Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Ralph Willis, MP)General Outline and Financial Impact
AMENDMENTS OF THE INCOME TAX ASSESSMENT ACT 1936
Amends the income tax law in respect of the cost of certain bonus shares received as assessable dividends and which are subsequently sold from the insurance funds of a life company. The amendments will include the amount assessed in the cost for determining any subsequent profit or loss on disposal. This inclusion will avoid an element of double taxation which exists under the existing law.
Date of effect: The amendment will apply to bonus shares disposed of on or after 1 July 1994.
Proposal announced: Assistant Treasurer's Press Release of 30 June 1994.
Financial impact: No significant revenue impact is expected.
Compliance cost impact: Life companies are required to ensure that records are kept of the amount of bonus shares received as a taxable dividend. This measure should not involve any additional record keeping.
Amends the income tax law to allow life companies to use the average rate of tax payable on their non-fund component of taxable income, instead of the average rate on all their taxable income, in determining the inter-corporate dividend rebate.
Date of effect: Rebates in assessments for 1994-95 and later years of income.
Proposal announced: Assistant Treasurer's Press Release of 30 June 1994.
Financial impact: No significant revenue impact is expected.
Compliance cost impact: There will be no additional compliance costs because of the changed basis of calculation of the rebate.
Amends the income tax law so that payments of disability wage supplement (DWS) are given similar tax treatment to that for other comparable social security payments.
Date of effect: For DWS the date of effect is 1 July 1994. For other amendments the date of effect is 12 November 1991.
Proposal announced: Details of the DWS were announced in the 1993-94 Budget.
Financial impact: The revenue impact of the DWS is estimated to be insignificant in 1994-95; in 1995-96 the cost to revenue is expected to be less than $1 million.
Compliance cost impact: There are no compliance costs for recipients under the age pension age as the supplement is exempt from income tax and should not be included in their income tax returns. For recipients over the age pension age the supplement is assessable and they would have to lodge returns if their taxable income is above the threshold for pensioner rebate. There would be compliance costs where they have sufficient non-supplement income to make it necessary to lodge a return. However, the number of recipients above age pension age is very small.
Cost price of natural increase of live stock
Amends the income tax law to ensure that natural increase of a class of live stock for which no minimum value is prescribed is valued at the actual cost of production when the producer chooses to value at cost. This eliminates an opportunity for tax deferral which some existing producers of live stock enjoyed. The deferral gave them an advantage over new producers at the expense of the revenue.
Date of effect: 1 July 1994.
Proposal announced: Assistant Treasurer's Press Release No. 78 of 30 June 1994.
Financial impact: As the measure is designed to eliminate an inappropriate deferral of taxation revenue, there will be an increase in revenue in the first year of income. The amount of the increase cannot be quantified.
Compliance cost impact: Currently taxpayers must keep records of expenses incurred in order to claim deductions. This measure will require taxpayers to identify every year the costs that are associated with the production of natural increase of live stock. Consequently, this will require taxpayers to keep records to identify the costs of production each year rather than rely on the value used in a previous year of income. These records should not be additional to those used for normal accounting purposes.
Amends the income tax law to ensure that panel vans and utility trucks that carry one tonne or more are treated in the same manner irrespective of whether they are derived from passenger motor vehicles. This measure proposes to amend the depreciation, capital gains and related miscellaneous 'rollover' provisions. As a result, all the above class of vehicles will qualify for accelerated depreciation rates rather than general rates. The amendment will also achieve consistency with other related provisions.
Date of effect: The amendments will apply to assessments from the 1993-94 year of income.
Proposal announced: Not previously announced.
Financial impact: The measure is estimated to cost the revenue $1 million in 1994-95, $2 million in 1995-96 and $3 million in 1996-97.
Compliance cost impact: This measure together with proposed changes to substantiation provisions will generally simplify and clarify the existing tax treatment. Consequently it is expected that there should be no increase in compliance costs for affected taxpayers.
Amends the income tax law to allow income tax deductions for gifts made to certain funds and organisations.
| Organisation/Fund | Deduction available from (inclusive) | Deduction available until (inclusive) |
|---|---|---|
| Ararat War Memorial Restoration Trust Fund | 4 April 1994 | 3 April 1996 |
| Mount Macedon Memorial Cross Restoration, Development and Maintenance Trust | 24 April 1994 | 24 April 1996 |
| The Brisbane RAAF Memorial Fund | 17 June 1994 | 16 June 1996 |
| Constitutional Centenary Foundation Incorporated | 28 June 1994 | no limit set |
| Australian and New Zealand College of Anaesthetists | 27 October 1994 | no limit set |
Proposal announced: The decisions to make gifts to the five organisations/funds tax deductible were announced by the Treasurer during 1994.
Financial impact: The amendments are not expected to have any significant impact on the revenue.
Compliance cost impact: Taxpayers will be required to keep a record of donations made to enable deductions to be claimed.
Eligible investment income of registered organisations
Amends the income tax law to include in the assessable income of a friendly society or other 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 from eligible investment assets derived or purchased on or after 1 July 1994 by a registered organisation.
Proposal announced: Previously introduced in Taxation Laws Amendment Bill (No. 3) 1994.
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.
Compliance cost impact: The amendment will mainly affect friendly societies. Currently they are required under State legislation to establish and maintain separate funds for each class of benefit they provide. In addition, they maintain management and reserve funds. This measure will require friendly societies to keep a record of the assets transferred from an insurance benefit fund to a management fund or reserve fund, so that they can identify the assessable income derived on these assets. These records should not be additional to those used for normal accounting purposes.
Privatised State Bank of New South Wales
Amends the income tax law to:
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- provide that the tax treatment of assets held by the State Bank at the time of its sale but subsequently disposed of will only be determined by reference to gains or losses accrued after the sale;
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- ensure that deductions are not available for superannuation contributions made after the State Bank's sale that are in respect of liabilities accrued at the time of the sale; and
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- deny deductions for bad debts written off after the sale to the extent the debts were covered by a provision for doubtful debts at the time of the sale.
Date of effect: Applies from the date of sale of the State Bank.
Proposal announced: Not previously announced.
Financial impact: The measure will not have any direct financial impact of its own, because it merely deals with the consequences of the privatisation of the State Bank.
Compliance cost impact: This measure will not have any significant compliance cost impact. It merely clarifies the tax treatment in respect of certain transitional matters arising out of the change in the State Bank's tax status.
Amends the capital gains tax (CGT) provisions to ensure that certain transactions involving the creation of assets, and which effectively assign non-corporeal interests, will be subject to CGT.
Date of effect: Will apply to assets created after 12 noon (by legal time in the Australian Capital Territory) on 12 January 1994.
Proposal announced: Assistant Treasurer's Press Release No. 3 of 12 January 1994.
Financial impact: Unquantifiable.
Compliance cost impact: Compliance costs will only be relevant to those taxpayers who enter into particular arrangements. Since the proposed amendments are expected to deter taxpayers from entering into these arrangements, compliance costs are not considered to be a significant issue.
Compliance costs for those taxpayers (if any) who do enter into such arrangements will be principally associated with valuation of the newly created asset.
Payment of instalments by companies
Repeals the existing anti-avoidance provision of the new company tax instalment arrangements which are contained in Division 1C of Part VI of the Act and replaces it with measures designed to deal with specific types of payment deferral arrangements. In addition, a technical amendment will be made to Division 1C as well as consequential amendments to provisions which impose late payment penalties and interest on underpayments. The amendments:
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- repeal the existing anti-avoidance provision and replace it with a specific provision dealing with schemes to defer or reduce instalments by shifting income or deductions between associated taxpayers;
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- ensure that where a taxpayer lodges an upwards estimate after paying an instalment, including the third instalment, the taxpayer is required to pay the shortfall in the instalment at the time of lodging the estimate;
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- ensure that where a taxpayer lodges a downwards estimate of tax liability for the purpose of delaying instalments through being classified as a smaller taxpayer the estimate has no effect on the taxpayer's classification;
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- allow the tax amount on which instalments are based to be varied by regulation where tax rates have changed from one year to the next;
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- make consequential amendments to the provisions which impose penalty on late payments and interest on underpayments so that the penalty and interest calculations commence on the final instalment date.
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- the 1994-95 year of income - for small or medium taxpayers;
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- the 1995-96 year of income - for large instalment taxpayers.
Proposal announced: Not previously announced.
Financial impact: It is not expected that these changes will significantly alter the estimated revenue impact of the new company instalment arrangements.
Compliance cost impact: These amendments to the company instalment provisions will have no impact on compliance costs.
Deemed assessments of companies
Amends the income tax provisions which set out when the Commissioner of Taxation is deemed to have made an assessment under the existing and new company tax instalment regimes (Divisions 1B and 1C of Part VI).
The effect of the amendment is to allow an assessment to have been deemed to have been made by the Commissioner on the day a return is lodged where a return is lodged before the due date for the final payment of tax (Division 1B) or final instalment date (Division 1C). This will allow a taxpayer to obtain a refund of tax prior to the statutory date on which final payments of tax are due.
Date of effect: Royal Assent.
Proposal announced: Not previously announced.
Financial impact: The amendments will have minimal effect on revenue.
Compliance cost impact: None.
Passive income of controlled foreign companies
Amends the income tax provisions to replace the definitions of 'tainted calculated liabilities' and 'calculated liabilities' which currently apply to general insurance companies with definitions that reflect the concept of 'outstanding claims' - a concept used in the 'general' insurance industry as opposed to the 'life' insurance industry.
Date of effect: Applies to statutory accounting periods of controlled foreign companies (CFCs) that commence on or after the date of introduction of the Bill into Parliament.
Proposal announced: Not previously announced.
Financial impact: No revenue impact.
Compliance cost impact: There should be a decrease of compliance costs as a result of this amendment. The use of concepts which are specifically relevant to the general insurance industry will make the law more certain and aid ease of compliance.
AMENDMENTS OF THE TAXATION ADMINISTRATION ACT 1953
Civil penalties and taxation offences
Amends the provisions to:
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- ensure that taxpayers are not subject to administrative penalty under any penalty provision for an act or omission for which the taxpayer is being prosecuted;
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- widen the range of offences where administrative penalty is not payable or must be refunded where a prosecution is instituted; and
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- remove the power of the Commissioner to reimpose an administrative penalty where a prosecution is withdrawn.
Date of effect: Royal Assent.
Proposal announced: The first two measures were announced in an Information Paper of August 1991 titled 'Improvements to Self Assessment - Priority Tasks'.
The third measure implements Recommendation 130 of the Joint Committee of Public Accounts in Report No. 326 'An Assessment of Tax' which was accepted by the Government and announced by the Assistant Treasurer on 9 August 1994.
Financial impact: Unquantifiable impact on the revenue.
Compliance cost impact: None.
Amends the provisions so that a public ruling is made when it is published and notice of the ruling is published in the Commonwealth Gazette. The amendments implement Recommendations 32 and 33 of the Joint Committee of Public Accounts in Report No. 326 'An Assessment of Tax'.
Date of effect: Applies to rulings published after 30 June 1995.
Proposal announced: Assistant Treasurer's Press Release No. 91 of 9 August 1994.
Financial impact: None.
Compliance cost impact: None.
Rounding down of tax liabilities
Amends the provisions to provide for a tax liability to be rounded down to the nearest multiple of five cents.
Date of effect: 1 July 1995
Proposal announced: Not previously announced.
Financial impact: The cost to the revenue is estimated at $160,000 per annum.
Compliance cost impact: None.
AMENDMENT OF THE SUPERANNUATION GUARANTEE (ADMINISTRATION) ACT 1992
Amends the provisions to defer the requirement that employers meet their superannuation guarantee obligations on a quarterly basis until the superannuation guarantee regime is more established. Employers will be able to continue to satisfy their superannuation guarantee obligations by making superannuation contributions on an annual basis for the 1994-95 year and later years.
Date of effect: 1 July 1994.
Proposal announced: Treasurer's Superannuation Policy Statement dated 28 June 1994.
Financial impact: Nil.
Compliance cost impact: The option given to employers to make one annual superannuation guarantee contribution rather than four quarterly contributions may result in a reduction in compliance costs for employers. This is because employers will only need to make one superannuation guarantee calculation per year.
AMENDMENT OF THE OMBUDSMAN ACT 1976
Amends the provisions to allow the Commonwealth Ombudsman, when performing his or her investigative functions in relation to the Australian Taxation Office, to be known as the Taxation Ombudsman. The amendment implements Recommendation 132 of the Joint Committee of Public Accounts in Report No. 326 'An Assessment of Tax'.
Date of effect: Royal Assent
Proposal announced: Assistant Treasurer's Press Release No. 91 of 9 August 1994.
Financial impact: None.
Compliance cost impact: None.