House of Representatives

Explanatory Memorandum

(Circulated by authority of the Assistant Treasurer, Minister for Housing and Minister for Homelessness, Social and Community Housing, the Hon Michael Sukkar MP)

General outline and financial impact

Schedule 1 - Deductible gift recipients

Schedule 1 to the Bill amends the ITAA 1997 to require a fund, authority or institution to, as a precondition for DGR endorsement, be:

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a registered charity; or

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an Australian government agency; or

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operated by a registered charity or an Australian government agency.

Date of effect: This Schedule generally applies to funds, authorities and institutions three months after the Bill receives Royal Assent. However, existing DGRs and existing DGR applicants will have an additional 12 months (and in some cases, four years) after that time before the amendments in this Schedule apply.

Proposal announced: This Schedule partially implements the measure 'Deductible Gift Recipient Reform - strengthening governance and integrity and reducing complexity' from the 2017-18 Mid-Year Economic and Fiscal Outlook.

Financial impact: This Schedule is estimated to 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 3.

Compliance cost impact: Affected entities will need to register as a charity with the ACNC and comply with reporting obligations and governance requirements. The amendments in this Schedule form one part of the measure 'Deductible Gift Recipient Reform - strengthening governance and integrity and reducing complexity' from the 2017-18 Mid-Year Economic and Fiscal Outlook. The estimated compliance cost for the entire measure, including the amendments in this Schedule, is $0.2 million per annum.

For the purposes of the Government decision to implement this measure, Treasury has certified a number of documents as meeting the requirements of a Regulation Impact Statement.[1]

Schedule 2 - Offshore banking units

The Bill amends Australia's OBU regime to:

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remove the concessional tax treatment for OBUs;

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remove the interest withholding tax exemption; and

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close the regime to new entrants by removing the Minister's ability to declare or determine an entity to be an OBU.

Date of effect: The changes to the concessional tax treatment is removed from the 2023-24 income year and the withholding tax changes apply from 1 January 2024.

The changes to the Minister's ability to make a declaration or determination regarding new OBUs apply from the day after the amendments receive Royal Assent. These changes apply to all applications, irrespective of when they were made.

Proposal announced: Amendments to the OBU regime were announced by the Treasurer, the Hon Josh Frydenberg MP on 26 October 2018.

Financial impact: This measure is estimated to have the following impact on the underlying cash balance over the forward estimates period ($m):

Human rights implications: The Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 3.

Compliance cost impact: Removing the preferential tax treatment for OBUs is likely to result in an initial minor regulatory burden as OBUs transition to the new arrangements. In the longer term, there are likely to be regulatory savings as OBUs will no longer utilise the regime and therefore will not need to comply with the regime's requirements.