schedule 5 commence from the date of Royal Assent unless otherwise stated.

Detailed explanation of new law

Part 1 - References to Ministers, Departments and Secretaries

5.8 Part 1 amends tax legislation to replace the current references to Australian Government Ministers, Secretaries and Departments with streamlined references.

5.9 There are many references in tax legislation to a specific Minister, Department or Secretary of a Department. This means that whenever the title of a Minister or Department changes, there is a need to update these references. In practice, this has rarely resulted in updated references by legislative amendment in the legislation itself. Instead, the practice has been to use substituted reference orders under sections 19B or 19BA of the Acts Interpretation Act 1901 .

5.10 Substituted reference orders make 'shadow' changes to the references in legislation. They include information relating to the existing reference, what needs to be substituted, the affected provisions, and the date of effect of the substitution. The Governor-General, acting on the advice of the Federal Executive Council, makes the orders.

5.11 Substituted reference orders can be difficult to locate. Even experienced users of tax legislation often do not know that the orders exist. The orders themselves become complex to apply as shadow amendment is made to shadow amendment.

5.12 The revised approach deals with these issues by providing flexible and streamlined references that better accommodate future machinery of government changes. The replacement references refer to the Minister or Department administering a specified Act of Parliament.

5.13 This approach automatically accommodates reallocations of ministerial or departmental responsibility. Administrative Arrangements Orders formally allocate executive responsibility among Ministers and Departments and are published in the Commonwealth of Australia Gazette .

5.14 The most current Administrative Arrangements Order can be found at either www.comlaw.gov.au or www.pmc.gov.au. The easiest way to find Administrative Arrangements Orders is to use an internet search engine and to search the term 'Administrative Arrangements Orders'.

5.15 A New Tax System (Goods and Services Tax Act) 1999 pioneered this approach. It is instructive that the machinery of government changes after the election of the Government in 2007 resulted in many shadow amendments via a substituted references order for all areas of tax legislation except goods and services tax (GST); in fact, GST had none.

5.16 The new arrangements should prove sustainable: the only time that amendments will typically be needed will be following any repeal of the identified Act. The normal process of making consequential amendments as part of the repeal should identify the need for any amendments to the taxation provisions.

Part 2 - Repeal of Part IV of the Taxation Administration Act 1953

Table 5.1 : Amendments to the Taxation Administration Act 1953

Table 5.2: Amendments to the Banking Act 1959

Table 5.3: Amendments to the Administrative Decisions (Judicial Review) Act 1977

Part 3 - Amendments relating to foreign income tax offsets and foreign losses

5.17 The new foreign income tax offset rules in Division 770 of the ITAA 1997 were enacted by the Tax Laws Amendment (2007 Measures No. 4) Act 2007 . They represented a rewriting and simplification of the previous foreign loss quarantining and foreign tax credit rules. They included transitional rules under Subdivisions 770-A to 770-C of the Income Tax (Transitional Provisions) Act 1997 to allow certain existing foreign losses of entities to be used under the new foreign income tax offset rules.

5.18 All the amendments in Part 3 are to apply to income years, statutory accounting periods and notional accounting periods starting on or after 1 July 2008 - the start date for the new foreign income tax offset rules. This will ensure that the new foreign income tax offset rules work as intended from their first application and avoid uncertainty in the law by having a common application date. [ Schedule 5, item 282 ]

Table 5.4: Amendments to the Income Tax Assessment Act 1997

Table 5.5: Amendments to the Income Tax (Transitional Provisions>) Act 1997

Part 4 - Other amendments and Part 5 - Transitional provision

Table 5.6: Amendments to the A New Tax System (Australian Business Number) Act 1999

Table 5.7: Amendments to the Fringe Benefits Tax Assessment Act 1986

Table 5.8: Amendments to the Income Tax Assessment Act 1936

Table 5.9: Amendments to the Income Tax Assessment Act 1997

Table 5.10: Amendments to the International Tax Agreements Act 1953

Table 5.11: Amendments to the Tax Laws Amendment (2007 Measures No. 5) Act 2007