House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello MP)

Glossary

The following abbreviations and acronyms are used throughout this explanatory memorandum.

General outline and financial impact

Deductible gift recipients

Schedule 1 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to update the list of deductible gift recipients (DGRs) and extend the period for which deductions are allowed for gifts to certain funds that have time limited DGR status.

Date of effect: Deductions for gifts to the following organisations that are listed as DGRs under this Schedule, apply as follows:

•

Don Chipp Foundation Ltd from 27 June 2006;

•

Lingiari Policy Centre from 26 July 2006;

•

Nonprofit Australia Ltd from 29 June 2006 until 28 June 2009;

•

Playgroup SA Inc from 6 August 2006;

•

Point Nepean Community Trust from 27 June 2006 until 10 June 2009;

•

St Mary's Cathedral Restoration Appeal Incorporated from 27 April 2006 until 26 April 2007; and

•

The Ranfurly Library Service Incorporated from 3 May 2006.

In addition, this Schedule extends the DGR listing of:

•

Bowral Vietnam Memorial Walk Trust Incorporated until 15 August 2006;

•

Dunn and Lewis Youth Development Foundation Limited until 31 December 2006;

•

St Paul's Cathedral Restoration Fund until 22 April 2008; and

•

Yachad Accelerated Learning Project Limited until 30 June 2008.

Proposal announced: The deductibility of gifts to the Don Chipp Foundation Ltd was announced in the Minister for Revenue and Assistant Treasurer's Press Release No. 042 of 28 June 2006.

The deductibility of gifts to the Nonprofit Australia Ltd was announced in the Minister for Revenue and Assistant Treasurer's Press Release No. 045 of 30 June 2006.

The deductibility of gifts to the Lingiari Policy Centre was announced in the Minister for Revenue and Assistant Treasurer's Press Release No. 057 of 28 July 2006.

The deductibility of gifts to the Playgroup SA Inc was announced in the then Minister for Revenue and Assistant Treasurer's Press Release No. C059/04 of 25 June 2004.

The deductibility of gifts to the Point Nepean Community Trust was announced in the Minister for Revenue and Assistant Treasurer's Press Release No. 042 of 28 June 2006.

The extension for the deductibility of gifts to the Yachad Accelerated Learning Project Limited was announced in the Minister for Revenue and Assistant Treasurer's Press Release No. 042 of 28 June 2006.

Financial impact: The DGR listings will have these revenue implications:

Compliance cost impact: Nil.

Technical corrections, amendments and general improvements

Schedule 2 to this Bill makes minor corrections, amendments and general improvements to the usability of the taxation laws as part of the Government's ongoing commitment to improve the quality of those laws. Errors that are corrected include duplicated definitions, missing asterisks from defined terms and incorrect numbering.

A more substantive amendment is the formal transfer of power from the Prime Minister to the Treasurer to appoint a person to act as the Commissioner of Taxation or Second Commissioner of Taxation, during a vacancy in, or absence from, either office.

Date of effect: The amendments generally commence on Royal Assent. However, one amendment will apply retrospectively for the reasons set out in Chapter 2.

Proposal announced: Not previously announced.

Financial impact: Nil.

Compliance cost impact: Nil.

Chapter 1 Deductible gift recipients

Outline of chapter

1.1 Schedule 1 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to update the list of deductible gift recipients (DGRs) and extend the period for which deductions are allowed for gifts to certain funds that have time limited DGR status.

Context of amendments

1.2 The income tax law allows taxpayers to claim income tax deductions for gifts of $2 or more to DGRs. To be a DGR, an organisation must fall within a category of organisations set out in Division 30 of the ITAA 1997, or be listed by name under that Division.

1.3 DGR status assists relevant funds and organisations to attract public support for their activities.

Summary of new law

1.4 The amendments add certain organisations to the list of specifically listed DGRs and extend the period for which deductions are allowed for gifts to certain funds that have time limited DGR status. The extension will support the completion of work of the relevant organisation.

Detailed explanation of new law

1.5 Schedule 1 lists the organisations in Table 1.1 as DGRs. [Schedule 1, items 1 to 15]

1.6 The Don Chipp Foundation Ltd is an independent research body committed to research and public debate on environmental, social, cultural, economic and political issues. [Schedule 1, items 2 and 9]

1.7 Lingiari Policy Centre seeks to facilitate the social and economic advancement of Indigenous Australians through informed and creative ideas, research and opinion on issues of national importance to Indigenous Australians. [Schedule 1, items 2 and 10]

1.8 Nonprofit Australia Ltd seeks to work with not-for-profit leaders, corporate government, foundation investors, and individuals, to improve the viability of not-for-profit organisations for the benefit of the Australian society. [Schedule 1, items 8 and 11]

1.9 Playgroup SA Inc offers valuable support to parents and their children through the provision of public low-cost facilities to assist small children, particularly those socially disadvantaged, to develop vital skills in preparation for pre-school. Playgroups facilitate positive learning and social experiences for children, families and carers. [Schedule 1, items 4 and 12]

1.10 Point Nepean Community Trust was established to manage, protect and conserve land formerly occupied by the Department of Defence at Point Nepean in Victoria until the land is transferred to the Victorian Government, for incorporation into the Point Nepean National Park by June 2009. [Schedule 1, items 8 and 13]

1.11 St Mary's Cathedral Restoration Appeal Incorporated assists the St Mary's Cathedral in Hobart to raise money for the purpose of conducting urgent and critical repairs to the roof and stained glass windows of St Mary's Cathedral. [Schedule 1, items 8 and 15]

1.12 The Ranfurly Library Service Incorporated collects reading material from Australia, for children and adults, to distribute in schools and community libraries throughout Papua New Guinea and the South West Pacific region. [Schedule 1, items 5 and 14]

Extending periods for which gifts are deductible

1.13 Schedule 1 extends the period for which deductions are allowed for gifts to the organisations listed in Table 1.2. [Schedule 1, items 1 to 15]

1.14 The Bowral Vietnam Memorial Walk Trust Incorporated was established to raise funds to provide a memorial for the recognition, comfort and benefit of the Vietnam War veterans and their families. [Schedule 1, item 3]

1.15 The Dunn and Lewis Youth Development Foundation Limited was established to build a complex to serve as a memorial, as a recreational outlet and as a vocational training centre to link young people in Ulladulla with traineeships and other employment opportunities. [Schedule 1, item 7]

1.16 St Paul's Cathedral Restoration Fund assists St Paul's Cathedral in Melbourne to raise money for urgent restoration and critical repair work which is required to preserve the Cathedral building. [Schedule 1, item 6]

1.17 The purpose of the Yachad Accelerated Learning Project Limited is to improve the educational outcomes of Indigenous students through training Australian teachers using programmes developed through the Hebrew University of Jerusalem. The Project seeks to improve teaching and learning outcomes through a greater understanding of the culture and learning styles of Indigenous students from rural and remote communities. [Schedule 1, item 1]

Application and transitional provisions

1.18 The amendments to list and extend the organisations in Tables 1.1 and 1.2 apply from the dates of effect shown in those tables. [Schedule 1, items 1 to 15]

Chapter 2 Technical corrections, amendments and general improvements

Outline of chapter

2.1 Schedule 2 to this Bill makes various technical corrections and amendments to the taxation laws and also makes some general improvements to the law that are of a minor nature.

Context of amendments

2.2 Tax legislation is complex and wide-ranging and it is inevitable that minor errors occur occasionally. These errors detract from the readability of the taxation laws and sometimes confuse or mislead readers and hence require correction.

Summary of new law

2.3 The corrections, amendments and general improvements that Schedule 2 makes to the taxation laws are part of the Government's ongoing commitment to improve the quality of the taxation laws. Errors that are corrected include duplicated definitions, missing asterisks from defined terms and incorrect numbering. Redundant references are also removed.

2.4 A more substantive amendment is the formal transfer of power from the Prime Minister to the Treasurer to appoint a person to act as the Commissioner of Taxation (Commissioner) or Second Commissioner of Taxation (Second Commissioner), during a vacancy in, or absence from, either office.

2.5 The technical amendments generally commence on Royal Assent. However, the amendment explained in paragraph 2.23 will apply retrospectively for the reasons set out in paragraph 2.24.

Australian Taxation Office acting appointments

2.6 Section 6B of the Taxation Administration Act 1953 (TAA 1953) gives the Prime Minister power to appoint a person to act as the Commissioner or Second Commissioner, during a vacancy in, or absence from, either office. Subsection 6B(11) also allows the Treasurer to make acting appointments on the Prime Minister's behalf, but only where the Treasurer is authorised by the Prime Minister to exercise this power. In practice, the Treasurer usually exercises the power so the authorising process is an unnecessary inconvenience.

2.7 The amendment replaces the term 'Prime Minister' with 'Minister' throughout section 6B, making the Treasurer formally responsible for acting appointments. Subsection 6B(11) is repealed as the Prime Minister will no longer need to delegate the power to the Treasurer to make such acting appointments. A transitional provision ensures that appointments made by the Prime Minister continue to have effect. [Schedule 2, items 17 to 19, subsections 6B(1), (2), (5), (8), (9) and (11) of the TAA 1953]

Fixing incorrect references

2.8 Section 12-5 of the Income Tax Assessment Act 1997 (ITAA 1997) lists provisions that contain rules about specific types of deduction. The list of provisions includes a deduction for film income and a guide note suggests that readers 'see also losses' under that heading. There is no specific deduction for films under the heading 'losses' in section 12-5. The guide note should refer to 'tax losses'. Therefore 'see also losses' is replaced with 'see also tax losses'. [Schedule 2, item 11, section 12-5 of the ITAA 1997]

Updating a definition

2.9 Subsection 124K(1) of the Income Tax Assessment Act 1936 (ITAA 1936) defines the term 'Minister' for the purposes of Division 10B of Part III of the Act as 'the Minister for Arts, Sport, the Environment, Tourism and Territories'. There is no longer such a Minister. In the context of Division 10B, the relevant Minister is the Minister who administers the Film Licensed Investment Company Act 2005, hence the definition is replaced with a reference to the Minister responsible for administering that Act. [Schedule 2, item 3, subsection 124K(1) of the ITAA 1936]

Deleting duplicate definitions

2.10 The ITAA 1936 contains two definitions of 'approved form'. The definition in section 102AAB applies to Division 6AAA in Part III of the Act, whereas the definition in subsection 6(1) applies to the entire Act. The definitions are essentially the same. Therefore the definition of 'approved form' in section 102AAB in the ITAA 1936 is repealed. [Schedule 2, item 1, section 102AAB, definition of 'approved form' in the ITAA 1936]

2.11 A transitional provision preserves any existing forms approved under section 102AAB. [Schedule 2, item 2]

2.12 There are currently two definitions of 'statutory accounting period' in subsection 995-1(1) of the ITAA 1997. The definitions are essentially the same. Therefore one definition is repealed. [Schedule 2, item 16, definition of 'statutory accounting period' in subsection 995-1(1) in the ITAA 1997]

Inserting missing asterisks before defined terms

2.13 Most defined terms in recent tax laws are identified by an asterisk appearing at the start of the term. A footnote on each page of the ITAA 1997 refers readers to the Act's Dictionary of defined terms. Some defined terms are not properly identified by an asterisk. These amendments insert the missing asterisks. [Schedule 2, item 26, subparagraph 43-150(a)(v), subsection 87-40(1) and paragraph 204-30(2)(b) of the ITAA 1997]

Deleting asterisks from terms which do not require an asterisk

2.14 Sections 2-15 of the ITAA 1997 and 3-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) prescribe the conditions where defined terms are not asterisked. The conditions include situations where the defined term appears in non-operative material or in the list of terms used repeatedly throughout an Act. Asterisks in such cases are removed. [Schedule 2, items 25 and 26, subsection 38-50(2) and paragraphs 38-50(7)(b) and 184-1(1)(a), definition of 'individual' in the GST Act and definition of 'apportionable deductions' in subsection 995-1(1) in the ITAA 1997]

Renumbering of provisions

2.15 Some provisions require renumbering and related changes as a result of previous changes and repeals. For example, section 160AO of the ITAA 1936 contains subsections (2) and (3), but subsection (1) has been repealed. To prevent confusion subsection 160AO(2) will be renumbered 160AO(1) and subsection 160AO(3) will be renumbered 160AO(2). [Schedule 2, items 6, 20 and 21, subsections 160AO(2) and (3) of the ITAA 1936 and paragraphs 298-5(c) and (d) of Schedule 1 to the TAA 1953]

Updating the short titles of an Act

2.16 The short title of the Income Tax (International Agreements) Act 1953-1960 has changed to the International Tax Agreements Act 1953. Therefore, the reference to the Income Tax (International Agreements) Act 1953-1960 in subsection 160AO(2) of the ITAA 1936 is replaced with a reference to the International Tax Agreements Act 1953. [Schedule 2, item 5, subsection 160AO(2) of the ITAA 1936]

Removing redundant material

2.17 Section 40-145 of the ITAA 1997 applies the Criminal Code to offences covered in Division 40. Section 905-5 provides for a wider application of the Criminal Code to all offences against the ITAA 1997, including those offences in Division 40. Therefore section 40-145 is redundant and is repealed. [Schedule 2, item 12, section 40-145 of the ITAA 1997]

2.18 In defining 'foreign superannuation fund', paragraph 118-520(1)(c) of the ITAA 1997 uses the phrase 'not Australian residents or residents of a Territory' and paragraph 118-520(1)(d) uses 'none of whom is an Australian resident or a resident of a Territory'. Since the definition of 'Australian resident' already includes a resident of an Australian Territory because of subsection 7A(2) of the ITAA 1936, both references to 'resident of a Territory' are redundant and potentially confusing. The amendments remove the words 'resident of a Territory'. [Schedule 2, items 13 and 14, paragraphs 118-520(1)(c) and (d) of the ITAA 1997]

2.19 Subsection 252(2) of the ITAA 1936 deems the public officer of a company duly appointed under the previous Income Tax Assessment Act 1922 (1922 Act) to continue to be the public officer of the company duly appointed under the ITAA 1936. In reality, it is unlikely a public officer appointed under the 1922 Act would still be a public officer today. Therefore, subsection 252(2) is inoperative and is repealed. Consequently, subsections 252(3) to 252(6) are renumbered and the references to these provisions are updated. [Schedule 2, items 7 to 10, subsections 252(2), (3), (4), (4A) and (6) of the ITAA 1936]

Fixing grammatical errors

2.20 There is a minor grammatical error in a note after the definition of 'purpose of producing assessable income' in subsection 995-1(1) of the ITAA 1997. The note says 'these provisions treat use of property as not being for the purpose of producing assessable income' but is followed by only a single dot point that mentions one provision. The plural term 'provisions' implies there should be more than one provision listed. Therefore, the note is amended to use the singular case. [Schedule 2, item 15, definition of 'purpose of producing assessable income' in subsection 995-1(1) in the ITAA 1997]

Fixing technical drafting errors

2.21 Item 3 of Schedule 2 to the Taxation Laws Amendment Act (No. 5) 2001 contains a transitional provision which refers to the 'Legislative Instrument Act 2003'. The correct reference should be to the 'Legislative Instruments Act 2003'. Therefore the reference is replaced with 'Legislative Instruments Act 2003'. [Schedule 2, item 22; Schedule 2 to the Taxation Laws Amendment Act (No. 5) 2001 (item 3)]

2.22 Item 4 in Schedule 7 to the Tax Laws Amendment (2006 Measures No. 3) Act 2006 sought to replace 'Act' with 'Act; or' in paragraph 298-5(b) in Schedule 1 to the TAA 1953, so that it linked to paragraph 298-5(c). However, paragraph 298-5(c) has been supplemented by a paragraph 298-5(d), so the link should instead be between paragraphs 298-5(c) and (d). That link is added by another amendment (see paragraph 3.15). Therefore, item 4 of Schedule 7 to the Tax Laws Amendment (2006 Measures No. 3) Act 2006 is repealed. [Schedule 2, item 23; Schedule 7 to the Tax Laws Amendment (2006 Measures No. 3) Act 2006 (item 4)]

Missed consequential amendments

2.23 Section 49B of the Airports (Transitional) Act 1996 uses the term 'entity' and relies on the definition of that term in section 49A. Section 49A was repealed by the Tax Laws Amendment (Repeal of Inoperative Provisions) Act 2006 but a consequential amendment to section 49B was not made. Therefore, section 49B is amended to define 'entity' in the same way as the former section 49A. [Schedule 2, item 24, subsection 49B(7) of the Airports (Transitional) Act 1996]

2.24 This amendment commences immediately after the commencement of Part 1 of Schedule 2 to the Tax Laws Amendment (Repeal of Inoperative Provisions) Act 2006 to ensure the definition of 'entity' applies continuously from the date section 49A was repealed. [Clause 2, item 4 in the table]

2.25 Paragraph 159ZR(1)(f) of the ITAA 1936 defines 'eligible income' for Subdivision AB of Division 17 of Part III of the Act, by referring in part, to the Audit Act 1901. The Audit Act 1901 was repealed in 1997. Therefore, references to it are removed. [Schedule 2, item 4, paragraph 159ZR(1)(f), definition of 'eligible income' in the ITAA 1936]

Application and transitional provisions

2.26 All technical amendments generally commence on Royal Assent except for the amendment set out in paragraph 2.23, which will apply retrospectively for the reasons set out in paragraph 2.24. [Clause 2, item 4 in the table]

Index

Clause

Schedule 1: Specific listings of deductible gift recipients

Schedule 2: Technical corrections and amendments