Explanatory Memorandum
(Circulated by authority of the Treasurer,the Hon. Peter Costello, MP)
Chapter 5 - Deductions: particular items
This chapter explains the rewritten provisions that allow or disallow particular deductions from a taxpayer's assessable income.
These provisions are contained in new Divisions 25, 26 and 34 in Schedule 1 to the Tax Law Improvement Bill 1997.
Transitional and consequential amendments for the rewritten provisions are contained in Schedule 4 to the Bill.
This chapter covers:
- •
- the rewritten provisions in Divisions 25, 26 and 34 in Schedule 1 (some amounts you can deduct; some amounts you cannot deduct; or cannot deduct in full, and non-compulsory uniforms) to the Tax Law Improvement Bill 1997; and
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- the transitional provisions and consequential amendments for those rewritten provisions contained in Schedule 4 to the Bill.
Divisions 25, 26 and 34 contain the rewritten provisions of the 1936 Act which set out the rules about deductions that apply to taxpayers generally. The rules are of two kinds:
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- rules which allow deductions for various expenses; and
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- rules that prevent or limit deductions for some amounts. The corresponding provisions of the 1936 Act are sections 6G, 51AB, 51AG, 51AL, 52, 53, 53AA, 63, 64, 64A, 65, 67, 67A, 68, 69, 71, 72, 73, 74, 74B and subsections 51(3) to (6A), and 78(11). These rules operate in the framework established by the core provisions about deductions contained in Division 8 of the 1997 Act.
Part A of this chapter summarises new Divisions 25, 26 and 34.
Part B explains the changes proposed to the content of the current provisions.
Part C explains why some provisions of the 1936 Act have not been rewritten.
Part D explains the transitional provisions which set out how and when the rewritten provisions will apply. These provisions are located in Part 1 of Schedule 4 to the Bill.
Part E explains the amendments that need to be made to the 1997 Act, the 1936 Act and other Commonwealth legislation, as a consequence of the rewriting of the provisions of the 1936 Assessment Act. These provisions are located in Parts 2 to 4 of Schedule 4 to the Bill.
A. Summary of the new law
Guide to Division 25: Some amounts you can deduct
Division 25, which will apply to taxpayers generally, will allow deductions for the following amounts.
Expenditure incurred for managing tax affairs or interest paid for the underpayment or late payment of tax. [section 25-5]
Expenditure incurred on repairs. [section 25-10]
Amounts for a lease obligation to repair
Amounts paid for failing to comply with a lease obligation to repair premises. [section 25-15]
Expenditure incurred for preparing, registering or stamping a lease or an assignment or surrender of a lease. [section 25-20]
Expenditure incurred for borrowing money. These amounts normally will only be able to be deducted over 5 years. [section 25-25]
Expenses of discharging a mortgage
Expenditure incurred in discharging a mortgage. [section 25-30]
Debts written off as bad if the debt was included in assessable income or was lent in the ordinary course of a business of lending money. [section 25-35]
Losses from a profit-making undertaking
A loss arising from a profit-making undertaking if any profit from an undertaking or plan would have been included in assessable income, and the loss does not arise from the sale of property acquired on or after 20 September 1985. [section 25-40]
A loss in respect of money caused by theft or embezzlement by an employee or agent. [section 25-45]
Pensions, gratuities and retiring allowances
Payments of a pension, gratuity or retiring allowance to an employee or former employee. [section 25-50]
Amounts of up to $42 for membership of a trade, business or professional association. [section 25-55] This provision does not affect the amount that can be deducted under the general deduction provision.
Amounts incurred in contesting an election for membership of any Australian Parliament [section 25-60] , other than, with two exceptions, entertainment expenditure [section 25-70] .
Rates and land taxes on premises used to produce mutual income
Clubs and other entities receiving amounts from members can deduct rates and land taxes as if those receipts were assessable income. [section 25-75]
Guide to Division 26: Some amounts you cannot deduct, or cannot deduct in full
Division 26, which will apply to taxpayers generally, sts out some amounts that taxpayers will not be able to deduct, or not be able to deduct in full. This will be the case even if such amounts could otherwise be deducted under the general deduction provision in section 8-1 of the 1997 Act or a specific deduction provision.
Amounts payable by way of penalty or on conviction for an offence. [section 26-5]
A loss or outgoing for leave unless the amount has been paid to the individual concerned or it is an accrued leave transfer payment. [section 26-10]
HECS and student assistance payments
Specific payments under the Higher Education Funding Act 1988 or the Student Assistance Act 1973. [section 26-20]
Amounts incurred for a relative's travel expenses in some circumstances. [section 26-30]
Amounts paid to related entities
If an amount is paid to a relative, or a partnership in which a relative is a partner, only so much of the payment as the Commissioner considers reasonable can be deducted. [section 26-35]
Expenditure incurred for maintaining a taxpayers family. [section 26-40]
A loss or outgoing incurred for membership of a club. [section 26-45]
With some exceptions, expenses for acquiring or using leisure facilities and boats cannot be deducted. [section 26-50]
Guide to Division 34: Non-compulsory uniforms
Division 34 will provide that expenses for a non-compulsory uniform cannot be deducted unless the design of the uniform is registered. The Division will not apply to occupation specific clothing or protective clothing subsection 34-10(3)] . The Division will set out how a uniform can be registered.
B. Discussion of changes
Commissioner's discretions to be replaced with objective tests
Rules which rely on Commissioner's discretions will be replaced with clear objective tests.
As rewriting of the income tax law proceeds, many of the discretions that the Commissioner of Taxation may exercise are being removed or replaced with objective tests. This allows the new law to more fully reflect the principles of the self assessment system.
The following changes are being made in the context of reviewing the deduction provisions (references are to the 1936 Act):
| Provision | Subject | How replaced |
|---|---|---|
| 51AB(1) | Leisure facilities and boats. Subparagraph (b)(iii) of the definition of excepted facility requires the taxpayer to satisfy the Commissioner that the use of a boat was essential to the efficient conduct of the business. | Replaced with an objective test. [paragraph 26-50(5)(d)] . |
| 51AB(5) | Leisure facilities and boats. Subsection 51AB(5) requires the Commissioner to determine a reasonable amount that can be deducted if the leisure facility or boat is used partly for purposes covered by an exception to the provision. | Replaced with a reasonable test. [subsection 26-50(6)] |
| 53(3) | Repairs. Subsection 53(3) provides that so much only of the expenditure as, in the opinion of the Commissioner, is reasonable can be deducted if the expenditure is incurred in repairing property that is only partly held or used for the purpose of producing assessable income. | Replaced with a reasonable test. [subsection 25-10] |
| 67(4) | Borrowing expenses. Subsection 67(4) provides that the taxpayer is deemed to have incurred so much only of the expenditure as, in the opinion of the Commissioner, is reasonable if expenditure is incurred only partly for the purpose of producing assessable income. | Replaced with a to the extent rule. [section 25-25] |
| 67A(b) | Expense of discharging mortgages. Paragraph 67A(b) provides that only such amount as the Commissioner determines can be deducted if money or property is only partly used for the purpose of producing assessable income. | Replaced with a to the extent rule. [subsection 25-30(3)] |
| 68(b) | Lease document expenses. Paragraph 68(b) provides that only such an amount as, in the opinion of the Commissioner is reasonable can be deducted if property is to be, or has been, held by the taxpayer only partly for the purpose of producing assessable income. | Replaced with a to the extent rule. [subsection 25-20(2)] |
| 72(1C) | Rates and land taxes. Subsection 72(1C) provides that only such amount as, in the opinion of the Commissioner, is reasonable can be deducted if the land or premises are only partly used for the purpose of producing income. | The provision for rates and land taxes incurred in producing mutual income will replace the reasonable test with a to the extent rule. [subsection 25-75(3)] |
Consolidation of recoupment provisions
There are several provisions that require amounts to be included in assessable income if a reimbursement is received for an expense that can be deducted or has been deducted. The majority of these provisions will be replaced by a consolidated recoupment provision [Subdivision 20-A] which will eliminate unnecessary duplication.
These are only changes of a drafting nature and will not affect the current application of these provisions.
Reimbursement provisions are contained in the deduction provisions dealing with bad debts, tax related expenses, rates and land taxes and Parliament election expenses (subsections 63(3), 69(8), 72(2), and 74(2) of the 1936 Act). Subdivision 20-A is discussed in further detail in Chapter 3.
Standardisation of provisions denying and limiting deductions
The provisions that deny or limit a deduction will be drafted in a uniform way, by stating that some amounts cannot be deducted under the 1997 Act.
This is only a drafting change which will not modify the application of the law. The change will make the structure of the law simpler and more consistent. Provisions that deny or limit a deduction are expressed in several different ways, which have no practical distinction.
Some provisions say that deductions cannot be claimed under the general deduction provision. For example, subsection 51(6) says that payments made in respect of higher education contributions cannot be deducted under the general deduction provision. Yet this type of expense would only be deductible under the general deduction provision. To state that the expense cannot be deducted under any provision of the 1997 Act will not change the operation of the law.
Other provisions disallow deductions under all provisions. Section 51AL, which denies deductions for unregistered non-compulsory uniform expenses, is an example of this.
Omission of unnecessary words about when an amount is deductible.
Usually, the deduction provisions will state specifically that an expense can be deducted in the year that it is incurred.
It is implicit that an expense can be deducted in the year that it is incurred.
Section 25-5 Tax-related expenses
The provision allows a deduction for expenditure incurred for managing tax affairs and interest paid for the underpayment or late payment of tax.
The provision that allows a deduction for interest on underpayments or late payments of tax (subsection 51(5) of the 1936 Act) has been incorporated into this section [paragraph (1)(c)] .
Section 25-25 Borrowing expenses
The provision allows a deduction for borrowing expenses. In most cases, the deduction is spread over the period of the loan or 5 years.
Clarify that a deduction is only allowed for borrowing expenses to the extent that the money is used to produce assessable income in the year in which the deduction is claimed.
The existing law is unclear when there is a change in the use of borrowed money eg., if money is used to purchase a house which is used privately for several years, but later rented out (or vice versa).
There is Board of Review support for determining entitlement on a yearly basis. Under this approach, a deduction is allowed only in years when the money is used for income producing purposes.
This change will provide greater certainty for taxpayers.
Allow a deduction for any remaining undeducted borrowing expenses if the loan is repaid early.
This change provides a new benefit to taxpayers. If a loan is repaid early, the current law does not allow any undeducted borrowing expenses to be brought forward.
The provision allows a deduction for bad debts written off in the income year.
The provision will provide specifically that a moneylender who acquires a debt from another moneylender may write off an amount up to the cost of the debt under the bad debt provision.
This change will give legislative authority to current practice, which allows a moneylender to claim a loss for a bad debt under the general deduction provision at the same time as a bad debt would have been recognised under the existing bad debt provision.
This change will provide greater certainty for taxpayers. For example, a money lender A lent $100 to C. Moneylender B purchases the rights under the loan for $80. The loan goes bad, and B is paid nothing on the loan. Under current practice, B cannot deduct the bad debt under paragraph 63(1)(b) of the existing bad debt provision, as B did not lend the money. However, B would be able to deduct the $80 loss under the general deduction provision at the same time as the debt would be recognised as bad.
The proposed change will enable B to deduct an amount up to the cost of the debt to B, namely $80, if the debt is written off as bad.
If only a part of the debt is written off as bad, the maximum that can be deducted for one or more income years is the amount by which the expenditure incurred in buying the debt exceeds so much of the debt as has not yet been written off as bad.
Example
B bought a debt of $100 for $80. In 1997-98 B writes off $30 of the debt as bad. B can deduct $10, which is the amount by which the expenditure B incurred in buying the debt ($80) exceeds so much of the debt as has not yet been written off as bad ($100 - $30 = $70).
If B writes off the rest of the debt in 1998-99, how much can B deduct?
The maximum B can deduct is $80, which is the amount by which the expenditure B incurred in buying the debt ($80) exceeds so much of the debt as has not yet been written off as bad ($100 - $100 = $0). Because B deducted $10 for 1997-98, Bs deduction for 1998-99 is $80 - $10 = $70.
Remove the redundant aspect of the existing bad debt provision, which deems a debt to be bad where a debtor becomes a bankrupt.
A debt can be treated as a bad debt regardless of whether, or when, the debtor becomes bankrupt. Therefore, a provision that deems a debt to be bad upon bankruptcy is not necessary. As long as a commercial judgment points towards the debt being bad for the time being, the debt is bad for the purposes of the bad debt provision.
Section 25-40 Loss from profit making undertaking
This provision allows a deduction for a loss arising from a profit making undertaking or plan provided that:
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- the loss does not arise from the sale of property acquired after 20 September 1985; and
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- the Commissioner is notified that the property was acquired for the purpose of carrying out the undertaking or plan. Under the current law, the taxpayer must notify the Commissioner no later than the date upon which the taxpayer lodged their first return after having acquired the property.
The provision will be amended to extend the time for lodgement of the notice to the date on which the taxpayer lodges their return for the year in which the property was acquired.
If a taxpayer is not required to lodge a return for that income year, the notice must be provided no later than when the next return is lodged for an income year after the income year in which the property was acquired.
If after acquiring property, a taxpayer lodges a return for a year before the year in which the property was acquired, under the existing law the notice must be provided no later than the time of lodgement of that return. Taxpayers might not be aware of this requirement, assuming that the notice was required in the return for the year in which the property was acquired. The proposed change is a logical adjustment that will make it easier to comply with the law.
Various aspects of section 52 of the 1936 Act have not been rewritten as they are no longer relevant, because the provision does not apply in respect of the sale of property acquired on or after 20 September 1985.
Section 25-45 Loss by theft etc.
The provision allows a deduction for a loss incurred through embezzlement, larceny, defalcation or misappropriation by an employee or agent.
The Bill will extend the provision so that losses incurred through theft or stealing by an employee or agent can be deducted.
Over the years, State legislation relating to criminal offences has been changed to introduce new terminology, or additional offences, to those listed in the existing legislation. This change will update the offences listed in this provision to include the offences of theft and stealing.
Section 25-55 Payments to associations
The provision allows a deduction for amounts paid for membership of a trade, business or professional association. If the amount is not deductible under the general deduction provision, the maximum amount that can be deducted is $42 per income year per association.
One aspect of the provision will not be rewritten as it is of limited value, if not redundant. That aspect is set out in subsection 73(2) of the 1936 Act, and allows a deduction if an amount is paid to an association and the association carries on any activity of a nature that would be deductible if it was carried out by the taxpayer. The amount that can be deducted is limited to the amount of the subscription, levy or contribution that is applied by the association to meet losses or outgoings incurred in carrying out that activity.
It is difficult in practice to comply with this subsection as it requires the taxpayer to know about the expenditure pattern and activities of the association. Such levies will generally be deductible under the general deduction provision.
Another aspect of section 73 of the 1936 Act that will not be rewritten is subsection (1), under which a deduction is allowed for a periodical subscription to an association if the carrying on of a business was conditional on membership of that association. That aspect is unnecessary, as taxpayers could deduct such an expense under the general deduction provision.
Section 25-55 will relate to situations where membership of trade, business or professional associations would not be deductible under the general deduction provision. For example, if a taxpayer is retired but wishes to continue to be a member of such an association, in that case, section 25-55 will allow a deduction of up to $42 per association.
Section 25-75 Rates, land taxes and mutual receipts
The provision allows a deduction for rates and land taxes paid to the extent that property is used for the purpose of producing assessable income.
The provision will specifically provide that an entity that receives mutual income can deduct rates and taxes to the extent that it uses the property for the purpose of producing mutual receipts or assessable income.
This change will give legislative authority to current practice. It is relevant for clubs and professional associations that derive mutual receipts.
Under the principle of mutuality, an organisation cannot derive income from itself. Thus a club or professional association would not be receiving income, or assessable income, from its members. Strictly, such an entity could not deduct expenses to the extent that it derived amounts, known as mutual receipts, from its members. However, current practice allows such entities to deduct rates and land taxes as if the mutual receipts were assessable income.
A taxpayer who does not derive mutual receipts will be able to deduct rates and land taxes, to the extent that the property is used to produce assessable income, under the general deduction provision.
The Bill will remove the redundant provision that allowed taxpayers not deriving mutual receipts to deduct rates and land taxes paid in producing their assessable income. These taxpayers will be able to deduct such expenses under the general deduction provision.
In practical terms, there is little difference in what is allowed as a deduction under the existing section 72 compared with what is allowed under the general deduction provision. There are some minor differences, in that under section 72:
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- the taxpayer must be personally liable for the expenditure;
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- the rates must be annually assessed;
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- the amount must be paid in Australia; and
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- under current practice, clubs and associations can deduct an amount that could not be deducted under the general deduction provision, or, strictly speaking, under section 72.
The first three minor differences do not warrant the retention of this provision. The situation of clubs and associations has been specifically addressed by the change listed above.
Section 26-30 Relatives travel expenses
This provision limits the amount that can be deducted for a relatives travel expenses.
This section will identify more clearly the situations when deductions can be claimed for a relative's travel expenses, rather than, as in section 51AG of the 1936 Act, setting out when such expenses cannot be deducted.
The section will also adopt a different approach to the use of the terms 'employee' and 'employer'. In various areas of the tax law, the 1936 Act uses the term 'employee' but defines it to include people other than common law employees by reference to the definition of an employee in section 221A of the 1936 Act. In contrast, in other areas of the tax law the term 'employee' is undefined and retains only its common law meaning. Section 26-30 will specifically alert readers to the point that the provision will apply to individuals other than common law employees. It introduces the new term PAYE earner, which is defined in the Dictionary (section 995-1 of the 1997 Act) to mean an employee as defined in section 221A of the 1936 Act.
Division 34 Non-compulsory uniforms
This Division provides that expenses for a non-compulsory uniform cannot be deducted unless the design of the uniform is registered and sets out how a uniform can be registered.
The standardised definition of the term 'associate' will apply instead of the definition contained in section 26AAB of the 1936 Act.
The use of a slightly different definition of the term 'associate' will have no impact in this context.
The term 'associate' only appears in sections 34-15 and 34-55. Section 34-15 defines a uniform as clothing which distinctively identifies the wearer as someone associated with the wearer's employer or a group consisting of the employer and one or more of the employer's associates. Even if the term 'associate' included a wider range of entities, as the group can be limited to the employer plus some but not all of the employer's associates, the use of a slightly wider definition of 'associate' will have no impact on the application of the law. Section 34-55 operates in a similar manner.
Subsection 51AL(10) will not be rewritten. That provision stated that an instrument formulating approved occupational clothing guidelines was a disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901 .
The Legislative Instruments Bill 1996 (currently before the Parliament) will ensure that these guidelines are legislative instruments, and that they are subject to Parliamentary review. That Bill will also remove the current section 46A of the Acts Interpretation Act 1901 . Accordingly, it is no longer necessary to specifically state that these guidelines and determinations are disallowable instruments.
The rewritten provision will separate out those aspects that are only relevant for an employee, and the more detailed aspects in relation to registration of a uniform that are only relevant for an employer. More important points, such as that the Division will not apply to occupation specific or protective clothing, are made earlier.
As with section 26-30, the Division will also adopt a different approach to the use of the terms 'employee' and 'employer'. In various areas of the tax law, the 1936 Act uses the term 'employee' but defines it to include people other than common law employees by reference to the definition of an employee in section 221A of the 1936 Act. In contrast, in other areas of the tax law the term 'employee' is undefined and retains only its common law meaning. Section 34-5 will alert readers specifically to the point that the provision will apply to individuals other than common law employees. It introduces the new term PAYE earner , which is defined in the Dictionary (section 995-1 of the 1997 Act) to mean an employee as defined in section 221A of the 1936 Act.
C. Provisions of the old law that have not been rewritten
The rewrite will remove a redundant provision, section 64, which allows a deduction for commissions incurred in collecting assessable income. This section is superfluous because these expenses are deductible under the general deduction provision (section 8-1 of the 1997 Act).
Provision with minimal practical benefit
The rewrite will remove a provision, of minimal practical benefit to taxpayers, which allowed a deduction of up to $50 for capital legal expenses.
Section 64A of the 1936 Act allows a deduction of up to $50 for legal expenses of a capital nature if the expenses were incurred in carrying on a business to produce assessable income. The deduction must be reduced by any legal expenses that can be deducted under the general deduction provision (section 8-1 of the 1997 Act).
This provision is of limited value because the amount involved is only $50 and even that amount must be reduced by any legal expenses that can be deducted under the general deduction provision. In other words, if a taxpayer can claim legal expenses of $50 or more under the general deduction provision, this provision has no application.
D. Transitional arrangements
Part 1 of Schedule 4 of the Tax Law Improvement Bill 1997 will amend the Income Tax (Transitional Provisions) Act 1997 to insert the transitional provisions for the rewritten sections discussed earlier in this chapter.
Part 1 will insert in Part 2-5 of Chapter 2 of the Income Tax (Transitional Provisions) Act 1997 new Divisions 25, 26 and 34. These Divisions will set out how and when the rewritten sections will apply.
The rewritten provisions will usually apply to assessments for the 1997-98 or later income years. [Schedule 4, Part 2-5, sections 25-1, 26-1 and 34-1, Transitional Provisions Act]
In some cases, however, it is necessary in the transitional provisions that the rewritten provisions apply in different circumstances or specify additional points. These differences are explained in the following table:
| Transitional section | Nature of deduction | Differences |
|---|---|---|
| 25-40 | Loss from profit-making undertaking or plan | Applies to a loss arising in the 1997-98 income year or a later income year, even if the undertaking or plan was entered into, or began to be carried out, before that time. |
| 25-45 | Loss by theft etc | Applies to a loss discovered in the 1997-98 income year or a later income year. |
| 26-30 | Relatives travel expenses | Applies to travel on or after 1 July 1997. |
| Section 34-5 will ensure that the Register of Approved Occupation Clothing, the approved occupational clothing guidelines and any delegations made under section 51AL of the 1936 Act will continue to operate for the purposes of the 1997 Act. | ||
E. Consequential amendments
Amendments of the Income Tax Assessment Act 1997
Part 2 of Schedule 4 to the Bill will amend the 1997 Act to:
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- update references to provisions of the 1997 Act that have been rewritten in Divisions 25, 26 and 34 in Schedule 1; and
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- insert additional definitions in the Dictionary (section 995-1) of terms that are used in the rewritten provisions contained in Division 25, 26 and 34 in Schedule 1.
Section 12-5 of the 1997 Act lists all the provisions of both the 1936 and the 1997 Acts that contain rules about specific types of deductions. Part 2 of Schedule 4 to the Bill will update references to provisions in the 1936 Act that have been rewritten in Divisions 25, 26 and 34 in Schedule 1, so that the lists refer to the rewritten provisions. Some listings have been moved to a more appropriate location to reflect the change in terminology in the rewritten provisions. For example, the listing for the embezzlement provision is now under the heading theft, as the provision has been renamed loss by theft etc. [Schedule 4, Part 2: items 5 to 34]
Part 2 of Schedule 4 will also update other references to the 1936 Act deduction provisions that appear in other provisions that have already been rewritten. These references occur in sections 165-55, 165-70 and 900-30 of the 1997 Act. [Schedule 4, Part 2: items 35 to 38]
Part 2 of Schedule 4 to the Bill will insert definitions of terms used in the rewritten provisions in Divisions 25, 26 and 34 in Schedule 1.
In some cases, the label used and the meaning of the definition have not changed from the existing law. The following definitions fall into this category:
Accrued leave transfer payment . The definition is the same as that in section 6G of the 1936 Act. [Schedule 4, Part 2: item 40]
Agent. The definition is the same as that in subsection 6(1) of the 1936 Act . [Schedule 4, Part 2: item 41]
Approved occupational clothing guidelines. The definition is the same as that in subsection 51AL(7) of the 1936 Act. [Schedule 4, Part 2: item 42]
Child. The definition is the same as that in section 6(1) of the 1936 Act. [Schedule 4, Part 2: item 43]
Design . The definition is the same as that in subsection 51AL(26) of the 1936 Act. [Schedule 4, Part 2: item 45]
Disease . The definition is the same as that in subsection 51AL(26) of the 1936 Act. [Schedule 4, Part 2: item 46]
Industry Secretary . The definition is the same as that in subsection 51AL(26) of the 1936 Act. [Schedule 4, Part 2: item 48]
Occupation specific clothing. The definition is the same as that in subsection 51AL(26) of the 1936 Act. [Schedule 4, Part 2: item 52]
Protective clothing . The definition is the same as that in subsection 51AL(26) of the 1936 Act. [Schedule 4, Part 2: item 54]
Registered tax agent. The definition is the same as that in section 251A of the 1936 Act. [Schedule 4, Part 2: item 58]
Senior Executive Service office. The definition is the same as that in subsection 51AL(26) of the 1936 Act. [Schedule 4, Part 2: item 60]
Definitions that have changed from the existing law and the new defined terms are explained below.
New definition: AAT [Schedule 4, Part 2: item 39]
Commentary : New label, previously Tribunal as defined in subsection 6(1).
New definition : Fringe benefit [Schedule 4, Part 2: item 47]
Commentary: New term. It will be used for brevity, along with the new term providing a fringe benefit, when discussing links to the Fringe Benefits Tax Assessment Act 1986 . In the deductions provisions covered by Schedule 4, the definition will be used when rewriting references to the provider of a fringe benefit (within the meaning of the Fringe Benefits Tax Assessment Act 1986 ). For example, see subsection 51(6A). This results in no change to the law.
New definition : Legal practitioner [Schedule 4, Part 2: item 49]
Commentary: New term. It will be used for brevity to replace the phrase a person who is enrolled as a barrister, a solicitor or a barrister and solicitor of a federal court or a court of a State or Territory as used in section 69 of the 1936 Act, and similar phrases used elsewhere. There is no change to the law.
New definition : Leisure facility [Schedule 4, Part 2: item 50]
Commentary: The definition is based on the definition in subsection 51AB(1) of the 1936 Act. It is drafted differently in that, rather than define excepted facilities which are excluded specifically from the definition of a leisure facility, section 26-50 says that, in the same circumstances, the provision does not apply to a leisure facility. This provides a more direct result with no change to the law.
New definition : Non-compulsory [Schedule 4, Part 2: item 51]
Commentary : This is a new term picking up the concepts set out in 51AL(4)(b) of the 1936 Act. This results in no change to the law.
New definition: Period of the loan [Schedule 4, Part 2: item 53]
Commentary : This is a new term that contains some of the rules in section 67 of the 1936 Act. It also includes a policy change that enables a taxpayer to deduct borrowing expenses earlier if the loan is repaid early. See the commentary on section 25-25.
New definition: Provide a fringe benefit [Schedule 4, Part 2: item 55]
Commentary: New term. It will be used for brevity, along with the new term fringe benefit, when discussing links to the Fringe Benefits Tax Assessment Act 1986 . As noted in the item, the definition is based on the definition of provide in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 . In the deductions provisions covered by Schedule 4, the definition will be used when rewriting references to the provider of a fringe benefit (within the meaning of the Fringe Benefits Tax Assessment Act 1986 ). For example, see subsection 51(6A). This results in no change to the law.
New definition: Recognised tax adviser [Schedule 4, Part 2: item 56]
Commentary : New label, previously recognised professional tax adviser in subsection 69(11) of the 1936 Act.
New definition: Recreational club [Schedule 4, Part 2: item 57]
Commentary: New label, previously club as defined in subsection 51AB(1) of the 1936 Act. There is no change to the law.
New definition: Related entity [Schedule 4, Part 2: item 59]
Commentary : New label, previously associated person in subsection 65(1D) of the 1936 Act.
New definition: Uniform [Schedule 4, Part 2: item 62]
Commentary : New label, previously a component of non-compulsory uniform/wardrobe in subsection 51AL(4). The definition is the same as that in subsection 51AL(26) of the 1936 Act. There is no change to the law.
Items 44 and 61 repeal the previous meaning of the term club , as contained in the 1997 Act. This term is not required, and conflicts with the use of the term without definition in other places in the legislation. The term club , in the context of the definition of sporting club , will now rely on the normal meaning of that term. There is no change to the law.
The amendments made by Part 2 of Schedule 4 apply to assessments for the 1997-98 and later income years. [clause 4, Tax Law Improvement Bill 1997] This ensures that these consequential amendments take effect at the same time as the rest of the amendments relating to the deduction provisions.
Amendments of the Income Tax Assessment Act 1936
Part 3 of Schedule 4 to the Bill will amend the 1936 Act to:
- •
- insert references to the rewritten provisions (contained in Divisions 25, 26 and 34 in Schedule 1) where the 1936 Act refers to the existing provisions; and
- •
- close off the application of provisions of the 1936 Act that have been rewritten in Divisions 25, 26 and 34 in Schedule 1, so that the existing provisions apply only to the 1996-97 and earlier income years.
Inserting references to rewritten provisions
Part 3 of Schedule 4 will insert in the 1936 Act references to the rewritten provisions contained in Divisions 25, 26 and 34 where the 1936 Act refers to the existing provisions. There are four categories of these amendments:
The first category will add a reference to a provision in the 1997 Act in a section of the 1936 Act where a reference to the provisions in the 1936 Act currently appears, so that provisions of both the 1936 and the 1997 Acts are referred to. This is necessary for the references in subsections 51AD(17), 51AD(18), 63CA(3) and sections 82KH, 304 and 396. [Schedule 4, Part 3: items 72, 73, 75, 91, 99, 117 to 123, 132 and 133]
The second category will omit the reference to the existing provision in a section of the 1936 Act and replace it with the rewritten provision. This is necessary for those sections of the 1936 Act that:
- •
- have not yet been rewritten and closed off; and
- •
- can apply to amounts that relate to only one income year at a time, being the 1997-98 or a later income year. [Schedule 4, Part 3: items 70, 84 to 90, 92, 96, 97, 104, 106, 111, 112, 124, 131 and 134 to 138]
The third category will add references to rewritten provisions additional to those contained in Divisions 25, 26 and 34. This is the case for amendments to section 51AAA, which refers to deductions allowed under all of Subdivision A of Division 3 of the 1936 Act. Items 63 and 64 will substitute references to section 8-1, Divisions 25, 30, 34, 36 and 165 and Subdivision 170-A.
The fourth category contains minor wording changes. Some of these changes are required to take account of the co-existence of the 1936 Act and the 1997 Act. For example, item 93 adds the words of this Act to subparagraph 63D(1)(a)(ii), to make clear that the reference is to the 1936 Act rather than the 1997 Act. [Schedule 4, Part 3: items 93, 94, 95, 98, 100 and 105] Other changes are required because of the addition of references to other sections in a provision. For example, item 71 adds the words of this section to paragraph 51AD(16)(b), to make clear that the subsection referred to is in section 51AD. [Schedule 4, Part 3: items 71, 74 and 76]
Closing off the application of existing provisions
Part 3 of Schedule 4 will insert new provisions into the 1936 Act that will close off the application of provisions in the 1936 Act that have been rewritten. [Schedule 4, Part 3: items 65 to 69, 77, 79 to 83, 101 to 103, 107 to 110 and 113 to 116]
In these cases, the existing provisions need to be closed off so that they only apply to the 1996-97 and earlier income years. This complements the transitional provisions in Part 1 of Schedule 4 which ensure that the corresponding rewritten provisions apply to the 1997-98 and later income years.
The amendments made by Part 3 of Schedule 4 apply to assessments for the 1997-98 and later income years. [clause 4, Tax Law Improvement Bill 1997] This ensures that these consequential amendments take effect at the same time as the rest of the amendments relating to the gift provisions.
Amendments of other Commonwealth legislation
Part 4 of Schedule 4 to the Bill will amend the Fringe Benefits Tax Assessment Act 1986 to substitute references to a rewritten provision contained in subsection 26-30 in Schedule 1, where that Act currently refers to the existing provision. [Schedule 4, Part 4: items 139 and 140]