House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon J. B. Hockey MP)

General outline and financial impact

Cessation of the First Home Saver Accounts Scheme

Schedule 1 to this Bill repeals the legislation providing for the First Home Saver Accounts (FHSAs) Scheme, including the related tax concessions.

Date of effect: The repeal of the FHSAs Scheme applies from 1 July 2015 for accounts opened in respect of applications made before 7.30 pm on 13 May 2014. Generally, accounts opened after this date will not be eligible to be first home saver accounts.

The repeal of the tax concessions applies to 2015-16 income year and later income years.

Proposal announced: This measure was announced on 13 May 2014 as part of the 2014-15 Budget.

Financial impact: This measure has the following net financial impact over the forward estimates period:

Human rights implications: This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 1, paragraphs 1.50 to 1.62.

Compliance cost impact: This measure results in a small compliance cost saving for business.

Abolishing the dependent spouse tax offset

Schedule 2 to this Bill amends the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997 to:

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abolish the dependent spouse tax offset (DSTO);

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expand the dependant (invalid and carer) tax offset (DICTO) by removing the exclusion in relation to spouses previously covered by the dependent spouse tax offset;

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remove an entitlement to DSTO where it is made available as a component of another tax offset, and replace that component with a component made up of DICTO; and

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rewrite the notional tax offsets covering children, students and sole parents that are available as components of other tax offsets.

Date of effect: This measure applies to the 2014-15 income year and all later income years.

Proposal announced: The measure was announced in the 2014-15 Budget.

Financial impact: The measure has the following revenue implications:

Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 2, paragraphs 2.43 to 2.60.

Compliance cost impact: As the proposals only impact on an individual's ability to claim a tax offset, there is no impact on business or the not-for-profit sector. Total compliance costs of all individuals will be reduced by $0.03 million per year.

Modernising the Offshore Banking Unit Regime

Schedule 3 to this Bill makes a number of reforms to modernise the Offshore Banking Unit regime. The reforms include measures implementing recommendations of the Australia as a Financial Centre - Building on Our Strengths report by the Australian Financial Centre Forum chaired by Mark Johnson. The reforms also include targeted amendments to address a number of integrity concerns with the existing regime.

Date of effect: The amendments apply from 1 July 2015.

Proposal announced: This measure was announced by the Treasurer and Assistant Treasurer in a joint Media Release, titled 'Restoring integrity in the Australian tax system' of 6 November 2013. Further amendments were announced through the publication of an exposure draft on 12 March 2015.

Financial impact: The financial impact of the amendments is as follows:

Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 3, paragraphs 3.105 to 3.108.

Compliance cost impact: Low.

Income tax exemption for the Global Infrastructure Hub Ltd

Schedule 4 to this Bill amends the Income Tax Assessment Act 1997 to exempt the Global Infrastructure Hub Ltd from liability to pay income tax on ordinary income and statutory income.

Date of effect: This measure applies from 24 December 2014 to 30 June 2019.

Proposal announced: This measure was announced in the 2015-16 Budget.

Financial impact: This measure has the following financial impact:

Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 4, paragraphs 4.14 to 4.18.

Compliance cost impact: Nil.

Deductible gift recipients - extension

Schedule 5 to this Bill amends the Income Tax Assessment Act 1997 to update the list of specifically listed deductible gift recipients (DGRs).

Date of effect: The extension of the listing of the Australian Peacekeeping Memorial Project Incorporated and the extension of the listing of the National Boer War Memorial Association Incorporated applies to gifts made to each organisation before 1 January 2018.

Proposal announced: The extension of the DGR listing of Australian Peacekeeping Memorial Project Incorporated and National Boer War Memorial Association Incorporated was announced in the 2015-16 Budget.

Financial impact: The revenue implications of this measure are as follows ($m):

Human rights implications: This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights -paragraphs 5.10 to 5.14. Compliance cost impact: Nil.

Miscellaneous amendments

Schedule 6 to this Bill makes a number of miscellaneous amendments to the taxation, superannuation and other laws. These amendments are part of the Government's commitment to the care and maintenance of the taxation and superannuation systems.

These amendments include style and formatting changes, the repeal of redundant provisions, the correction of anomalous outcomes and corrections to previous amending Acts.

Date of effect: These amendments have various commencement and application dates. Most amendments commence from the day this Bill receives Royal Assent. This explanatory memorandum explains in detail where commencement or application dates differ from Royal Assent. While some of these amendments have retrospective application, taxpayers should not be adversely impacted.

Proposal announced: These amendments have not been previously announced.

Financial impact: These amendments are expected to have a minimal or nil revenue impact.

Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 6, paragraphs 6.88 to 6.92.

Compliance cost impact: Negligible.

Investment manager regime

Schedule 7 to this Bill amends the Income Tax Assessment Act 1997 to implement the third and final element of the investment manager regime (IMR) reforms. In addition, these amendments also make some changes to the existing regime. The IMR reforms are designed to attract foreign investment to Australia and promote the use of Australian fund managers by removing tax impediments to investing in Australia. The development and introduction of an IMR was a recommendation of the 2009 report, 'Australia as a Financial Centre: Building on our Strengths - Report by the Australian Financial Centre Forum', commonly known as the 'Johnson Report'.

Date of effect: These amendments apply in relation to the 2015-16 and later income years. In addition, taxpayers may choose to apply some of the amendments to previous income years - the effect of this on taxpayers and other foreign investors is entirely beneficial.

Proposal announced: The Treasurer and the then Assistant Treasurer announced that the Government would proceed with these amendments in a joint Media Release titled, 'Restoring integrity in the Australian tax system' of 6 November 2013.

On 18 December 2014, the then Acting Assistant Treasurer confirmed the Government's commitment to implementing a practical IMR and to releasing updated exposure draft legislation in early 2015 for public consultation.

Financial impact: This measure is estimated to have an unquantifiable cost to revenue over the forward estimates period.

Human rights implications: This Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights -paragraphs 7.93 to 7.99.

Compliance cost impact: The IMR reforms are expected to result in significant compliance cost savings for foreign investors when compared to Australia's existing income tax laws.

Summary of regulation impact statement

Regulation impact on business

Impact: The IMR reforms ensure that specific types of investments made by foreign investors, namely where they engage an independent Australian fund manager to manage their investment or where they are a widely held foreign fund investing directly into Australia, do not trigger Australian income tax consequences.

The IMR reforms are expected to result in significant compliance cost savings for foreign investors when compared to Australia's existing income tax laws.

Main points:

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The IMR reforms address potential revenue account and capital account treatment as well as source and permanent establishment issues by providing specific tax outcomes. This approach reduces compliance costs for foreign investors and for the funds management industry.

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The IMR reforms do not apply to Australian resident investors.