House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

General outline and financial impact

Native title benefits: Non-assessable non-exempt income

Schedule 1 to this Bill amends the Income Tax Assessment Act 1997 and the Income Tax Assessment Act 1936 to make it clear that native title benefits are not subject to income tax (including capital gains tax).

Date of effect: These amendments commence on the day this Bill receives the Royal Assent. These amendments will apply in relation to income years starting on or after 1 July 2008, and, in relation to capital gains tax, to events happening on or after 1 July 2008.

These amendments also allow taxpayers to seek an amendment to a previous assessment in certain circumstances where the amendment period has expired.

The amendments provide certainty and clarity to taxpayers. The retrospectivity and modification to the amendment period are beneficial to taxpayers accessing the amendments.

Proposal announced: This measure was announced by the Attorney-General at the Australian Institute of Aboriginal and Torres Strait Islander Studies Native Title Conference on 6 June 2012, and via a joint press release by the Attorney-General and the Minister for Families, Communities and Indigenous Affairs of the same date.

Financial impact: The financial impact of this measure is not zero, but rounded to zero, in each of the income years from 2012-13 to 2015-16.

Human rights implications: This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 1, paragraphs 1.42 to 1.67.

Compliance cost impact: Nil

Deductible gift recipients

Schedule 2 to this Bill amends Income Tax Assessment Act 1997to update the list of deductible gift recipients (DGRs) by adding two entities as DGRs and extending the listing of another three entities.

Date of effect: The following dates of effect apply to each specifically listed entity:

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the listing of AE1 Incorporated applies to gifts made after 25 September 2011 and before 26 September 2014;

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Australia for UNHCR's listing had expired on 27 June 2012 but it is now extended;

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One Laptop per Child Australia Ltd's listing had expired on 30 June 2012 but it is now extended to 30 June 2016;

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the listing of Teach for Australia applies to gifts made after 31 December 2012; and

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Yachad Accelerated Learning Project Limited's listing had expired on 30 June 2012 but it is now extended to 30 June 2015.

Proposals announced: The listing of AE1 was announced in the 2011-12 Mid-Year Economic and Fiscal Outlook. The time extension for One Laptop per Child Australia Ltd was announced in the 2012-13 Budget. The time extensions for Australia for UNHCR and the Yachad Accelerated Learning Project Limited, and the listing of Teach for Australia, were announced in the 2012-13 Mid-Year Economic and Fiscal Outlook.

Financial impact:

Human rights implications: This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 2, paragraphs 2.14 to 2.18.

Compliance cost impact: None.

Deductibility of geothermal energy exploration expenditure

Schedule 3 amends the Income Tax Assessment Act 199 to extend the immediate deductibility of exploration expenditure provided to mining and petroleum explorers to geothermal energy explorers. Geothermal energy explorers will be entitled to equivalent treatment for their exploration or prospecting expenditure incurred on or after 1 July 2012 as that afforded to mining and petroleum explorers. This includes an immediate tax deduction for the cost of depreciating assets first used for exploration or prospecting on or after 1 July 2012, provided certain criteria are met.

Under the existing law:

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geothermal exploration rights and geothermal exploration information are not defined as depreciating assets and therefore no deduction under Division 40 is available in respect of these assets;

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the definition of 'exploration or prospecting' does not include geothermal energy exploration activities, as a result, geothermal energy explorers may only deduct the cost of their depreciating assets over the effective life of the assets provided it can be demonstrated that the assets are being used for a taxable purpose;

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mining and petroleum explorers may deduct immediately the cost of depreciating assets they hold if they first use those assets for exploration or prospecting and provided certain criteria are met;

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expenditure incurred by geothermal energy explorers on activities in seeking to discover and evaluate geothermal energy resources may not be deductible at all in certain circumstances; and

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geothermal energy explorers who stop holding a geothermal exploration right relating to an area because they acquire a geothermal energy extraction right relating to the same area (or an area that is not significantly different) may obtain a capital gains tax roll-over to avoid incurring an income tax liability as a result of this transaction.

The amendments in this Schedule will:

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include geothermal exploration rights and geothermal exploration information in the list of intangible assets included in the definition of 'depreciating assets';

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extend the definition of 'exploration or prospecting' to include exploration or prospecting for geothermal energy resources. This will allow geothermal energy explorers to deduct immediately the cost of the tangible and intangible depreciating assets they acquire if they first use the assets for exploration or prospecting, provided certain criteria are met;

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allow geothermal energy explorers to deduct expenditure incurred on exploration or prospecting for geothermal energy resources in an equivalent manner to mining and petroleum explorers; and

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provide for an outcome equivalent to that for mining and petroleum explorers where geothermal energy explorers stop holding a geothermal exploration right because they acquire a geothermal energy extraction right relating to the same area (or an area that is not significantly different).

Other consequential amendments are made to facilitate the intended treatment.

Date of effect: For more details on the application dates of these amendments, see the application section.

The measure may have a retrospective impact but is of a beneficial nature to affected entities.

Proposal announced: The measure was announced by the Minister for Resources, Energy and Tourism on 24 March 2011.

Financial impact: The measure has the following revenue implications:

Human rights implications: This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 3, paragraphs 3.78 to 3.81

Compliance cost impact: The measure is expected to have a low compliance cost.

Extension of interim streaming provisions for managed investment trusts

Schedule 4 to this Bill amends Schedule 2 of the Tax Laws Amendment (2011 Measures No. 5) Act 2011 to extend the interim streaming rules for managed investment trusts until the commencement of the new tax system for managed investment trusts.

Date of effect: Royal Assent. These amendments apply in relation to the 2012-13 and 2013-14 income years.

Proposal announced: This measure was announced in the Assistant Treasurer's Media Release No. 080 of 30 July 2012 and in the 2012-13Mid-Year Economic and Fiscal Outlook.

Financial impact: The amendments are expected to have an unquantifiable but not significant impact on revenue.

Human rights implications: This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 4, paragraphs 4.16 to 4.20.

Compliance cost impact: Low.

Rebate for medical expenses

Schedule 5 to this Bill amends the Income Tax Assessment Act 1936to apply an income test to the rebate for medical expenses from 1 July 2012.

Date of effect: 1 July 2012. The announcement of this amendment on 8 May 2012 provided time for taxpayers to adjust prior to its commencement.

Proposal announced: 2012-13 Budget.

Financial impact: This measure will increase revenue of $370.0 million over the forward estimates period.

Human rights implications: This Schedule is compatible with human rights and freedoms. See Statement of Compatibility with Human Rights - Chapter 5, paragraphs 5.55 to 5.67.

Compliance cost impact: Nil.

Limited recourse debt

Schedule 6 to this Bill amends Division 243 of the Income Tax Assessment Act 1997 (the limited recourse debt provisions) to clarify that the definition of 'limited recourse debt' includes arrangements where, in substance or effect, the debtor is not fully at risk in relation to the debt.

Under such arrangements, the creditor's rights as against the debtor in the event of default in payment of the debt are, in substance or effect, limited wholly or predominantly to rights in relation to certain assets.

Date of effect: The measure applies in relation to debt arrangements terminated at or after 7.30 pm, AEST in the Australian Capital Territory, on 8 May 2012.

The application of the measure from the time of announcement is intended to ensure that there is consistent treatment of taxpayers who are not fully at risk in relation to capital expenditure, to give effect to the original policy intent of the limited recourse debt tax provisions.

Proposal announced: The measure was announced as part of the 2012-13 Budget.

Financial impact: The amendment is estimated to have no revenue impact but will protect a significant amount of revenue that would otherwise be at risk.

Human rights implications: This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 6, paragraphs 6.20 to 6.23.

Compliance cost impact: The amendments clarify the definition of limited recourse debt to ensure that Division 243 operates as originally intended. The proposal is unlikely to have any compliance cost impact.

In-house fringe benefits under salary packaging arrangements

Schedule 7 to this Bill amends the Fringe Benefits Assessment Act 1986to remove the concessional fringe benefits tax treatment for in-house fringe benefits accessed by way of salary packaging arrangements.

Date of effect: This measure generally applies to benefits provided on or after 22 October 2012.

Transitional arrangements apply to certain salary packaging arrangements entered into prior to 22 October 2012.

Proposal announced: This measure was announced in the Mid-Year Economic and Fiscal Outlook 2012-13 and in the Deputy Prime Minister and Treasurer's Media Release No.099 of 22 October 2012.

Financial impact: This measure will have the following revenue implications:

This measure will also lead to an increase in GST revenue of $85 million over the forward estimates period.

Human rights implications: This Schedule raises a human rights issue. See Statement of Compatibility with Human Rights at paragraphs 7.48 to 7.57.

Compliance cost impact: Low.

Miscellaneous amendments

Schedule 8to this Bill makes miscellaneous amendments to the taxation laws and regulations as part of the Government's commitment to uphold the integrity of the taxation system.

Date of effect: The amendments in Part 1 will commence on 1 July 2007. While these amendments will have retrospective application, they will not adversely impact upon any taxpayers. The amendments in Part 2 will commence on Royal Assent. Further information about commencement and application provisions is provided in Chapter 8, paragraphs 8.4 to 8.9.

Proposal announced: The majority of these amendments were foreshadowed by release in draft form on the Treasury website on 15 August 2012.

Financial impact: These amendments will have a negligible impact on revenue over the forward estimates.

Human rights implications: This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 8, paragraphs 8.10 to 8.17.

Compliance cost impact: Negligible.