Explanatory Memorandum
(Circulated by authority of the Minister for Finance, Senator the Hon Mathias Cormann)NOTES ON SCHEDULE 6 - Development Allowance Authority Act 1992
Introduction
61. Schedule 6 to this Bill abolishes the Development Allowance Authority (DAA) and repeals the inoperative tax-exempt infrastructure borrowing concession that the DAA administered. It also makes related consequential amendments to Commonwealth legislation.
62. Division 16L of the Income Tax Assessment Act 1936 (ITAA 1936), together with the Development Allowance Authority Act 1992 (DA Act) and the Infrastructure Certificate Cancellation Tax Act 1994 (ICCT Act), established the tax exempt infrastructure borrowing concession. This concession provided for income in relation to borrowings for certain infrastructure projects to be non-assessable, but also not to give rise to deductions, for a 15 year period, subject to conditions being met in relation to the project and the use of the borrowings. If the conditions are not met at any point in the life of the project, additional tax is imposed to recover the benefit of the concessions.
63. As part of the creation of the tax exempt infrastructure borrowing concession, the DA Act created the DAA. Under Division 16L of the ITAA 1936, the DA Act and ICCT Act, the DAA was invested with various powers relating to the operation and administration of the tax exempt infrastructure borrowing concession.
64. This tax exempt infrastructure borrowing concession was closed to new projects in 1997. As the tax concession is only available in relation to borrowings for a project for 15 years, it is no longer operative.
65. The abolition of the DAA will reduce compliance costs for affected taxpayers by reducing the overall size of the tax law. The overall magnitude of the compliance save is unquantifiable, but expected to be small.
Explanation of the provisions
66. Items 1, 2 and 8, the whole of the DA Act and the ICCT Act and Division 16L of the ITAA 1936 of Schedule 6 repeal the tax exemption infrastructure borrowing concessions contained in Division 16L of the ITAA 1936, the DA Act and the ICCT Act.
67. Combined, these provisions established the tax exempt infrastructure borrowing concession and the DAA. As a result of their repeal, the concession ceases to exist and the DAA is abolished.
68. The repeal of these Acts will also result in the Development Allowance Authority Regulations lapsing as a result of the repeal of the provision enabling the regulations to be made.
Consequential amendments
69. Part 2 of Schedule 6 makes a number of consequential amendments to remove references to the repealed provisions and Acts in the taxation law and other Commonwealth legislation as follows:
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- Items 3 repeals section 56 of the Airports (Transitional) Act 1996 ;
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- Items 4 to 8 repeal or amend subsection 6(1) (paragraph (g) of the definition of assessment); subsection 82KZME(1) (note); subsection 82KZME(6); Paragraphs 126(1)(d) and 128B(3)(bb) and Division 16L of Part III of the ITAA 193 6;
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- Items 9 to 20 repeal or amend the items heads 'infrastructure borrowings' and 'interest' in the table in section 10-5, the item headed 'financial transactions' in the table in section 11-15, the items headed 'financial arrangements', 'infrastructure' and 'interest' in the table in section 12-5, the item headed 'infrastructure' in the table in section 13-1, paragraph 104-71(3)(a), item 12A of the table in section 112-97, paragraphs 118-425(13)(d) and 118-427(14)(d), subsection 230-460(14), and the note to subsection 721-10(2) in the Income Tax Assessment Act 1997;
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- Items 21 to 26 repeal or amend subsection 3B(1B), section 8AB, paragraph 8J(2)(ga) and subsections 8W(1B), 13K(11), 15(4) and 15A(11); item 105 in the table in subsection 250-10(1) and item 3 in the table in subsection 355-65(5) in Schedule 1 to the Taxation Administration Act 1953.
Application and transitional provisions
70. Item 1 of the table in clause 2 provides that the abolition of the DAA and the repeal of the tax-exempt infrastructure borrowing concession commence from the day after the Bill receives Royal Assent.
71. Item 27 in Part 3 of Schedule 6 provides the amendments, except as they relate to the closure of the DAA, do not apply in relation to a borrowing that has benefitted from the concession. To the extent it may be required by the residual application of the concession, the Commissioner of Taxation will be able to exercise the powers and functions of the Authority.
72. This means that while the provisions will be repealed going forwards, projects that benefitted from the concessions will still be required to repay the benefit of the concession if they breach the conditions imposed by the legislation.