Explanatory Memorandum
(Circulated by the authority of the Treasurer the Hon Ralph Willis, M.P.)General Outline and Financial Impact
AMENDMENTS TO THE INCOME TAX ASSESSMENT ACT 1936
Reportable payments system
Inserts a new Division to provide a legislative framework for the introduction of a tax file number based reportable payments system in respect of specified transactions called reportable payments.
Date of effect: 1 November 1994
Proposal announced: Foreshadowed in the Government's statement on tax policy, as circulated by the Treasurer on 16 September 1992.
Financial impact: Increased revenue of up to $100 million per annum is expected from the measure.
Foreign investment funds and controlled foreign companies
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- Ensures that double taxation does not arise from the interaction of the controlled foreign company (CFC), transferor trust and foreign investment fund (FIF) measures where a taxpayer has an interest in a CFC which is held through a non-resident trust estate.
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- Provides that the attributable portion of a dividend under the CFC measures is reduced to the extent the dividend was paid out of profits upon which a taxpayer has been taxed previously under the FIF measures.
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- Ensures that no more than 100% of the calculated profit of a FIF is attributed to Australian residents who hold an interest in the FIF.
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- Ensures that FIF income derived by a non-resident trust is included in the assessable income of an Australian taxpayer who has transferred property to the trust to the extent the trust does not distribute its profits.
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- Provides currency conversion rules for FIF losses arising under the market value and cash surrender value methods for determining FIF income.
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- Modifies the calculation and availability of an allowable deduction that may be claimed where a taxpayer has incurred a FIF loss under the market value or deemed rate of return methods for determining FIF income.
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- Aligns the treatment of corporate limited partnerships (including dividends paid by corporate limited partnerships) under the foreign tax credit, foreign loss, CFC and FIF provisions with the treatment of companies (and dividends paid by companies) under those provisions.
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- Ensures that profits which have been taxed under the FIF measures are only traced for tax relief purposes in relation to a resident taxpayer and not in relation to a CFC.
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- Removes the modifications which currently apply when calculating the FIF income of a CFC where a FIF makes an interim distribution to the CFC.
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- Addresses the potential double taxation of profits of a resident public unit trust which may arise because of concessional treatment provided to small investors who hold units in the trust.
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- Corrects a drafting error in the exemption from the FIF measures provided for companies engaged in several activities.
Date of effect: The amendments will apply from the commencement of the FIF measures (i.e., 1 January 1993) where they operate to the advantage of taxpayers. Other amendments will apply prospectively, generally from the 1994-95 year of income.
Proposal announced: Not previously announced.
Financial impact: The amendments will have a minimal effect on revenue.
Regional headquarters - Income tax concessions
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- Provides an exemption from dividend withholding tax for certain foreign source dividend income flowing through Australian resident companies.
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- Allows deductibility of certain business relocation expenses associated with the setup of a regional headquarters company in Australia.
Date of effect: 1 July 1994
Proposal announced: The measures were announced on 4 May 1994
in the Working Nation White Paper on Employment and Growth.
Financial impact: The dividend withholding tax exemption is estimated to cost the revenue $10 million in 1994-95, 1995-96, 1996-97 and 1997-98. The deductibility of setup costs will have an estimated cost to the revenue of nil in 1994-95, $6 million in 1995-96 and 1996-97, and $2million in 1997-98.
Social Security payments
Home child care allowance and dependant rebate
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- Exempts home child care allowance payments from income tax.
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- Removes a taxpayer's entitlement to the dependent spouse rebate where the taxpayer's spouse qualifies for the home child care allowance.
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- Excludes the home child care allowance from separate net income and alters the separate net income test for partial rebate entitlements.
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- Makes necessary consequential amendments to the current zone rebates and rebates for members of the defence forces serving overseas and United Nations armed forces.
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- Makes consequential amendments to the provisional tax provisions.
Date of effect: The amendments will apply to home child care allowance payments made on or after 29 September 1994 and to assessments of income tax for the 1994-95 and later years of income.
Proposal announced: 1993-94 Budget, 17 August 1993.
Provides similar taxation treatment for the new partner allowance to that afforded to other comparable social security allowances and benefits.
Date of effect: 29 September 1994
Proposal announced: 1993-94 Budget, 17 August 1993.
Financial impact: The impact on revenue of removing the dependent spouse rebate is a gain to revenue of $360 million in 1994-95, $870 million in 1995-96 and $1050 million in 1996-97. These gains are offset by outlays on the home child care allowance. The cost of introducing the partner allowance is not significant.
Eligible investment fund income of registered organisations
Amends Division 8A to include in the assessable income of a registered organisation income derived from certain assets of the organisation. The purpose of the amendment is to ensure that the provisions of Division 8A are not circumvented by the holding of assets separate from the eligible insurance business of the organisation (for instance by the establishment of a separate fund) as a result of the High Court decision in Independent Order of Odd Fellows of Victoria v FC of T (91 ATC 5032; (1991) 22 ATR 783).
Date of effect: The amendments will apply to income derived on or after 1July 1994 by a registered organisation from eligible investment assets.
Proposal announced: Not previously announced.
Financial impact: There is insufficient data available on which a reliable estimate of the revenue impact of this amendment can be made. However, the measure has the potential to prevent a significant future loss to revenue.
Provisional tax
Amends the definition of provisional tax uplift factor so that the factor is 8% for the 1994-95 year of income and 10% for later years of income unless the Parliament provides otherwise.
Date of effect: The amendments will apply in relation to the calculation of provisional tax (including instalments) payable for the 1994-95 year of income and later years of income.
Proposal announced: 1994-95 Budget, 10 May 1994.
Financial impact: The estimated cost to revenue is nil. The measure defers $170 million of revenue from 1994-95 to 1995-96.
Repealed provisions - short-term asset sales and home loan interest rebate
Repeals provisions relating to short-term asset sales and the home loan interest rebate which have been inoperative for over six years and three years respectively. A 'saving' provision is introduced to ensure that the repealed provisions will still apply in any assessments that would be affected by the repeals.
Date of effect: Royal Assent.
Proposal announced: Not previously announced.
Financial impact: None.
Deductions for bequests of significant cultural value made to certain institutions
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- Amends the gift provisions to allow a deduction for a testamentary gift of property made to certain institutions under the Cultural Bequests Program.
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- Exempts the gifts from the application of the capital gains tax provisions.
Date of effect: Tax deductions and capital gains tax exemptions will be available for relevant gifts made by people who die on or after 1 July 1994.
Proposal announced: 1993-94 Budget, 17 August 1993.
Financial impact: Approvals each year are capped at a notional revenue cost of $2 million per year, commencing in the 1994-95 income year.
Gifts - Technical amendments
Amends the gift provisions to correct two minor typographical errors that occurred during the recent restructuring of the gift provisions.
Date of effect: 1 July 1993.
Proposal announced: Not previously announced.
Financial impact: None.
Superannuation - Reasonable benefits limits
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- Ensures that the non-rebatable proportion of a pension or annuity is taxed as an excessive component on the commutation or roll-over of the whole or part of the pension or annuity entitlement.
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- Allows information held by the Commissioner of Taxation to be used to identify the tax file number of a deceased person and enable a final reasonable benefit limit (RBL) determination to be made in relation to the assessment for RBL purposes of a death benefit eligible termination payment (ETP).
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- Requires superannuation funds to report payments of less than $5000.
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- Ensures that the Insurance and Superannuation Commissioner does not have to report payments of less than $5000.
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- Ensures that the qualifying portions of ETPs previously received by a person are counted in determining whether a superannuation pension or annuity that does not meet the pension and annuity standards is to be assessed against the person's lump sum RBL.
Date of effect: The amendments will apply to ETPs paid on or after 1July1994 and to pensions or annuities where the first day of the period to which the pension or annuity relates is on or after 1July1994.
Proposal announced: Not previously announced.
Financial impact: None.
Taxation of Australian branches of foreign banks
Implements new measures for the taxation of Australian branches of foreign banks. The new measures will provide for the recognition of loans, derivative transactions and foreign exchange transactions between an Australian branch and its head office or overseas branches of the bank for the purposes of determining the liability of the foreign bank to tax in Australia. The new measures will also apply non-resident interest withholding tax to interest paid or credited by an Australian branch to the foreign bank.
Date of effect: The provision that treats certain foreign banks as Australian entities and Australian residents for withholding tax purposes will be repealed with effect from 18 June 1993.
The amendment relating to interest withholding tax on intra-bank interest will take effect on the first day of a taxpayer's income year beginning after the date of introduction of the Bill (30 June 1994).
The amendments allowing a foreign bank branch to receive and transfer both revenue losses and capital losses will apply to assessments in respect of the first year of income following the year of income in which the Financial Corporations (Transfer of Assets and Liabilities) Act 1993 commenced and for all later years of income. The Financial Corporations (Transfer of Assets and Liabilities) Act 1993 commenced on22December1993.
The other foreign bank branch taxation measures will take effect in respect of a taxpayer's first year of income following the date of introduction of the Bill (30 June 1994).
Proposal announced: The Treasurer's Banking Policy Statement of 18June1993.
Financial impact: The new measures are estimated to cost the revenue $10 million in 1994-95, $15 million in 1995-96, $20 million in 1996-97 and $20 million in 1997-98.
AMENDMENTS TO THE INCOME TAX (MINING WITHHOLDING TAX) ACT 1979
Mining withholding tax
Amends the Income Tax (Mining Withholding Tax) Act 1979 , which imposes income tax on certain payments made to Aboriginal communities and groups, to reduce the rate of mining withholding tax from 5.8 per cent to 4 per cent.
Date of effect: Date of introduction of the Bill (30 June 1994).
Proposal announced: 1994-95 Budget, 10 May 1994
Financial impact: The measure is estimated to cost the revenue less than $1 million in 1994-95, 1995-96, 1996-97 and 1997-98.
AMENDMENTS TO THE SALES TAX LAWS
Child care concessions
Limitation of exemption for luxury motor vehicles for exempt child care bodies
Amends the Sales Tax Assessment Act 1992 and the Sales Tax (Exemptions and Classifications) Act 1992 to limit the value of the exemption for motor vehicles for use in providing child care to the portion of the taxable value of a motor vehicle up to and including the luxury vehicle threshold, except in special circumstances.
Date of effect: The day after the date of introduction of the Bill (1July1994).
Proposal announced: Not previously announced.
Financial impact: Negligible.
Credit for exempt child care bodies
Amends the Sales Tax Assessment Act 1992 to provide a credit for sales tax borne before the child care body became entitled to exemption, provided that certain conditions are satisfied. The credit is designed chiefly to apply to the 12 month period before a child care body first begins to provide child care.
Date of effect: Royal Assent.
Proposal announced: Not previously announced.
Financial impact: None.
Credit for parts used in the alteration of goods intended for export
Amends the Sales Tax Assessment Act 1992 to provide a credit for tax borne on parts, fittings or accessories used in the repair, renovation or upgrading of goods to be exported whilst ensuring that the same goods are taxed if they return to Australia.
Date of effect: 1 January 1993 for the credit and Royal Assent for the taxing of reimported goods.
Proposal announced: Not previously announced.
Financial impact: Small.
Parts used to repair faulty goods replaced under warranty
Amends the Sales Tax Assessment Act 1992 to reduce the clawback of sales tax credit involved with goods that have been replaced under warranty, repaired and resold. The reduction will be the amount of sales tax borne on the parts used in the repair.
Date of effect: Date of introduction of the Bill (30 June 1994).
Proposal announced: Not previously announced.
Financial impact: Negligible.
Periodic quotation
Amends the Sales Tax Assessment Act 1992 to allow both registered and unregistered persons to supply a single quotation for all their exempt purchases in a period, where that period does not exceed one year. The Bill will also provide for the quotations to be made to both registered and unregistered suppliers.
Date of effect: Royal Assent.
Proposal announced: Not previously announced.
Financial impact: None.
Extension of the credit for post-trial sales and leases
Amends the Sales Tax Assessment Act 1992 to allow for multiple trial loans, leases or demonstrations in exempt circumstances before an ultimate sale or lease for the remainder of the statutory period, to any exempt person.
Date of effect: Royal Assent.
Proposal announced: Not previously announced.
Financial impact: Negligible.
Incentives for regional headquarters
Exemption for regional headquarters
Amends the Sales Tax (Exemptions and Classifications) Act 1992 to allow an exemption for certain imported second-hand computer and related equipment, for use in newly-established regional headquarters in Australia by approved companies.
Credits for regional headquarters
Amends the application of the Sales Tax Assessment Act 1992 to provide credits for tax borne on dealings with certain imported second-hand computer and related equipment, for use in regional headquarters in Australia by approved companies, if a dealing occurs between 15December 1993 and the date that the Bill receives Royal Assent.
Date of effect: Royal Assent.
Proposal announced: 18 January 1994
Financial impact: The nature of the measure is that a reliable estimate cannot be provided.
Take-away food containers
Amends the Sales Tax (Exemptions and Classifications) Act 1992 to ensure that containers used to deliver take-away food and beverages, and certain ice-cream and biscuit goods are excluded from exemption.
Date of effect: Date of introduction of the Bill (30 June 1994).
Proposal announced: Not previously announced.
Financial impact: Negligible.
Wireless transceivers for use with the Royal Flying Doctor Service of Australia
Amends the Sales Tax (Exemptions and Classifications) Act 1992 to reinstate the exemption for wireless transceivers used by persons mainly to make contact with radio services conducted by the Royal Flying Doctor Service or other similar services. Amends the Sales Tax Assessment Act 1992 to provide a transitional credit for dealings after 30 June 1993 and before the Bill receives Royal Assent.
Date of effect: The amendment to the exemption will apply to dealings with goods from the date that the Bill receives Royal Assent. The credit will apply to dealings with goods after 30 June 1993 and before the Bill receives Royal Assent.
Proposal announced: Not previously announced.
Financial impact: None.