SENATE

REPLACEMENT Explanatory Memorandum

(Circulated by the authority of the Treasurer the Hon John Dawkins, M.P.)THIS MEMORANDUM TAKES ACCOUNT OF AMENDMENTS MADE BY THE House of Representatives TO THE BILL AS INTRODUCED

Chapter 2 Amendments to improve the readability of section 78

Summary of proposed amendments

Purpose of amendment: This Bill proposes to restructure the gift provisions of the Income Tax Assessment Act 1936 (the Act) to improve the overall readability of the provisions.

Date of Effect: The amendment will apply from 1 July 1993.

Background to the legislation

Donations of money or property of $2 or more are tax deductible where the fund, authority, or institution receiving the gift is either specifically listed in or approved under section 78. Over the past 50 years there have been a number of amendments to this section which have resulted in the legislation being hard to understand and difficult to follow.

As an ongoing process of review and evaluation of various provisions of the Act, the Australian Taxation Office in conjunction with the Office of Parliamentary Counsel has undertaken the restructuring of section 78. This will improve the readability of the provisions and make relevant information easier to access.

Reasons for the proposed changes

There are several reasons for the proposed changes to the gift provisions:

First, to make the provision easier to understand. Under the existing law which commenced in 1936, various entities have been added to the list on an ad hoc basis, which has produced a rather cluttered result. This has made it difficult and time consuming to determine whether a donation to a particular fund, authority or institution is deductible for tax purposes.

Second, to improve the readability and make the section easier to follow.

Third, to remove a number of redundant provisions relating to:

•

funds with specific time limits attached to them which have now expired; and

•

funds which have withdrawn from the gift provisions for other various reasons.

Explanation of proposed amendments

What is the aim of the amendments?

There are three main objectives underlying the restructuring process;

(i)

To rearrange the existing provisions of section 78 into a more logical order and in particular, to restructure the random list of funds, authorities and institutions in paragraph 78(1)(a) into a series of categorized tables.

(ii)

To include a comprehensive index to the tables and other provisions of the section and to group similar provisions together; this will improve the readability of the section.

(iii)

To remove a number of redundant provisions.

How do the tables operate?

Organisations which were previously covered by paragraph 78(1)(a) of the Act have now been listed alphabetically in a comprehensive index and included in a series of tables under appropriate subject headings. The tables emphasise the distinction between the general and specific listings to make it easier to find a particular fund, authority or institution. There is also the added feature of any special conditions attaching to the donation being clearly displayed next to the listing of the fund. This will assist taxpayers in complying with all the necessary requirements to make a gift deductible. [Clause 8, new subsection 78(4)]

Gifts of trading stock

The existing provision dealing with donations of trading stock at paragraph 78(1)(ad) has been included as part of the general deduction provisions of section 78 rather than as a separate subsection. For business taxpayers this will mean that all of the information that they need to determine the deductibility of their gift is easily accessible. [Clause 8, new subsections 78(4) and 78(5)]

Gifts of property

The valuation rules which applied to gifts of property have been consolidated and clarified. This will aid donors of property to determine the correct value of their gift. [Clause 8, new subsection 78(12) and 78(17)]

Consequential Amendments to other provisions of the Act

References to the former provisions of section 78 in other provisions of the Act need to be changed to reflect the new subsections. The other provisions which will be amended are Section 102AAH and Section 328 which relate to non-resident family trusts. [Clauses 9,10,11 & 12]

Transitional arrangements

The Bill contains clauses to ensure that any funds, authorities or institutions that have been approved under the former legislation will continue to hold that approval under the new legislation. [Clause 14]