Revised Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)
Chapter 3 - Tax Law Improvement Project (TLIP) - update amendments
Overview
3.1 The amendments in Schedule 5 to this Bill make miscellaneous amendments to the:
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- Income Tax Assessment Act 1997 (ITAA 1997); and
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- Income Tax Assessment Act 1936 (ITAA 1936).
3.2 They comprise a rewrite of the ITAA 1936 provisions that exempt certain education and training payments as amended by the Taxation Laws Amendment Act (No. 1) 1997 and the Social Security Legislation Amendment (Youth Allowance Consequential and Related Measures) Act 1998 .
Summary of the amendments
3.3 The amendments in Schedule 5 will ensure that the rewrite of the income tax laws reflects recent legislation.
3.4 The amendments in Schedule 5 will apply to assessments for the 1998-1999 income year and later income years.
Background to the legislation
3.5 The Parliament has enacted the first three instalments of the rewrite of the ITAA 1936. The first instalment comprises three Acts, the: ITAA 1997;
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- Income Tax (Transitional Provisions) Act 1997 (Transitional Act 1997); and
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- Income Tax (Consequential Amendments) Act 1997 .
They received Royal Assent on 18 April 1997 and have effect for the 1997-1998 income year.
3.6 The second instalment is the Tax Law Improvement Act 1997 (TLIA 1997) which received Royal Assent on 8 July 1997. TLIA 1997 amends the ITAA 1997 by inserting among other things, a rewrite of the exempt income provisions. It also takes effect for the 1997-1998 income year.
3.7 The third instalment is Tax Law Improvement Act (No. 1) 1998 which received Royal Assent on 22 June 1998. It amends the ITAA 1997 and its provisions have effect for the 1998-1999 income year.
3.8 The Taxation Laws Amendment Act (No. 1) 1997 and the Social Security Legislation Amendment (Youth Allowance Consequential and Related Measures) Act 1998 amend the exempt income provisions of the ITAA 1936 in so far as they deal with certain Commonwealth education and training payments. The amendments discussed in this Chapter make corresponding amendments to the ITAA 1997 to ensure it restates the effect of the ITAA 1936 amendments.
Explanation of the amendments
Part 1 Amendment of the ITAA 1997
Provision being amended : Section 11-15, which lists provisions about exempt income derived by certain entities.
Amendments will :
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- Replace the existing table item for education with a new item with references to the rewritten provisions; and
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- Insert a new entry for Commonwealth education or training payment in the table item headed social security or like payments .
Reason for amendments : The amendments will update section 11-15 by including references to new sections 51-35 and 51-40 and new Subdivision 52-F which are to be inserted by this Bill. These new provisions restate the effect of paragraphs 23(z) and 23(zaa) and sections 24ABZE and 24ABZF of the ITAA 1936 as amended by Taxation Laws Amendment Act (No. 1) 1997 and Social Security Legislation Amendment (Youth Allowance Consequential and Related Measures) Act 1998 .
Provision being amended : The Education and Training table in section 51-10, which lists when certain entities are entitled to treat education and training payments as exempt income.
Amendment will : Add new items to the table to exempt:
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- a scholarship, bursary, educational allowance or educational assistance of a full time student at a school, college or university; and
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- a payment to a student or other recipient made under a Commonwealth assistance scheme for secondary education or the education of isolated children.
Reason for amendment : The amendment will update section 51-10 by including references to new sections 51-35 and 51-40 which are to be inserted by this Bill. These new provisions restate the effect of amendments to paragraphs 23(z) and 23(zaa) of the ITAA 1936 made by Taxation Laws Amendment Act (No. 1) 1997 .
Provision being amended : Division 51, which deals with amounts of ordinary and statutory income that are exempt from income tax.
Amendments will : Insert new sections 51-35 and 51-40 into the ITAA 1997.
Reason for amendments : New sections 51-35 and 51-40 are a rewrite of paragraphs 23(z) and 23(zaa) of the ITAA 1936 as amended by Taxation Laws Amendment Act (No. 1) 1997 . They restate the effect of the ITAA 1936.
Provision being amended : Division 52, which exempts, either wholly or partly, certain payments made under various Acts.
Amendment will : Insert new Subdivision 52-F into the ITAA 1997.
Reason for amendment : New Subdivision 52-F is a restatement of sections 24ABZE and 24ABZF of the ITAA 1936 as amended by the Taxation Laws Amendment Act (No.1) 1997 and the Social Security Legislation Amendment (Youth Allowance Consequential and Related Measures) Act 1998.
Provision being amended : Subsection 995-1(1), which contains the dictionary of defined terms for the ITAA 1997.
Amendments will :
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- Insert new definitionsof Commonwealth education or training payment and Commonwealth labour market program ; and
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- Substitute a new table for the existing table in the definition of supplementary amount .
Reason for amendments : These amendments are a consequence of the adoption of the generic terms Commonwealth education or training payment and Commonwealth labour market program. Those terms are used in new sections 51-35 and 51-40 and new Subdivision 52-F which are being inserted by Items 5 and 6 of Schedule 5 as discussed above.
Application : The amendments made by Items 1 to 9 of Schedule 5 apply to assessments for the 1998-1999 income year and later income years.
Part 2 Amendment of the ITAA 1936
Provision being amended : Section 22A, which sets out the application of various exempt income provisions.
Amendment will : Insert new subsection 22A(2) which will close off the operation of paragraphs 23(z) and 23(zaa) for the 1998-1999 income year and later income years.
Reason for amendment : This amendment is consequential on the insertion of the rewrite of paragraphs 23(z) and 23(zaa) into the ITAA 1997.
Provision being amended : Section 24, which closes off the operation of Division 1AA of Part III of the ITAA 1936 that deals with exempting payments under the Social Security Act 1991 or the Veterans Entitlements Act 1986 or similar payments.
Amendment will : Insert new subsection 24(2) which will close off the operation of sections 24ABZE and 24ABZF for the 1998-1999 income year and later income years.
Reason for amendment : This amendment is consequential on the insertion by this Bill of the rewrite of sections 24ABZE and 24ABZF into the ITAA 1997.
Provision being amended : The definition of eligible income in subsection 159ZR(1), which contains the definitions for Subdivision-AB of Division 17 of Part III of the ITAA 1936 that deals with rebates for lump sum payments in arrears.
Amendment will : Repeal existing paragraph (e) of the definition of eligible income and substitute a new paragraph (e) .
Reason for amendment : The effect of this consequential amendment is to omit the existing references to Subdivision BA of Division 1AA of Part III of the ITAA 1936. The operation of that Subdivision has been closed off by Item 12 of Schedule 5 of this Bill as discussed above.
Provision being amended : The subsection 221A(1) of ITAA 1936 definition of salary or wages which is applicable, amongst other things, for the purposes of determining who is liable to pay tax under the PAYE system.
Amendment will : Omit the reference to Subdivision BA of Division 1AA of Part III of this Act.
Reason for amendment : This consequential amendment omits the reference to Subdivision BA of Division 1AA of Part III of the ITAA 1936 from the definition. The operation of that Subdivision has been closed off by Item 12 of Schedule 5 of this Bill as discussed above.
Application : The amendment made by Item 13 of Schedule 5 of this Bill applies for the purpose of determining whether a lump sum payment is eligible income in the 1998-1999 income year and later income years.