House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon. Josh Frydenberg MP)

Glossary

This Explanatory Memorandum uses the following abbreviations and acronyms.

General outline and financial impact

Schedule 1 - Medicare Levy and Medicare Levy Surcharge Income Thresholds

Outline

Schedule 1 to the main Bill amends the Medicare Levy Act 1986 and the A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999 to increase:

•

the Medicare levy low-income thresholds for individuals and families (along with the dependent child/student component of the family threshold) in line with movements in the CPI;

•

the Medicare levy low-income thresholds for individuals and families eligible for SAPTO (along with the dependent child/student component of the family threshold), in line with movements in the CPI; and

•

the Medicare levy surcharge low-income threshold in line with movements in the CPI.

Date of effect

This measure applies to the 2021-22 income year and later income years.

Proposal announced

Schedule 1 to the main Bill fully implements the Personal income tax - increasing the Medicare levy low-income thresholds measure from the 2022-23 Budget.

Financial impact

This measure is estimated to decrease receipts by $90 million over the forward estimates period.

All figures in this table represent amounts in $m.

- nil

Human rights implications

Schedule 1 to the main Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 10.

Compliance cost impact

This measure will not have any ongoing compliance cost impact or additional impact on regulatory burden.

Schedule 2 - Deductibility of COVID-19 tests

Outline

Schedule 2 to the main Bill amends the ITAA 1997 by allowing an income tax deduction for taxpayers who incur relevant COVID-19 testing expenses in gaining or producing their assessable income. The deduction applies to relevant expenses incurred on or after 1 July 2021.

Date of effect

The amendments to the ITAA 1997 apply to losses and outgoings on or after 1 July 2021.

Proposal announced

Schedule 2 to the main Bill fully implements the tax deductibility of COVID-19 test expenses measure announced on 7 February 2022.

Financial impact

The measure is estimated to have a significant but unquantifiable cost to receipts over the forward estimates period.

*unquantifiable

Human rights implications

Schedule 2 to the main Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 10.

Compliance cost impact

This measure will have a negligible compliance cost.

Schedule 3 - Deductible gift recipients-new specific recipients

Outline

Schedule 3 to the main Bill amends the ITAA 1997 to allow the following entities to be deductible gift recipients under the income tax law:

•

Royal Humane Society of New South Wales Incorporated;

•

Perth Korean War Memorial Committee Incorporated;

•

Greek Orthodox Archdiocese of Australia Consolidated Trust Cathedral of the Annunciation of our Lady Restoration Fund;

•

The Australian Future Leaders Foundation Limited;

•

Lord Mayor's Charitable Foundation; and

•

The Ramsay Centre for Western Civilisation Limited.

Date of effect

The amendments apply to gifts made on and after 1 July 2020 to the Royal Humane Society of New South Wales Incorporated.

The amendments apply to gifts made on and after 1 July 2021 and before 1 July 2024 to:

•

Perth Korean War Memorial Committee Incorporated; and

•

Greek Orthodox Archdiocese of Australia Consolidated Trust Cathedral of the Annunciation of our Lady Restoration Fund.

The amendments apply to gifts made on and after 1 July 2021 to:

•

The Australian Future Leaders Foundation Limited;

•

Lord Mayor's Charitable Foundation; and

•

The Ramsay Centre for Western Civilisation Limited.

Proposal announced

Schedule 3 to the main Bill partially implements the measure Philanthropy - updates to the list of specifically listed deductible gift recipients from the 2020-21 Budget.

This Schedule partially implements the measure Philanthropy - updates to the list of specifically listed deductible gift recipients from the 2021-22 MYEFO.

Financial impact

Specifically listing the Perth Korean War Memorial Committee Incorporated, Greek Orthodox Archdiocese of Australia Consolidated Trust Cathedral of the Annunciation of our Lady Restoration Fund, The Australian Future Leaders Foundation Limited, Lord Mayor's Charitable Foundation and The Ramsay Centre for Western Civilisation Limited was part of the 2021-22 MYEFO measure Philanthropy - updates to the list of specifically listed deductible gift recipients. This measure, which included specific listings for two other organisations, was estimated to decrease receipts by $1.7 million over the forward estimates period.

Specifically listing the Royal Humane Society of New South Wales Incorporated was part of the 2020-21 Budget measure Philanthropy - updates to the list of specifically listed deductible gift recipients. This measure, which included specific listings for several organisations, was estimated at the 2020-21 Budget to decrease receipts by $4.1 million over the period from 2020-21 to 2023-24.

Human rights implications

Schedule 3 to the main Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 10.

Compliance cost impact

This measure is expected to have a low impact on compliance costs.

Schedule 4 - Employee Share Schemes

Outline

Schedule 4 to the main Bill makes it easier for businesses to create employee share schemes. This Schedule provides regulatory relief to employee share schemes which meet particular requirements.

Date of effect

The amendments in Schedule 4 to the main Bill commence 6 months after Royal Assent.

Proposal announced

Schedule 4 to the main Bill implements:

•

the Small Business Package - finance and cash flow measure from the 2018-19 MYEFO;

•

the Employee Share Schemes - removing cessation of employment as a taxing point and reducing red tape measure from the 2021-22 Budget; and

•

the Employee Share Schemes - further reducing red tape measure from the 2022-23 Budget.

Financial impact

Schedule 4 to the main Bill will have an unquantifiable impact on receipts over the forward estimates period.

- nil

* unquantifiable

Human rights implications

Schedule 4 to the main Bill raises human rights issues. See Statement of Compatibility with Human Rights - Chapter 10.

Compliance cost impact

It is expected that this measure will reduce compliance costs for businesses creating employee share schemes.

Schedule 5 - Varying the GDP uplift factor for tax instalments

Outline

Schedule 5 to the main Bill amends the TAA 1953 to reduce the GDP adjustment factor for the 2022-23 income year to 2 per cent. The GDP adjustment factor is applied by the Commissioner to work out the amount of PAYG and GST instalments payable by a taxpayer in certain circumstances.

Date of effect

This measure will apply for the purposes of working out the amount of PAYG and GST instalments for instalment quarters that fall due for the 2022-23 income year.

Proposal announced

Schedule 5 to the main Bill fully implements the Lowering tax instalments in 2022-23 measure announced on 23 March 2022.

Financial impact

This measure is estimated to have the following impact on the underlying cash balance over the forward estimates period.

All figures in this table represent amounts in $m.

- nil

Human rights implications

Schedule 5 to the main Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 10.

Compliance cost impact

This measure does not have any compliance cost impact.

Schedule 6 - Low and middle income tax offset

Outline

Schedule 6 to the main Bill amends the ITAA 1997 to increase the low and middle income tax offset for the 2021-22 income year by $420 to ease cost of living pressures for Australians.

Date of effect

The amendments to the low and middle income tax offset in Schedule 6 to the main Bill apply to the 2021-22 income year.

Proposal announced

Schedule 6 to the Bill fully implements Cost of living tax offset measure from the 2022-23 Budget.

Financial impact

This measure is estimated to decrease receipts by $4.1 billion over the forward estimates period.

All figures in this table represent amounts in $m.

.. is used to indicate that the financial impact is not zero but is rounded to zero.

Human rights implications

Schedule 6 to the main Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 10.

Compliance cost impact

This measure is expected to only have a minor regulatory impact.

Schedule 7 - Safety Net Thresholds

This Schedule was prepared by the Department of Health.

Outline

There are two PBS safety net thresholds - concessional and general. The general patient safety net threshold is currently $1,542.10, which equates to approximately 36 general patient co-payments. The concessional safety set threshold is currently $326.40 which is the equivalent to 48 concessional patient co-payments.

The purpose of Schedule 7 to the main Bill is to amend the National Health Act 1953 to lower the PBS safety net thresholds for the concessional safety net to 36 scripts (from 48) and general to $1457.10 (from $1542.10) on 1 July 2022.

Date of effect

This change will come into effect on 1 July 2022 and will apply to any concessional and general patient safety net thresholds on that date.

Proposal announced

Schedule 7 to the main Bill fully implements a measure from the 2022-23 Budget.

Financial impact

The change to the safety net thresholds, as outlined in Schedule 7 to the main Bill, is estimated to deliver increased net expenditure of $525.3 million over four years to 2025-26 (underlying cash).

Human rights implications

Schedule 7 to the main Bill raises human rights issues. See Statement of Compatibility with Human Rights - Chapter 10.

Compliance cost impact

This measure does not have any compliance cost impact.

Schedule 8 - 2022 cost of living payment

This Schedule was prepared by the Department of Social Services and the Department of Veterans' Affairs.

Outline

Schedule 8 to the main Bill provides for the payment of 2022 cost of living payment of $250 to around 6 million Social Security and Veterans' income support and compensation recipients, Farm Household Allowance recipients, and holders of a Pensioner Concession Card, Commonwealth Seniors Health Card or Veteran Gold Card.

To be qualified for the 2022 cost of living payment, a person must be residing in Australia and be receiving one of the qualifying payments or hold or have claimed and qualified for one of the qualifying concession cards on 29 March 2022.

Date of effect

Schedule 8 to the main Bill commences the day after the main Bill receives Royal Assent.

Proposal announced

Schedule 8 to the main Bill fully implements a measure from the 2022-23 Budget.

Financial impact

This measure is estimated to have a financial impact of $1,517.2 million in 2021-22 income year.

Human rights implications

Schedule 8 to the main Bill raises human rights issues. See Statement of Compatibility with Human Rights - Chapter 10.

Compliance cost impact

This measure does not have any compliance cost impact.

Schedule 9 - Fuel duty consequential amendments

Customs Tariff Amendment (Cost of Living Support) Bill 2022

Excise Tariff Amendment (Cost of Living Support) Bill 2022

Outline

The Excise Bill and Customs Bill amend the Excise Tariff Act and the Customs Tariff Act respectively to temporarily reduce the excise duty rates and excise-equivalent customs duty rates for fuels, including petrol and diesel and similar petroleum-based products, including oils and grease.

These changes assist in temporarily easing cost of living and business pressures by providing a temporary reduction in fuel excise and customs duties.

Date of effect

The amendments commence on 30 March 2022.

Proposal announced

The Excise Bill and the Customs Bill and Schedule 9 to the main Bill fully implement the 50 per cent reduction for six months in fuel excise and excise-equivalent customs duty measure from the 2022-23 Budget.

Financial impact

The measure is estimated to have the following impact to underlying cash over the forward estimates period.

All figures in this table represent amounts in $m.

Human rights implications

The Excise Bill and the Customs Bill and Schedule 9 to the main Bill do not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 10.

Compliance cost impact

This measure is expected to have a low impact on compliance costs.

Chapter 1: Medicare Levy and Medicare Levy Surcharge Income Thresholds

Outline of chapter

1.1 Schedule 1 to the main Bill amends the Medicare Levy Act 1986 and the A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999 to increase:

•

the Medicare levy low-income thresholds for individuals and families (along with the dependent child/student component of the family threshold) in line with movements in the CPI;

•

the Medicare levy low-income thresholds for individuals and families eligible for SAPTO (along with the dependent child/student component of the family threshold), in line with movements in the CPI; and

•

the Medicare levy surcharge low-income threshold in line with movements in the CPI.

Context of amendments

Medicare levy low-income thresholds

1.2 The Medicare Levy Act 1986 provides that no Medicare levy is payable by low-income individuals and families where their taxable income or combined family taxable income does not exceed the stated threshold amounts.

1.3 The Medicare levy phases in at a rate of 10 cents in the dollar where the taxable income or combined family taxable income exceeds the threshold amounts (section 7 of the Medicare Levy Act 1986).

Medicare levy surcharge low-income threshold

1.4 A Medicare levy surcharge of between one and one and a half per cent applies on taxable income in certain cases where taxpayers do not have appropriate private patient hospital cover (sections 8B and 8G of the Medicare Levy Act 1986). The Medicare levy surcharge also applies to reportable fringe benefits in certain cases where taxpayers do not have appropriate private hospital cover (sections 12 to 16 of the A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999).

1.5 A family member who otherwise would be liable for the Medicare levy surcharge is not required to pay the surcharge where the total of that person's income for surcharge purposes does not exceed the individual low-income threshold amount. Unlike the Medicare levy, there is no phase-in of the Medicare levy surcharge above the threshold amount.

Summary of new law

1.6 Schedule 1 to the main Bill amends:

•

subsections 3(1) and 8(5) to 8(7) of the Medicare Levy Act 1986 to increase the threshold amounts and phase-in limits for individuals, families and individual taxpayers and families eligible for the SAPTO;

•

paragraphs 8D(3)(c) and 8G(2)(c) and subparagraphs 8D(4)(a)(ii) and 8G(3)(a)(ii) of the Medicare Levy Act 1986 to raise the threshold below which a family member is not required to pay the Medicare levy surcharge on taxable income; and

•

paragraphs 15(1)(c) and 16(2)(c) of the A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999 to raise the threshold below which a family member is not required to pay the Medicare levy surcharge on reportable fringe benefits.

Comparison of key features of new law and current law

Table 1.1 Comparison of new law and current law

Detailed explanation of new law

1.7 Schedule 1 to the main Bill increases the low-income threshold for individuals and families (including the dependent child-student component of the family threshold) in line with annual movements in the CPI.

1.8 Section 7 of the Medicare Levy Act 1986 states that no levy is payable where a taxpayer has a taxable income at or below the applicable threshold amount as specified in subsection 3(1) of the Medicare Levy Act 1986.

1.9 The individual threshold amount (specified in paragraph (c) of the definition of the 'threshold amount' in subsection 3(1) of the Medicare Levy Act 1986) increases from $23,226 to $23,365. [Schedule 1, item 5, paragraph (c) of the definition of 'threshold amount' in subsection 3(1) of the Medicare Levy Act 1986]

1.10 The level of the 'family income threshold' referred to in subsections 8(5) to 8(7) of the Medicare Levy Act 1986 increases from $39,167 to $39,402. For each dependent child or student, the family income threshold increases by a further $3,619, instead of the previous amount of $3,597. [Schedule 1, items 6, 7 and 8, the definition of 'family income threshold' in subsection 8(5), and subsections 8(6) and (7) of the Medicare Levy Act 1986]

1.11 Schedule 1 to the main Bill also increases the threshold amount for individual taxpayers eligible for the SAPTO for the 2021-22 income year.

1.12 The threshold amount for individual taxpayers eligible for the SAPTO (specified in paragraph (a) of the definition of the 'threshold amount' in subsection 3(1) of the Medicare Levy Act 1986) increases from $36,705 to $36,925. [Schedule 1, item 4, paragraph (a) of the definition of 'threshold amount' in subsection 3(1) of the Medicare Levy Act 1986]

1.13 The threshold amount for families eligible for SAPTO increases from $51,094 to $51,401. For each dependent child or student, the income threshold increases by a further $3,619, instead of the previous figure of $3,597. [Schedule 1, item 9, subsection 8(7) of the Medicare Levy Act 1986]

Phase-in limits

1.14 Section 7 of the Medicare Levy Act 1986 also provides that the Medicare levy applies at a reduced rate to taxpayers with taxable incomes above the threshold amount but not more than the 'phase-in limit' specified in subsection 3(1). The rate of Medicare levy payable in these circumstances is limited to 10 per cent of the excess over the threshold amount that is relevant to the particular person.

1.15 The phase-in limit for individuals (specified in paragraph (c) of the definition of 'phase-in limit' in subsection 3(1) of the Medicare Levy Act 1986) increases from $29,032 to $29,206. [Schedule 1, item 3, paragraph (c) of the definition of 'phase-in limit' in subsection 3(1) of the Medicare Levy Act 1986]

1.16 The phase-in limit for individual taxpayers eligible for SAPTO (specified in paragraph (a) of the definition of 'phase-in limit' in subsection 3(1) of the Medicare Levy Act 1986) increases from $45,881 to $46,156. [Schedule 1, item 2, paragraph (a) of the definition of 'phase-in limit' in subsection 3(1) of the Medicare Levy Act 1986]

1.17 There is no phase-in limit for families in the Medicare Levy Act 1986, as the limit changes with the number of dependants. Instead, subsection 8(2) of the Medicare Levy Act 1986 contains a formula that limits the levy payable by persons with families to 10 per cent of the amount of family income that exceeds their family income threshold.

1.18 The increased threshold amounts and phase-in ranges for the 2021-22 income year are as shown in Table 1.2.

Table 1.2 2021-22 Medicare levy low-income threshold amounts and phasing-in ranges

Medicare levy surcharge low-income threshold

1.19 References to the individual low-income threshold amount of $23,226 in the Medicare levy surcharge provisions (in sections 8D and 8G of the Medicare Levy Act 1986) in respect of the surcharge payable on taxable income for a person who is married (or both married and a beneficiary of a trust) are also increased to $23,365. [Schedule 1, items 10 to 13, paragraphs 8D(3)(c) and 8G(2)(c) and subparagraphs 8D(4)(a)(ii) and 8G(3)(a)(ii) of the Medicare Levy Act 1986]

1.20 References to the individual low-income threshold amount of $23,226 in the Medicare levy surcharge provisions (in sections 15 and 16 of the A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999) in respect of the surcharge on reportable fringe benefits are also increased to $23,365. [Schedule 1, item 1, paragraphs 15(1)(c) and 16(2)(c) of the A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999]

Commencement, application, and transitional provisions

1.21 Schedule 1 to the main Bill commences on the day after it receives Royal Assent. [Clause 2]

1.22 The amendments apply retrospectively from the start of the 2021-22 income year. However, they are beneficial to all affected taxpayers as they retrospectively reduce or remove liability for Medicare levy and the Medicare levy surcharge that would otherwise apply to affected taxpayers.

1.23 Schedule 1 to the main Bill applies to assessments for the 2021-22 income year and later income years. [Schedule 1, item 14]

Chapter 2: Deductibility of COVID-19 tests

Outline of chapter

2.1 Schedule 2 to the main Bill amends the ITAA 1997 by allowing an income tax deduction for taxpayers who incur relevant COVID-19 testing expenses in gaining or producing their assessable income. The deduction applies to those expenses incurred on or after 1 July 2021.

2.2 Legislative references in this chapter are made to ITAA 1997 unless otherwise specified.

Context of amendments

2.3 The Government is taking action to remove uncertainty on the tax treatment of COVID-19 testing expenses, ensuring that our response to the evolving COVID-19 pandemic remains flexible and practical. This action recognises that COVID-19 tests are one of a range of important tools for mitigating transmission risks and absences from the workplace.

Summary of new law

2.4 From 1 July 2021, the amendments provide individual taxpayers with a specific deduction for their loss or outgoing incurred in gaining or producing assessable income. The loss or outgoing must be incurred in respect of a COVID-19 test with the purpose of determining whether the taxpayer should attend their place of work. To qualify, the test must be one that is:

•

a polymerase chain reaction test for testing COVID-19; or

•

a test that is included in the Australian Register of Therapeutic Goods for testing COVID-19 (such as an approved rapid antigen test).

2.5 To claim the deduction under the amendments, taxpayers must meet the general substantiation requirements.

2.6 Employers that provide relevant COVID-19 testing to employees in the course of their work will not incur FBT liability.

Detailed explanation of new law

Deductibility of COVID-19 tests

2.7 From 1 July 2021, taxpayers may deduct expenses for COVID-19 tests under certain conditions. This deduction applies to the extent that the expense is incurred in gaining or producing their assessable income. To claim a deduction for this expense, the taxpayer must generally satisfy the following criteria:

•

the taxpayer is an individual;

•

the expense is incurred for qualifying COVID-19 tests (explained below); and

•

the purpose of testing the taxpayer for COVID-19 is to determine whether they can attend or remain at their place of work. [Schedule 2, item 2, subsection 25-125(1)]

2.8 To claim the deduction, there must be a sufficient connection between testing the taxpayer for COVID-19 and that taxpayer's assessable income. The amendments ensure that the expenses for relevant COVID-19 tests are deductible when undertaken for the purpose of determining whether a taxpayer should attend or remain at their place of work. The amendments cover circumstances where a taxpayer's positive COVID-19 status means that they cannot attend their place of work at all, or will instead work from home if they are able to. [Schedule 2, item 2, paragraph 25-125(1)(c)]

2.9 If, for example, a rapid antigen test is used due to a requirement for leisure activities and travel, or for the prospect of future employment, the expense is not deductible. In those circumstances, there is a lack of sufficient nexus between the expense and the taxpayer's assessable income.

2.10 Where the relevant expense is partially incurred in gaining or producing assessable income, the amount of the deduction is reasonably apportioned (e.g. where a two-pack rapid antigen test is purchased and one is used for purposes such as leisure travel, and one is used for work purposes, the amount of the expense is halved for the purposes of the deduction).

2.11 The ancillary costs of acquiring the tests, including the costs of travelling and parking to purchase a testing kit cannot be claimed as a deduction. However, it is not the policy intention to exclude other incidental costs during the purchase of the test, such as vendor credit card surcharge fees at the time of purchase, and postage and handling for online purchases.

2.12 The expense must be incurred in respect of a qualifying test that tests the taxpayer for COVID-19. To qualify, the test must be one that is either:

•

a polymerase chain reaction test (commonly known as a PCR test) for the detection of COVID-19; or

•

a test that is:

-

covered by the meaning of a therapeutic good and included in the Australian Register of Therapeutic Goods (maintained under section 9A of the Therapeutic Goods Act 1989); and

-

has the intended purpose of detecting COVID-19 and is included in the Australian Register of Therapeutic Goods for that purpose. [Schedule 2, item 2, paragraph 25-125(1)(b) and subsection 25-125(3)]

2.13 In general terms, from 1 July 2021, taxpayers who purchase and undertake COVID-19 tests to determine whether they can attend their place of work can deduct expenses for those tests to the extent that they are incurred in gaining or producing their assessable income. These include expenses for COVID-19 tests that are polymerase chain reaction tests undertaken through a private clinic where the taxpayer incurs the expense, or other tests included in the Australian Register of Therapeutic Goods, including those commonly known as rapid antigen tests.

2.14 Under the amendments, the taxpayer may not deduct an amount of the expense to the extent that it is capital, or capital in nature. A deduction is available for individuals who are required to purchase and use qualifying COVID-19 tests to determine whether they attend their place of work. In these cases, especially due to the consumable nature or the expected repeated use of tests, it is not expected that the relevant expenses would be capital in nature. [Schedule 2, item 2, subsection 25-125(2)]

Substantiation rules and applicable exceptions for COVID-19 test expenses

2.15 Division 900 provides rules regarding necessary substantiation of expenses that may be deducted in an income year. Under section 900-5, substantiation requirements of the Division apply generally to individuals.

2.16 Specifically, subsection 900-35(1) provides that work expenses (as defined under section 900-30) of $300 or less in an income year do not need to be substantiated if those expenses were incurred by the taxpayer in producing their salary and wages. However, if an amount over $300 is claimed in an income year, all amounts of the deduction need to be substantiated.

2.17 The amendments ensure that eligible expenses for COVID-19 testing are subject to the exception to the substantiation rules for work expenses where appropriate. [Schedule 2, item 3, subsection 900-30(7)]

2.18 This means that for employees who require COVID-19 testing to determine whether they will attend their place of work, they do not need to substantiate those expenses if their total work expenses deduction is $300 or less.

2.19 In circumstances where the exception from substantiation under the rules for work expenses does not apply, the existing rules for substantiation continue to apply.

Fringe benefits tax consequences for employers who provide COVID-19 tests to employees

2.20 As the amendments provide a specific deduction for individuals that incur relevant expenses for COVID-19 tests on or after 1 July 2021, there may be implications with respect to FBT.

2.21 In general, where an employer provides the benefit of COVID-19 tests to employees to determine whether they can attend their place of work, and this benefit was provided on or after 1 July 2021, the employer may reduce their FBT liability by applying the 'otherwise deductible' rule.

2.22 Under the FBT regime, the value of fringe benefits (benefits other than salary and wages) provided by employers to employees is generally taxable under the FBTAA 1986. COVID-19 tests provided by employers to employees (whether directly or through a third party under an arrangement, or as a reimbursement of the cost to employees) are considered benefits under the FBT regime.

2.23 An employer can, however, reduce the taxable value of the fringe benefit provided to an employee where the 'otherwise deductible' rule applies, for example, in sections 24 (employee expense payment fringe benefits), 44 (property fringe benefits) or 52 (residual fringe benefits) of the FBTAA 1986.

2.24 The 'otherwise deductible' rule allows the employer to reduce the taxable value of the fringe benefit (and therefore the FBT liability) by the amount of the income tax deduction the employee would otherwise have been entitled to claim at the time the benefit was provided had the employee incurred the relevant costs.

2.25 The existing FBT record keeping requirements apply. Where the 'otherwise deductible' rule is applied, the employer would need to ensure they have the relevant documentation and employee declarations to substantiate the extent to which the benefit provided would have been 'otherwise deductible' to the employee.

Consequential amendments

2.26 The list of provisions about deductions in section 12-5 is updated to include the specific deduction under the amendments. This provision acts as a guide to the legislation. [Schedule 2, item 1, table under section 12-5]

Commencement, application, and transitional provisions

2.27 The amendments commence on the first day of the first quarter following Royal Assent of the main Bill. [Clause 2]

2.28 The amendments apply to relevant expenses incurred on or after 1 July 2021. [Schedule 2, item 4]

2.29 Although the amendments apply retrospectively, the amendments provide an income tax deduction in the relevant circumstances and do not disadvantage affected taxpayers.

Chapter 3: Deductible gift recipients-new specific recipients

Outline of chapter

3.1 Schedule 3 to the main Bill amends the ITAA 1997 to allow the following entities to be deductible gift recipients under the income tax law:

•

Royal Humane Society of New South Wales Incorporated;

•

Perth Korean War Memorial Committee Incorporated;

•

Greek Orthodox Archdiocese of Australia Consolidated Trust Cathedral of the Annunciation of our Lady Restoration Fund;

•

The Australian Future Leaders Foundation Limited;

•

Lord Mayor's Charitable Foundation; and

•

The Ramsay Centre for Western Civilisation Limited.

Context of amendments

3.2 The income tax law allows income tax deductions for taxpayers who make gifts of $2 or more to a deductible gift recipient. Deductible gift recipients are entities that fall within one of the general categories set out in Division 30 of the ITAA 1997 or are specifically listed by name in that Division. Legislative references in this Chapter are to the ITAA 1997 unless otherwise specified.

3.3 Deductible gift recipient status helps eligible organisations attract public financial support for their activities.

3.4 Royal Humane Society of New South Wales Incorporated (ABN 68 581 296 689) is a charity committed to publicly recognising acts of bravery by bestowing awards on those who risk their own lives in saving or attempting to save the lives of others.

3.5 Perth Korean War Memorial Committee Incorporated (ABN 90 608 024 391) is a charity created to establish a war memorial in Perth to honour the service and sacrifices of the Australians who served in the Korean War between 1950 and 1953.

3.6 Greek Orthodox Archdiocese of Australia Consolidated Trust Cathedral of the Annunciation of our Lady Restoration Fund (ABN 32 574 064 265) is operated by a registered charity and was created to restore the Cathedral of the Annunciation of our Lady which was damaged by fire in September 2021.

3.7 The Australian Future Leaders Foundation Limited (ABN 28 649 403 654) is a charity committed to advancing education, with a focus on building the skills, experience and capability of Australia's future leaders.

3.8 Lord Mayor's Charitable Foundation (ABN 48 042 414 556) is a charity that is committed to responding to social, economic, cultural, educational, environmental and other charitable needs of the community for the public benefit.

3.9 The Ramsay Centre for Western Civilisation Limited (ABN 22 617 686 905) is a charity that promotes studies and discussion associated with the establishment and development of western civilisation, including through establishing and administering scholarship funds and educational courses in collaboration and partnership with universities and other educational providers.

Summary of new law

3.10 Schedule 3 to the main Bill amends the ITAA 1997 to allow the following entities to be deductible gift recipients under the income tax law:

•

Royal Humane Society of New South Wales Incorporated;

•

Perth Korean War Memorial Committee Incorporated;

•

Greek Orthodox Archdiocese of Australia Consolidated Trust Cathedral of the Annunciation of our Lady Restoration Fund;

•

The Australian Future Leaders Foundation Limited;

•

Lord Mayor's Charitable Foundation; and

•

The Ramsay Centre for Western Civilisation Limited.

Detailed explanation of new law

3.11 Taxpayers may claim an income tax deduction for gifts made to Royal Humane Society of New South Wales Incorporated (ABN 68 581 296 689) provided the gift complies with the existing requirements of the income tax law. This amendment ensures that Royal Humane Society of New South Wales Incorporated receives appropriate support through the Commonwealth tax system. [Schedule 3, item 3, table item 13.2.33 in the table in section 30-105]

3.12 Taxpayers may claim an income tax deduction for gifts made to Perth Korean War Memorial Committee Incorporated (ABN 90 608 024 391) provided the gift complies with the existing requirements of the income tax law. This amendment ensures that Perth Korean War Memorial Committee Incorporated receives appropriate support through the Commonwealth tax system. [Schedule 3, item 2, table item 5.2.37 in the table in section 30-50(2)]

3.13 Taxpayers may claim an income tax deduction for gifts made to Greek Orthodox Archdiocese of Australia Consolidated Trust Cathedral of the Annunciation of our Lady Restoration Fund (ABN 32 574 064 265) provided the gift complies with the existing requirements of the income tax law. This amendment ensures that Greek Orthodox Archdiocese of Australia Consolidated Trust Cathedral of the Annunciation of our Lady Restoration Fund receives appropriate support through the Commonwealth tax system. [Schedule 3, item 3, table item 13.2.31 in the table in section 30-105]

3.14 Taxpayers may claim an income tax deduction for gifts made to The Australian Future Leaders Foundation Limited (ABN 28 649 403 654) provided the gift complies with the existing requirements of the income tax law. This amendment ensures that The Australian Future Leaders Foundation Limited receives appropriate support through the Commonwealth tax system. [Schedule 3, item 1, table item 2.2.54 in the table in section 30-25(2)]

3.15 Taxpayers may claim an income tax deduction for gifts made to Lord Mayor's Charitable Foundation (ABN 48 042 414 556) provided the gift complies with the existing requirements of the income tax law. This amendment ensures that Lord Mayor's Charitable Foundation receives appropriate support through the Commonwealth tax system. [Schedule 3, item 3, table item 13.2.32 in the table in section 30-105]

3.16 Taxpayers may claim an income tax deduction for gifts made to The Ramsay Centre for Western Civilisation Limited (ABN 22 617 686 905) provided the gift complies with the existing requirements of the income tax law. This amendment ensures that The Ramsay Centre for Western Civilisation Limited receives appropriate support through the Commonwealth tax system. [Schedule 3, item 1, table item 2.2.55 in the table in section 30-25(2)]

Consequential amendments

3.17 Schedule 3 also amends the index for Division 30 of the ITAA 1997 to reflect the new listings. [Schedule 3, items 4 to 9, table items 21AA, 52BA, 68A, 84A, 94AAA and 103AA in the table in section 30-315]

Commencement, application, and transitional provisions

Commencement

3.18 The amendments commence on the first day of the quarter following Royal Assent. [Clause 2]

Application

3.19 The listing of Royal Humane Society of New South Wales Incorporated applies to gifts made on and after 1 July 2020.

3.20 The following listings apply to gifts made on and after 1 July 2021 and before 1 July 2024:

•

Perth Korean War Memorial Committee Incorporated; and

•

Greek Orthodox Archdiocese of Australia Consolidated Trust Cathedral of the Annunciation of our Lady Restoration Fund.

3.21 The following listings apply to gifts made on and after 1 July 2021:

•

The Australian Future Leaders Foundation Limited;

•

Lord Mayor's Charitable Foundation; and

•

The Ramsay Centre for Western Civilisation Limited.

Chapter 4: Employee Share Schemes

Outline of chapter

4.1 Schedule 4 to the main Bill introduces amendments make it easier for businesses to create employee share schemes.

4.2 References in this Chapter of this Explanatory Memorandum to 'the Act' are to the Corporations Act 2001.

Context of amendments

4.3 An employee share scheme is an arrangement put in place by a business to reward people who contribute to the business, namely directors, employees and service providers (referred to as 'participants'), with shares or other interests in the business in exchange for their labour.

4.4 Employee share schemes are often used by start-ups and cash poor businesses to attract employees when the business would be unable to compete with the salary and wages offered by larger and more established businesses.

4.5 Participants are generally offered the ability to join an employee share scheme for a business when they start their employment with the business or reach a new level of seniority within the business.

4.6 Employee share schemes come in many different forms. Employee share schemes can:

•

be offered in addition to salary and wages;

•

be offered to all or only certain groups of people participating in the business (such as senior managers and directors);

•

be in shares or other interests in the business (such as options or units in a trust);

•

involve trust arrangements where a trustee holds the shares on behalf of the participants; and

•

require the participants to make payments or take out loans to participate in the scheme.

4.7 Offers under employee share schemes can take many different forms. Offers can:

•

be created by separate offer rounds where a business offers interests to participants, with a deadline for those participants to accept the offer; or

•

be permanently open to allow people who participate in the business to join the scheme at any time.

4.8 The Act contains a variety of rules for businesses which issue financial products and securities. These rules include a requirement to obtain an Australian financial services licence and restrictions on hawking and advertising and disclosure requirements.

4.9 Financial products and securities offered as a part of certain employee share schemes are excluded from some of these requirements under the Act.

4.10 Further exclusions are currently made in ASIC class orders CO 14/1000 and CO 14/1001. Class Order 14/1000 applies to listed bodies corporate and listed registered schemes and Class Order 14/1001 applies to unlisted bodies corporate.

4.11 The Government is committed to reducing red tape for business, supporting job creation and competitive remuneration, and incentivising employers and employees to work together to contribute to a strong and sustained post COVID-19 economic recovery.

4.12 Going forward, businesses offering employee share schemes, where participants do not have to pay or borrow to participate in an employee share scheme, will not have to consider or comply with any requirements under the Act in respect of the employee share scheme.

4.13 These reforms build on the:

•

Government's previous announcement on 13 November 2018 that it would streamline the exclusions under the Act and ASIC class orders to make it easier for businesses to offer employee share schemes;

•

consultation paper released on 3 April 2019 outlining possible approaches;

•

changes announced as part of the 2021-22 Budget; and

•

changes announced as part of the 2022-23 Budget.

Summary of new law

4.14 If an employee share scheme receives relief under Schedule 4 to the main Bill, the standard regulatory requirements for businesses offering shares and financial products to retail clients under the Act will not apply. This will mean:

•

a scheme can be operated without an Australian financial services licence;

•

general financial advice can be provided in relation to the scheme without an Australian financial services licence;

•

the restrictions on advertising and hawking securities and financial products in the Act do not apply to the scheme; and

•

the existing disclosure requirements under the Act do not apply to offers under the scheme.

4.15 In simple terms, an employee share scheme can receive relief under Schedule 4 to the main Bill if:

•

the interests issued, sold or transferred to participants under the scheme fall within certain eligible categories of interests (for example - shares or options);

•

the participants in the scheme are directors, employees, or service providers; or

•

if the scheme requires payment to participate:

-

certain disclosure documents are provided with the offer;

-

if the scheme has an associated contribution plan, loan or trust, the contribution plan, loan or trust meet certain requirements;

-

the total numbers of products issued under the scheme over the previous three years does not exceed the specified percentage of the body's issued capital (5 per cent for listed bodies or 20 per cent for unlisted body corporates, unless otherwise specified by regulations or the body corporate's constitution); and

-

for an unlisted body corporate, all participants are generally limited to outlay a monetary cap of $30,000 per year (which can be accrued for unexercised options over a 5-year period, up to a maximum of $150,000), plus 70 per cent of dividends and 70 per cent of cash bonuses.

4.16 Generally, for an employee share scheme to receive relief under Schedule 4 to the main Bill the interests offered, issued, sold or transferred under the scheme to participants must be:

•

for listed body corporates, the interest must be able to be traded on a financial market, and be one of the below types of interests;

-

a fully paid share;

-

a beneficial interest in a fully paid share;

-

a stapled security; or

-

a unit in, an incentive right in relation to, or an option to acquire one of the above interests;

•

for unlisted bodies corporate:

-

a fully paid share; or

-

a unit in, an incentive right in relation to, or an option to acquire a fully paid share;

•

for registered schemes:

-

an interest in the registered scheme that is tradable on a financial market; or

-

a unit in, an incentive right in relation to, or an option to acquire an interest in, the registered scheme that is tradable on a financial market.

4.17 Employee share schemes which require participants to pay for an interest to participate will need to provide disclosure in relation to offers under the scheme. The disclosure requirements are streamlined versions of the general requirements under the Act.

4.18 The disclosure documents required to be provided are:

•

for a listed body corporate or registered scheme - certain warnings;

•

for an unlisted body corporate:

-

certain warnings;

-

certain financial information about the body corporate;

-

a valuation of the interests; and

-

a statement that the company is solvent.

Detailed explanation of new law

Regulatory relief for employee share schemes

4.19 If an employee share scheme does not require payment to participate:

•

the scheme can be operated without an Australian financial services licence;

•

general financial advice can be provided in relation to the scheme without an Australian financial services licence;

•

the restrictions on advertising and hawking securities and financial products in the Act do not apply to the scheme;

•

the design and distribution obligations do not apply to the issue, sale or transfer of interests under the scheme; and

•

no disclosure requirements apply to offers under the scheme.

[Schedule 4, item 33, sections 1100N, 1100P and 1100ZC of the Act]

4.20 If an employee share scheme requires payment to participate and the scheme meets the requirements in Schedule 4 to the main Bill:

•

the scheme can be operated without an Australian financial services licence;

•

general financial advice can be provided in relation to the scheme without an Australian financial services licence;

•

the restrictions on advertising and hawking securities and financial products in the Act do not apply to the scheme;

•

the design and distribution obligations do not apply to the issue, sale or transfer of interests under the scheme; and

•

a streamlined set of disclosure requirements apply to the scheme.

[Schedule 4, item 33, sections 1100N, 1100Q, and 1100ZC of the Act]

4.21 This relief also applies in relation to any contribution plan or loan which is related to the employee share scheme. [Schedule 4, items 9 and 33, section 9 definition of 'managed investment scheme' and section 1100Y of the Act]

4.22 The relief applies to any person associated with the employee share scheme such as:

•

the body which issues, sells or transfers the interests under the scheme;

•

an associated body corporate;

•

a trustee which is engaged to manage the employee share scheme; or

•

a third-party custodian who holds the interests.

[Schedule 4, item 33, section 1100ZC of the Act]

4.23 Various elements of the regulatory regime can be modified by regulations (see the section of this Chapter on modification by regulations).

4.24 This will allow businesses to run their own employee share schemes, without having the same regulatory obligations as financial services providers. This is appropriate because these regulatory obligations are designed for arm's length transactions to consumers, unlike an employee share scheme, where there is a pre-existing employment relationship between the business and participant.

4.25 An employer that is a national system employer is still required to comply with the requirements of the Fair Work Act 2009 in relation to their employees. This includes paying wages in line with any applicable modern award or enterprise agreement, or the National Minimum Wage Order for award and agreement free employees. Any employee share scheme offer must be in addition to these wages, which must be paid in full and in money.

Requirements for an employee share scheme

4.26 An offer under an employee share scheme which does not require payment to participate will be entitled to relief if:

•

the interests offered, issued, sold or transferred to participants under the scheme fall within certain categories of eligible interests (generally shares and interests in shares);

•

the participants are directors, employees, or service providers;

•

any trustee used to manage the scheme meets certain requirements; and

•

the offer is expressed to be made under Division 1A of Part 7.12 of the Act.

[Schedule 4, item 33, sections 1100N, 1100P and 1100ZC of the Act]

4.27 An offer under an employee share scheme which requires payment to participate will be entitled to relief if:

•

the interests offered, issued, sold or transferred to participants under the scheme fall within certain categories of eligible interests (generally shares and interests in shares);

•

the participants are directors, employees, or service providers;

•

any trustee used to manage the scheme meets certain requirements;

•

the offer is expressed to be made under Part 7.12 Division 1A of the Act;

•

if the scheme has an associated contribution plan or loan, the contribution plan or loan meets certain requirements;

•

the offer requires certain disclosure documents be provided;

•

the total numbers of products issued under the scheme over the previous three years does not exceed the specified percentage of the body's issued capital (5 per cent for a listed body or 20 per cent for an unlisted body corporate, unless otherwise specified by regulations or the body's constitution); and

•

for an unlisted body corporate no participant outlays more than $30,000 worth of interest under the scheme in a 12-month period, and in the case of options, cumulative over 5 years to a maximum total of $150,000.

[Schedule 4, item 33, sections 1100N, 1100Q and 1100ZC of the Act]

Diagram 4.1 Requirements for an offer under an employee share scheme

The below diagram sets out the requirements in order to qualify for regulatory relief for employee share scheme offers that do and do not require payment to participate.

4.28 An offer under an employee share scheme, which would not require disclosure under the Act due to pre-existing exemptions from the disclosure rules (such as offers to sophisticated investors or small-scale offerings) will receive relief if:

•

the interests offered, issued, sold or transferred to participants under the scheme fall within certain categories of eligible interests (generally shares and interests in shares);

•

if the scheme is utilising the small-scale offering exemption - the scheme complies with the employee share scheme rules concerning loans, trusts or contribution plans; and

•

the participants in the scheme are directors, employees or service providers.

[Schedule 4, item 33, section 1100R of the Act]

Participants in an employee share scheme

4.29 For an individual to participate in an employee share scheme they must be a director, employee or service provider of the body corporate or an associated body corporate that is issuing interests in an employee share scheme. These people are referred to in Schedule 4 to the main Bill as ESS participants. [Schedule 4, item 8, item 33, section 9, the definition of 'ESS participant' and section 1100L of the Act]

4.30 A primary participant is an employee, director, or person who provides services to:

•

the body corporate issuing the interests under the employee share scheme or an associated body corporate; or

•

in the case of an employee share scheme by a listed registered scheme - the responsible entity of the listed registered scheme or an associated body corporate.

[Schedule 4, item 8, item 33, section 9, the definition of 'ESS participant' and paragraph 1100M(1)(a) of the Act]

4.31 An employee includes a casual, part-time or full-time employee. Directors include executive and non-executive directors as well as salaried and non-salaried directors.

4.32 A person can also participate in the employee share scheme if they are about to become one of the above eligible categories (for example, a person who has received an offer to become an employee of the body issuing interests under the employee share scheme). [Schedule 4, item 33, subparagraph 1100L(1)(a)(iii) of the Act]

4.33 Certain people who are related to the primary participant can also participate in an employee share scheme. These are referred to in Schedule 4 to the main Bill as related persons. They are:

•

a spouse, parent, child or sibling of the primary participant;

•

a body corporate which is controlled by the primary participant or their spouse, parent, child or sibling; or

•

a body corporate that is the trustee of the primary participant's self-managed superannuation fund.

[Schedule 4, item 33, paragraph 1100L(1)(b) of the Act]

Diagram 4.2 Primary participants and related participants

The below diagram represents the two kinds of participants in an employee share scheme - primary participants and related participants. Primary participants are an employee, director, or other service provider to a business. Related participants are certain family members of the primary participant and bodies corporate controlled by certain family members of a primary participant. Related participants can also participate in an employee share scheme through their relationship with the primary participant.

Interests in an employee share scheme

4.34 For an employee share scheme to receive relief under Schedule 4 to the main Bill, the interests offered to participants must fall within certain eligible categories of interests, referred to in Schedule 4 to the main Bill as ESS interests.

4.35 The ESS interests for a listed body corporate are:

•

a fully paid share which is tradable on an eligible financial market;

•

a beneficial interest in a fully paid share where the interest is in a class of interests which is tradable on an eligible financial market;

•

a fully paid share which can be converted into a beneficial interest (or vice versa) without charge or for a nominal fee, where either the beneficial interest or share is tradable on an eligible financial market;

•

a unit in, an incentive right, or an option to acquire, any of the above interests; or

•

a fully paid stapled security which is tradable on an eligible financial market consisting of any of the above interests, or an interest in a listed registered scheme.

[Schedule 4, item 33, subsection 1100M(1) of the Act]

4.36 The ESS interests for an unlisted body corporate are:

•

a fully paid share; or

•

a unit in, an incentive right, or an option to acquire, a fully paid share.

[Schedule 4, item 33, subsection 1100M(2) of the Act]

4.37 The ESS interests for a listed registered scheme are:

•

an interest in a listed registered scheme which is tradable on an eligible financial market; or

•

a unit in, an incentive right, or an option to acquire, an interest in a listed registered scheme.

[Schedule 4, item 33, subsection 1100M(3) of the Act]

4.38 An incentive right is a conditional right to be issued a security or financial product or a right to be paid a cash amount where the right is contingent on:

•

the price or value of the security or financial product;

•

the change in the price or value of the security or financial product;

•

the amount of dividends or distributions paid in respect of the security or financial product; or

•

the change in the amount of dividends or distributions paid in respect of the security or financial product.

[Schedule 4, item 33, subsection 1100M(4) of the Act]

4.39 A body corporate or registered scheme is a listed body corporate or registered scheme if it is listed on a financial market operated by an Australian market licensee or a foreign financial market determined by ASIC by legislative instrument. [Schedule 4, item 33, section 1100K of the Act]

Trustees managing an employee share scheme

4.40 A business can engage a trustee to manage the interests issued under an employee share scheme on their behalf, and still obtain relief under Schedule 4 to the main Bill, if the trust deed meets certain requirements.

4.41 An employee share scheme with a trustee is only able to receive an interest in an employee share scheme if the trust deed states:

•

the activities of the trustee are limited to managing only the employee share schemes of the body corporate - by either transferring interests under the schemes to participants or issuing units in the interests to participants;

•

the trustee keeps written records on the administration of the trust;

•

the trustee does not take any administration fees out of trust funds, other than reasonable disbursements;

•

the trustee only charges fees or amounts to the body corporate or entity responsible for the employee share scheme (i.e. not the participants); and

•

if the trustee is an associated body corporate of the body corporate issuing the interests or the responsible entity of the listed registered scheme - that the trustee only exercise voting rights in accordance with the instructions of the participants or consistently with their fiduciary duties.

[Schedule 4, item 33, section 1100S of the Act]

4.42 The requirements are generally designed to minimise financial risk for participants in the employee share scheme by ensuring the trustee acts in the best interests of the participants and to minimise the possibility of conflicts of interest.

4.43 If an offer that is made by a trustee who manages an employee share scheme requires a participant to make a payment to participate, the offer document must include:

•

the trust deed; or

•

a summary of the trust deed and a statement that the full deed will be made available upon the participant's request.

[Schedule 4, item 33, paragraph 1100W(2)(h) of the Act]

4.44 If a participant has only been provided a summary of the terms of the trust deed for an offer under an employee share scheme and the participant then requests the full terms, those full terms must be provided within 10 days. [Schedule 4, item 33, paragraph 1100Y(1)(d) of the Act]

4.45 Offers of eligible interests to participants under an employee share scheme which would not ordinarily require disclosure, such as offers to senior managers, are not required to comply with the trust requirements. However, offers utilising the small-scale offering exemption must comply with the trust requirements. [Schedule 4, item 33, section 1100R of the Act]

4.46 This requirement applies regardless of whether the offer is made by a listed body corporate, listed registered scheme or unlisted body corporate.

4.47 For an offer by an employee share scheme trustee to be eligible for relief, the offer must include a term that requires the trustee comply with the trust deed. [Schedule 4, item 33, paragraph 1100Y(1)(e) of the Act]

4.48 An employee share scheme which accepts payment and does not comply with its trust deed will have its regulatory relief revoked. [Schedule 4, item 33, section 1100ZG of the Act]

Diagram 4.3 Trustees under employee share schemes

The below diagram demonstrates the relationship between the body corporate issuing interests under the employee share scheme, a trustee holding those interests and the participants in the scheme. A body corporate generally issues interests in an employee share scheme directly to a trustee, who holds the interests on behalf of participants. The trustee can subsequently issue the interests to the participants, as new participants join the businesses. The trustee can also issue units over interests it holds to participants, and still hold legal title to the interests in the scheme.

Employee share scheme contribution plans

4.49 Employee share schemes can have contribution plans associated with the scheme to allow participants to purchase the interests and still receive regulatory relief under Schedule 4 to the main Bill.

4.50 An employee share scheme contribution plan enables employees to pay for an interest over time. The employee only receives the interest after fully paying off the interest under the plan. A contribution plan contrasts with a loan arrangement, where the employee receives full ownership of the interest upfront and repays the loan over time.

4.51 Contribution plans generally require the participants to make repayments or allow for deductions to be made from their salary or wages.

4.52 An employee share scheme can be eligible for relief under Schedule 4 to the main Bill even if it has an associated contribution plan. However, the contribution plan must meet certain requirements (referred to in Schedule 4 to the main Bill as an ESS contribution plan).

4.53 For an employee share scheme with an associated contribution plan to be eligible for relief, the contribution plan must:

•

have contributions held on trust in an account with an Australian authorised deposit-taking institution which is solely kept for that purpose;

•

allow the participant to discontinue from the deductions or payments at any time;

•

if the participant decides to discontinue - within 45 days any deductions from salary or wages must cease and all deductions or payments, not yet exchanged for interests, must be repaid to the participant; and

•

before participating in the plan, the participant must agree in writing to the terms of the plan.

[Schedule 4, items 8 and 33, section 9 definition of 'ESS contribution plan' and section 1100T of the Act]

4.54 If an offer is made with a related ESS contribution plan, each participant receiving the offer must be provided with:

•

the terms of the contribution plan; or

•

a summary of the terms and a statement that the full terms will be made available upon the participant's request.

[Schedule 4, item 33, paragraph 1100W(2)(g) of the Act]

4.55 If a participant has only been provided a summary of the terms of the contribution plan for an offer under an employee share scheme and the participant then requests the full terms, those full terms must be provided within 10 days. [Schedule 4, item 33, paragraph 1100Y(1)(c) of the Act]

4.56 The obligation for payment for a contribution plan provided in association with an employee share scheme must fall on the individual who receives the interests under the scheme, whether they be the primary participant or a related participant. [Schedule 4, item 33, section 1100T of the Act]

4.57 Offers of eligible interests to participants under an employee share scheme which would not ordinarily require disclosure, such as offers to senior managers, are not required to comply with the contribution plan requirements. However, offers utilising the small-scale offering exemption must comply with the contribution plan requirements. [Schedule 4, item 33, section 1100R of the Act]

4.58 This requirement applies regardless of whether the offer is made by a listed body corporate, listed registered scheme or unlisted body corporate.

4.59 The existence of a settlement period between paying for an interest and receiving that interest does not automatically create a contribution plan and trigger the additional regulatory obligations associated with contribution plans.

4.60 An employee share scheme which ceases to comply with the requirements for contribution plans and has accepted payment will have its regulatory relief under Schedule 4 to the main Bill revoked. [Schedule 4, item 33, section 1100ZG of the Act]

Employee share scheme loans

4.61 An employee share scheme with an associated loan can be eligible for relief if the loan meets certain requirements.

4.62 A loan in relation to an employee share scheme allows the participant to take full ownership of their interest immediately, as opposed to a contribution plan, where a participant acquires their interests over time. The participant can then pay for their interests over time, while receiving full ownership of their ESS interest upfront along with any of the rights associated with that interest (for instance, voting rights attached to shares).

4.63 For an employee share scheme with an associated loan to be eligible for relief:

•

the loan must have no interest or fees payable;

•

in the event of non-payment of the loan, the rights against the participant are limited to forfeiture of the interests acquired using the loan; and

•

if the loan is by an unlisted company, the loan cannot be provided to an existing shareholder.

[Schedule 4, item 33, section 1100U of the Act]

4.64 These conditions are designed to avoid employees suffering losses due to interest payments or loss of security for the loans other than the interest itself. The requirement that a loan is not provided to an existing shareholder for unlisted companies is designed to prevent a tax liability under Division 7A of the Income Tax Assessment Act 1936.

4.65 If an offer is made with a related loan each participant receiving the offer must be provided with:

•

the terms of the loan; or

•

a summary of the terms and a statement that the full terms will be made available upon the participant's request.

[Schedule 4, item 33, paragraph 1100W(2)(g) of the Act]

4.66 If a participant has only been provided a summary of the terms of the loan for an offer under an employee share scheme and the participant then requests the full terms, those full terms must be provided within 10 days. [Schedule 4, item 33, paragraph 1100Y(1)(c) of the Act]

4.67 The obligation for repayment for a loan provided in association with an employee share scheme must fall on the individual who receives the interests under the scheme, whether they be the primary participant or a related participant. [Schedule 4, item 33, paragraph 1100U(1)(b) of the Act]

4.68 These requirements apply regardless of whether the offer is made by a listed body corporate, listed registered scheme or unlisted body corporate.

4.69 Offers of eligible interests to participants under an employee share scheme which would not ordinarily require disclosure, such as offers to senior managers, are not required to comply with the loan requirements. However, offers utilising the small-scale offering exemption must comply with the loan requirements. [Schedule 4, item 33, section 1100R of the Act]

4.70 An employee share scheme which ceases to comply with the requirements for loans and has accepted payment will have its regulatory relief revoked. [Schedule 4, item 33, section 1100ZG of the Act]

4.71 Other conditions can be included in the terms of the loan (such as requirements that dividends received by participants on account of holding interests purchased using the loan, be used to pay down the loan).

The issue cap

4.72 An offer from an employee share scheme which requires payment to participate can only be eligible for relief if it complies with the issue cap. [Schedule 4, item 33, section 1100V of the Act]

4.73 Employee share schemes are only intended to allow businesses to attract and keep employees. They are not intended to allow a body corporate to raise funds. If a body corporate wishes to raise funds it must use other means (for example, issuing shares under a prospectus).

4.74 The issue cap limits the proportion of its share capital a body corporate can issue under an employee share scheme to ensure the offer is genuinely for attracting and retaining employees.

4.75 The issue cap also limits the proportion of shares that may be subsequently issued under interests made as part of an offer under an employee share schemes (for example, an offer of options under an employee share scheme which can be exercised and result in shares being issued 12 months later).

4.76 An offer by an employee share scheme complies with the issue cap if the sum of the two below numbers do not exceed the specified percentage of interests actually issued by the body:

•

the number of interests that may be issued, directly or indirectly, as a result of the offer; and

•

the number of interests that have been issued, or could be issued as a result of previous offers, in connection with an employee share scheme made during the previous three years.

[Schedule 4, item 33, subsection 1100V(2) of the Act]

4.77 The specified percentage is, if the constitution of the body corporate or registered scheme specifies a percentage, that percentage. If not, the cap is the greater of 5 per cent for a listed body corporate or 20 per cent for an unlisted body corporate, or the percentage (if any) prescribed by regulations. [Schedule 4, item 33, subsection 1100V(2) of the Act]

4.78 The issue cap does not apply to interests issued under an employee share scheme where payment is not required to participate. [Schedule 4, item 33, sections 1100N and 1100P of the Act]

4.79 When an employee share scheme offers interests to participants which are stapled securities, the issue cap applies in relation to both of the securities which are stapled. [Schedule 4, item 33, subsection 1100V(3) of the Act]

4.80 Offers of eligible interests to participants under an employee share scheme which would not ordinarily require disclosure are not required to comply with the issue cap, such as offers to senior managers or small-scale offerings. [Schedule 4, item 33, section 1100R of the Act]

4.81 An employee share scheme which ceases to comply with the issue cap and has accepted payment will have its regulatory relief revoked. [Schedule 4, item 33, subparagraph 1100ZG(1)(c)(ii) of the Act]

The monetary cap

4.82 For offers in an unlisted company under an employee share scheme which require payment to receive relief under Schedule 4 to the main Bill, the offer must comply with the monetary cap.

4.83 Put simply, the monetary cap only allows a participant to outlay up to $30,000 on offers over a 12-month period, plus an additional 70 per cent of any dividends and 70 per cent of cash bonuses received in that year. [Schedule 4, item 33, section 1100ZA of the Act]

4.84 The first 12-month period applies from the day when the participant accepts the offer under an employee share scheme. [Schedule 4, item 33, paragraph 1100ZA(1)(a) of the Act]

4.85 An employee share scheme which ceases to comply with the monetary cap and has accepted payment will have its regulatory relief revoked. [Schedule 4, item 33, subparagraph 1100ZG(1)(c)(iii) of the Act]

Application of the cap

4.86 The monetary cap applies to the total amount of expenditure by a participant under offers from an employee share scheme. The monetary cap does not just apply to an individual offer. If multiple offers are made to a participant, which if accepted would breach the monetary cap, the terms of offers would need to be drafted so payments can only be made up to the monetary cap. [Schedule 4, item 33, subsection 1100ZA(1) of the Act]

4.87 The cap is used up as the participant expends money or takes out loans on offers. This includes current offers, for example purchasing shares upfront, as well as exercising rights to purchase shares under earlier offers of options. This includes payments made directly or payments made using a contribution plan. [Schedule 4, item 33, paragraph 1100ZA(4)(a) of the Act]

4.88 Money paid from a contribution plan only counts towards the monetary cap when exiting a contribution plan to be exchanged for the interests under the offer from the employee share scheme. Money paid into a contribution plan which has not yet been exchanged for interests does not use up the monetary cap. [Schedule 4, item 33, paragraph 1100ZA(4)(a) and subsection 1100ZB(2) of the Act]

4.89 The monetary cap is per person directly entitled. Should offers be made to a primary participant and a related participant of that primary participant, then the cap applies in relation to payments made by both the primary participant and the related participant. [Schedule 4, item 33, subsection 1100ZA(3) of the Act]

Dividends and cash bonuses

4.90 The monetary cap for each participant in each year will increase by 70 per cent of the value of any distributions that participant received from interests under the employee share scheme and 70 per cent of any cash bonuses they receive from their employment in that company in that year. [Schedule 4, item 33, paragraphs 1100ZA(5)(b) and (c) of the Act]

4.91 This will allow more senior individuals receiving more remuneration in the company from dividends or bonuses to have a higher cap for a particular year.

4.92 Cash bonuses and dividends are also additional payments. This means there is less financial risk for participants in relation to these payments, as the loss of these payments should not significantly affect an individual's take home pay.

Accrual of the cap for option plans

4.93 A participant's monetary cap can be accrued in circumstances of an option plan, in respect of unexercised options over a 5-year period. [Schedule 4, item 33, subsection 1100ZA(5) of the Act]

4.94 The amount accrued is the value of interests the participant has the right to purchase in that year under their option plan, which they have chosen to not purchase.

4.95 This will still be subject to the cap of $30,000 per year and have a maximum cap of $150,000 accrued over a 5-year period. The dividends and cash bonuses component of the cap cannot accrue.

4.96 The first 12-month period applies from the day when the participant accepts an options plan under an employee share scheme. [Schedule 4, item 33, paragraph 1100ZA(1)(a) of the Act]

4.97 After the 5-year period, any unspent amounts can continue to be accrued (or 'roll over') to increase the monetary cap, however, any unspent monies under the cap from year one would no longer contribute to the cap in the 6th year. [Schedule 4, item 33, subsection 1100ZA(5) of the Act]

Exemption from the cap - liquidity events

4.98 The monetary cap does not apply when there is a liquidity event, such as a business being purchased or listed on a financial market. [Schedule 4, item 33, section 1100ZB of the Act]

4.99 The exemption will allow participants to take part in a liquidity event through their employee share scheme by expending larger amounts of money than would generally be allowed under the monetary cap. Greater expenditure is appropriate in these circumstances because there is limited financial risk as the participant will have accurate information as to the market value of their interests (i.e. the listing price or the purchase price in a private sale) and there is a genuine opportunity to sell their interests to realise gains.

4.100 The exemption works in conjunction with the monetary cap. The monetary cap is applied up until a liquidity event occurs, which will result in the cap being lifted so that participants can purchase an unlimited amount of interests.

4.101 To take advantage of the exemption in the monetary cap, payments by participants can be made no longer than 7 days before an anticipated liquidity event. These amounts paid in anticipation of a liquidity event must be held on trust and be returned as soon as practicable if the liquidity event does not occur. [Schedule 4, item 33, subsections 1100ZB(4) to (5) of the Act]

4.102 A failure to keep the money on trust until it is returned to the participant or until the liquidity event occurs is a strict liability offence with a penalty of 60 penalty units. [Schedule 4, items 33 and 37, subsection 1100ZF(1) and Schedule 3 of the Act]

4.103 Failure to return the money as soon as practicable is a strict liability offence with a penalty of 20 penalty units. [Schedule 4, items 33 and 37, subsection 1100ZF(2) and Schedule 3 of the Act]

4.104 For the purposes of Schedule 4 to the main Bill, a liquidity event means the point at which either:

•

an unlisted company is listed on an official list of a financial market; or [Schedule 4, item 33, paragraph 1100ZB(7)(a) of the Act]

•

there is an executed sale agreement to acquire interests, covering the participant's interests or underlying shares, open to acceptance by the participant or related person. [Schedule 4, item 33, paragraph 1100ZB(7)(b) of the Act]

4.105 In summary, the monetary cap for a particular participant in a particular year will be the sum of:

•

$30,000; and

•

if there are unexercised options from previous 5 years, an amount equal to the price that would have been paid for those unexercised options; and

•

70 per cent of the dividends from interests in the businesses the participant has received in that year; and

•

70 per cent of the cash bonuses the participant has received in that year.

[Schedule 4, item 33, subsection 1100ZA(5) of the Act]

Diagram 4.4 Monetary cap

The below diagram shows how the monetary cap applies over 6 years, for both standard offers as well as options. In the case of options, it demonstrates how the cap is accrued over the 6 years.

4.106 Offers of eligible interests to participants under an employee share scheme which would not ordinarily require disclosure are not required to comply with the monetary cap, such as offers to senior managers or small-scale offerings. [Schedule 4, item 33, section 1100R of the Act]

Disclosure under an employee share scheme

4.107 To ensure participants can make an informed choice as to whether to accept an offer under an employee share scheme, Schedule 4 to the main Bill requires that employers provide participants certain information in the form of disclosure documents in relation to the interests they receive.

4.108 These disclosure documents are less onerous than the general existing disclosure requirements for shares and financial products issued to the general market (for example, prospectuses and product disclosure statements under Chapter 6D and Part 7.9 of the Act).

4.109 Disclosure can be required at two different points in time in relation to an offer:

•

upfront, before the interest is issued or sold in exchange for payment; and

•

at a later point after an interest has been sold, before an option or incentive right can be exercised.

Diagram 4.5 Disclosure timing

The below diagram shows the timing requirements of disclosure documents. Disclosure requirements are indicated by a tick (?) at the necessary points in time, either upfront when issuing the offer or at the point of exercising the offer.

4.110 Different disclosure documents are required for different types of employee share schemes, in particular for listed and unlisted schemes. Different disclosure documents are also required depending on the interest under the scheme (for example, shares as opposed to options and incentive rights).

Disclosure for offers without payment

4.111 Offers that do not require payment to participate, do not require disclosure to be eligible for regulatory relief. [Schedule 4, item 33, sections 1100N and 1100P of the Act]

4.112 This only applies to offers where there is no payment required upfront, nor at any future stage, for the issue or transfer of interests under the employee share scheme (such as under an option plan).

Disclosure for interests with payment upfront (not options)

4.113 Offers that require upfront payment must provide disclosure in accordance with Schedule 4 to the main Bill. [Schedule 4, item 33, paragraphs 1100Q(1)(f) to (g) of the Act]

4.114 For an offer that requires payment upfront, 14 days before making an offer, the participant must be provided with:

•

a set of warnings (referred to in Schedule 4 to the main Bill as an ESS offer document);

•

in addition, for an unlisted body corporate:

-

certain financial information about the body making the offer;

-

a valuation of the interests being offered;

-

a statement that the body making the offer is solvent; and

•

if the offer is made with a related loan, disclosure documents in relation to the loan;

•

if the offer is made with a related contribution plan, disclosure documents in relation to the contribution plan; and

•

if the interests are to be held by a trustee for the participants, disclosure documents in relation to the trustee.

[Schedule 4, item 33, paragraphs 1100Q(1)(f), (g) and (2)(a) and sections 1100W to 1100X of the Act]

4.115 The disclosure requirements for a listed body corporate or listed registered scheme are less onerous than those for an unlisted body corporate as the value of an ESS interest which is listed is easy to ascertain when compared to an unlisted body corporate.

4.116 A participant cannot acquire an interest until 14 days after receiving the above documents. This mandates a waiting period ensuring a participant has time to consider their decision or seek additional legal or financial advice. [Schedule 4, item 33, paragraph 1100Y(1)(a) of the Act]

4.117 The documents must be updated as soon as practicable to reflect any material or substantive changes that occur. [Schedule 4, item 33, paragraph 1100Z(1)(b) of the Act]

4.118 If the offer document included only a summary of the terms of the offer, loan, contribution plan or trust deed then the body corporate or responsible entity must provide the participant with a copy of the full version if the participant requests it, within 10 business days. [Schedule 4, item 33, paragraphs 1100Y(1)(b) to (d) of the Act]

ESS offer document

4.119 For a listed body corporate or listed registered scheme, the offer document must:

•

include the terms of the offer, and any relevant loan, contribution plan or trust deed or a summary of those terms with a statement that a copy of the full terms will be provided to the participant on request;

•

provide general information about the risks of acquiring and holding the interests being offered;

•

state that advice given in relation to the offer does not take into account the participants objectives, financial situation and needs;

•

suggest that the participant obtain personal advice in relation to the offer;

•

state the application period during which the participant may accept the offer;

•

include the acquisition price of the interest or how a participant could from time to time ascertain the market price of their interest, or if the interest is a unit, option or incentive right, the acquisition price of the underlying product in Australian dollars; and

•

draw the participant's attention to relevant disclosure documents produced in the previous 12 months.

[Schedule 4, item 33, subsection 1100W(1) of the Act]

Additional documents for an unlisted employee share scheme

4.120 For an unlisted body corporate, the ESS offer document must:

•

include the terms of the offer, and any relevant loan, contribution plan or trust deed or a summary of those terms with a statement that a copy of the full terms will be provided to the participant on request;

•

provide general information about the risks of acquiring and holding the interests being offered;

•

state that advice given in relation to the offer does not take into account the participants objectives, financial situation and needs;

•

suggest that the participant obtain personal advice in relation to the offer;

•

state the application period during which the participant may accept the offer;

•

draw the participant's attention to relevant disclosure documents produced in the previous 12 months;

•

state that the interest may not have any value and that the value of the interest will depend on future events that may not occur; and

•

if the interests being offered are non-ordinary shares - contain a statement about the rights that attach to the shares and how this differs to the rights that attach to ordinary shares.

[Schedule 4, item 33, subsections 1100W(1) to (3) of the Act]

4.121 The financial information about an unlisted body corporate, which must be provided with an ESS offer to each participant is:

•

if the body corporate must lodge a report for a financial year with ASIC under section 319 of the Act-a copy of the most recent report lodged with ASIC; or

•

if the body corporate is a registered foreign body corporate-a copy of the most recent balance sheet lodged with ASIC under section 601CK; or

•

a balance sheet and profit and loss statement prepared in compliance with the Australian or international accounting standards.

[Schedule 4, item 33, subsection 1100X(2) of the Act]

The financial information must be accompanied by a statement as to whether the financial information has been audited. [Schedule 4, item 33, subparagraph 1100Y(4)(a)(i) of the Act]

4.122 A valuation can include:

•

a valuation that has been prepared consistently with an applicable method approved by the Commissioner of Taxation under section 960 412 of the ITAA 1997; [Schedule 4, item 33, paragraph 1100X(3)(a) of the Act]

•

a disclosure document for any other securities in the same class as the interest that are on offer at the same time and that have been lodged with ASIC; [Schedule 4, item 33, paragraph 1100X(3)(b) of the Act]

•

a disclosure document for any financial products in the same class as the interest that are on offer at the same time; or [Schedule 4, item 33, paragraph 1100X(3)(c) of the Act]

•

a copy of an executed or draft agreement for acquiring an ESS interest in that class on arms lengths terms by a third party; or [Schedule 4, item 33, paragraphs 1100X(3)(d) to (e) of the Act]

•

another document prescribed in the regulations. [Schedule 4, item 33, paragraph 1100X(3)(f) of the Act]

4.123 A draft sale agreement can only be used if a sale agreement that is not materially different from the draft sale agreement is subsequently executed, otherwise the relief under Schedule 4 to the main Bill will be revoked if the employee share scheme has also accepted payment under the Act. [Schedule 4, item 33, subsection 1100Y(3), paragraph 1100Y(4)(c) and subparagraph 1100ZG(1)(c)(vi) of the Act]

4.124 The policy intent is for a body corporate, where possible, to be able to use the same valuations that they make, to assist participants with determining their income tax liabilities, to conduct the valuation.

Disclosure for option plans and incentive rights

4.125 Option plans and incentive rights in a body corporate that is not included on an official list of a financial market require two points of disclosure in order to receive relief under Schedule 4 to the main Bill. [Schedule 4, item 33, section 1100W and subsection 1100Y(4) of the Act]

4.126 Option plans and incentive rights require disclosure upfront, regardless of whether acceptance of the offer requires payment or not. However, where there is no payment, the offer document is the only form of disclosure required at the point of offer. Options with both an upfront price and exercise price will require streamlined disclosure at both points. [Schedule 4, item 33, paragraphs 1100Q(1)(f), 1100Q(2)(a) and 1100Y(4)(a) of the Act]

4.127 Additionally, before each exercise period during which an option or incentive right can be exercised or an amount can be paid allowing the incentive right to vest, a valuation, financial statements and solvency statements must be provided at least 14 days prior. [Schedule 4, item 33, paragraph 1100Y(4)(b) of the Act]

4.128 A draft sale agreement can only be used if a sale agreement that is not materially different from the draft sale agreement is subsequently executed, otherwise the relief under Schedule 4 to the main Bill will be revoked if the employee share scheme has also accepted payment under the Act. [Schedule 4, item 33, subsection 1100Y(3), paragraph 1100Y(4)(c) and subparagraph 1100ZG(1)(c)(vi) of the Act]

Penalties for breaching the regime

4.129 There are three possible types of penalties for breaching the rules in relation to employee share schemes in Schedule 4 to the main Bill:

•

breaching of a contractual term;

•

revocation of regulatory relief; and

•

criminal offences.

4.130 To obtain regulatory relief, an offer by an employee share scheme must contain certain mandatory contractual terms which require the offeror to comply with the regime. If the offeror then breaches these terms, they will have breached their contract and the participant can seek a variety of contractual remedies, including damages. [Schedule 4, item 33, paragraphs 1100P(c) and 1100Q(1)(g) and sections 1100Y and 1100Z of the Act]

4.131 To obtain regulatory relief, an offer by an employee share scheme must also be on terms that comply with the monetary cap and any applicable, loan, trust and contribution plan requirements. If the offeror breaches these terms, they will have breached their contract and the participant seek a variety of contractual remedies, including damages. [Schedule 4, item 33, sections 1100P, 1100Q, 1100S, 1100T, 1100U and 1100ZA of the Act]

4.132 If an employee share scheme breaches certain key obligations of the regulatory regime, such as the issue cap or obligations around trusts, loans and contribution plans and has accepted payment, the employee share scheme may have its regulatory relief revoked (see below). [Schedule 4, item 33, section 1100ZG of the Act]

4.133 If a disclosure document contains misleading and deceptive statements or omissions, or is out of date, relief is not revoked but the offeror may commit an offence (see below). [Schedule 4, item 33, sections 1100ZH and 1100ZI of the Act]

4.134 It is also an offence to deal with participants' money inappropriately in certain circumstances, and for particular people to fail to notify the business of misleading or deceptive statements or omissions in disclosure documents. [Schedule 4, item 33, sections 1100ZE, 1100ZF and 1100ZJ of the Act]

Breaching of contractual terms

4.135 For an offer of interests under an employee share scheme to receive relief under Schedule 4 to the main Bill, the compliance with certain regulatory requirements must be included as contractual terms in the offer.

4.136 These requirements that must be included in the terms of offer are:

•

compliance with the monetary cap; and [Schedule 4, item 33, section 1100ZA of the Act]

•

compliance with the various disclosure obligations. [Schedule 4, item 33, paragraph 1100Q(1)(g) and sections 1100Y and 1100Z of the Act]

4.137 Additionally, if the scheme involves a trust, loan or contribution plan, certain requirements must be met by the terms of the loan, trust or contribution plan. [Schedule 4, item 33, sections 1100S, 1100T and 1100V of the Act]

4.138 If these terms are not included, the scheme will not receive regulatory relief under Schedule 4 to the main Bill. This means the scheme will be in breach of various prohibitions in the Act such as selling securities or financial products without disclosure (see sections 707 and 1012B). [Schedule 4, item 33, sections 1100P and 1100Q of the Act]

4.139 If these terms are included, but the offeror subsequently breaches the terms, the offeror will have breached their contract and the participant can recover a variety of contractual remedies, including damages. [Schedule 4, item 33, section 1100Y of the Act]

Contractual terms relating to disclosure

4.140 For an offer by an employee share scheme to receive regulatory relief, terms must be included which require:

•

the offer document and any supporting documents to not include any misleading or deceptive statements or omissions; and [Schedule 4, item 33, paragraph 1100Z(1)(a) of the Act]

•

certain people listed in the legislation (directors of the body, people named in the offer etc) to inform the employee share scheme, if they become aware of any misleading, deceptive, out of date, omitted or otherwise materially incorrect elements in the offer document or supporting documents. [Schedule 4, item 33, paragraph 1100Z(1)(b) of the Act]

4.141 The contractual terms must allow a participant who suffers loss or damage from an out of date or deceptive or misleading statement or omissions, or a failure to provide required supporting documents, to recover damages from:

•

the body corporate or responsible entity making the offer;

•

each director of the body corporate or responsible entity making the offer;

•

a person named in any disclosure document with their consent as a proposed director of the body corporate or responsible entity of a listed registered scheme;

•

in the case of misleading or deceptive statements or omissions, a person named in the disclosure documents with their consent who made the misleading or deceptive statement or omission or statement on which the misleading or deceptive statement or omission is based; and

•

in the case of a failure to notify, the persons mentioned in the above three dot points who fail to notify the body corporate or responsible entity.

[Schedule 4, item 33, subsection 1100Z(2) of the Act]

4.142 The contractual term can be limited so that the above individuals are not liable for a participant's loss or damage where:

•

the persons made all necessary enquiries that were reasonable in the circumstances and after doing so, believed on reasonable grounds that the statements were not misleading or deceptive; or

•

the person did not know that the statement was misleading or deceptive; or

•

the person was unaware of a new circumstance that has arisen during the application period; or

•

if the person is a person named in a disclosure document - the person publicly withdraws their consent to be named in the disclosure document; or

•

if the person is a body corporate or a responsible entity of a listed registered scheme - the person relied on information from someone other than a director, employee or agent; or

•

if the person is an individual - the person relied on information from someone other than an employee or agent of the individual.

[Schedule 4, item 33, subsection 1100Z(3) of the Act]

Revoking of regulatory relief

4.143 For an offer of interests under an employee share scheme to receive relief under Schedule 4 to the main Bill, compliance with certain regulatory requirements must be included as essential terms in the offer. If the scheme involves a trust, loan or contribution plan, these must also have terms which meet particular requirements.

4.144 If these terms are not included, the scheme will not receive regulatory relief under Schedule 4 to the main Bill and will be in breach of various prohibitions in the Act such as selling securities or financial products without disclosure (see above). [Schedule 4, item 33, sections 1100P and 1100Q of the Act]

4.145 If an offeror breaches certain key regulatory terms of the regime, and accepts payment under the employee share scheme, the schemes regulatory relief will be revoked and taken to never have applied. This will mean the scheme will have breached various prohibitions in the Act such as selling securities or financial products without disclosure (see above). [Schedule 4, item 33, sections 1100P and 1100Q of the Act]

4.146 The requirements that result in revoking regulatory relief if breached are after an employee share scheme accepts payment are:

•

the requirements for loans, trusts and contribution plans;

•

compliance with the monetary cap;

•

compliance with the issue cap; and

•

providing disclosure documents at the required time.

[Schedule 4, item 33, section 1100ZG of the Act]

4.147 The limitation period for civil suits and ASIC taking enforcement action begins when the regulatory relief is revoked, as opposed to when the interests are originally issued. [Schedule 4, item 33, subsections 1100ZG(4) to (5) of the Act]

Criminal offences

Misleading and deceptive statements offences

4.148 A person must not offer interests under an employee share scheme if the offer document or supporting information:

•

contains a misleading or deceptive statement;

•

omits information in a way that causes the document to be misleading or deceptive; or

•

does not reflect a new circumstance that has arisen during the offer period. [Schedule 4, item 33, subsections 1100ZH(1) to (2) of the Act]

4.149 Likewise, a person must not provide disclosure documents to a participant during the exercise period for an option or incentive right under an employee share scheme if the document:

•

contains a misleading or deceptive statement;

•

omits information in a way that causes the document to be misleading or deceptive; or

•

does not reflect a new circumstance that has arisen during the offer period. [Schedule 4, item 33, subsections 1100ZI(1) to (2) of the Act]

4.150 A person commits an offence if the misleading or deceptive statement or omission is materially adverse from the point of view of a participant in an employee share scheme. The penalty for a person who commits the offence is a maximum penalty of 5 years imprisonment. [Schedule 4, items 33 and 37, subsections 1100ZH(4) and 1100ZI(4) and Schedule 3 of the Act]

4.151 A person also commits an offence if they fail to inform the business operating an employee share scheme if they become aware of a misleading or deceptive statement or omission in a disclosure document, if the person:

•

is a director of the relevant body corporate (or a proposed director); or

•

the person is named in the disclosure document and has provided information mentioned in the disclosure document. [Schedule 4, item 33, subsection 1100ZJ(2) and Schedule 3 of the Act]

4.152 Failure to do so is an offence of strict liability. The penalty for this offence is a maximum penalty of 50 penalty units. [Schedule 4, items 33 and 37, section 1100ZJ and Schedule 3 of the Act]

4.153 A statement about a future matter will be considered misleading where the person making the statement does not have reasonable grounds to make that statement. [Schedule 4, item 33, subsections 1100ZH(3) and 1100ZI(3)]

Defences to misleading and deceptive statement offences

4.154 The below defences are available for persons who would otherwise be responsible for misleading and deceptive statements or omissions in employee share scheme disclosure documents:

•

the person made all reasonable inquiries;

•

the person did not know the statement was misleading or deceptive or did not know a new circumstance had arisen;

•

the person placed reasonable reliance on another person;

•

the person publicly withdrew their consent for their statement to be used in the disclosure document;

•

the relevant documents were updated as soon as reasonably practicable.

[Schedule 4, item 33, subsections 1100ZH(4) to (11), 1100ZI(4) to (11) and 1100ZJ(5) of the Act]

4.155 Further detail in relation to each of these defences is provided below.

4.156 For these defences the defendant bears an evidential burden to point to evidence that suggests a reasonable possibility that the matter exists or does not exist. Once the defendant discharges this evidential burden, the prosecution must disprove these matters beyond reasonable doubt.

4.157 The evidential burden on the defendant is therefore fully consistent with the principle in the Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers which establishes the general rule that a defendant should only bear an evidential burden of proof for an offence-specific defence.

4.158 A person who made all reasonable inquiries in the circumstances and believed on reasonable grounds that the statement or omission was not misleading or deceptive will not be responsible for the statement. The person bears the evidential burden of establishing that they made all reasonable inquiries and had a reasonable belief that the statement was not misleading or deceptive. This is appropriate as the person is best placed to raise evidence that they made all reasonable inquiries and had the requisite reasonable belief. [Schedule 4, item 33, subsections 1100ZH(5) and 1100ZI(5) of the Act]

4.159 A person who did not know a misleading or deceptive statement or omission was misleading or deceptive will not be responsible for the statement. Similarly, where a new matter arises which would have been required to be disclosed, or which makes a document contain a misleading or deceptive statement or omission, a person will not be responsible for the statement, omission or unmentioned new matter where the person did not know about the new circumstance. The person bears the evidential burden of establishing that they did not know that the statement or omission was misleading or deceptive or that the new circumstance had arisen. This is appropriate as the person is best placed to raise evidence of their own knowledge. [Schedule 4, item 33, subsections 1100ZH(6) to (8) and 1100ZI(6) to (8) of the Act]

4.160 A person who placed reasonable reliance on information given by another person, other than if that information was given by an employee, agent or (in the case of a company) a director will not be responsible for a misleading or deceptive statement or omission. The evidentiary burden for this defence rests on the person making the claim as they are best placed to demonstrate that they did in fact place reasonable reliance on information from an independent person. [Schedule 4, item 33, subsections 1100ZH(9) to (10) and 1100ZI(9) to (10) of the Act]

4.161 A person will not be liable for a misleading or deceptive statement or omission which arises due to a new circumstance, or an undisclosed new matter, where they prove that the relevant document was updated as soon as reasonably practicable after the new circumstance arose and the updated information was provided to the participants. The evidentiary burden for this defence rests on the person making the claim as they are best placed to demonstrate that the document was updated as soon as reasonably practicable. [Schedule 4, item 33, subsections 1100ZH(11) and 1100ZH(11) of the Act]

4.162 A person named in a disclosure document as a director or as providing information for the disclosure document will not be responsible for failing to inform the employee share scheme of the misleading statement if they publicly withdrew their consent to being named in the document. A person making use of this defence has the evidentiary burden of demonstrating that they did in fact withdraw their consent publicly as they would be best placed to be able to raise the relevant evidence of their public withdrawal. [Schedule 4, item 33, subsection 1100ZJ(5) of the Act]

Offences for holding participants' money

Offence for holding participants' money before interests are transferred

4.163 A person who offers interests under an employee share scheme to participants in the scheme must:

•

hold all application money on trust for the participants until the interests are issued or the money is returned to the participants; and

•

if the money is required to be returned to the participants, return the money as soon as possible.

[Schedule 4, item 33, section 1100ZE of the Act]

4.164 Failure to keep the money on trust is a strict liability offence with a penalty of 60 penalty units. [Schedule 4, items 33 and 37, subsection 1100ZE(1) and Schedule 3 of the Act]

4.165 Failure to return the money as soon as possible is a strict liability offence with a penalty of 20 penalty units. [Schedule 4, items 33 and 37, subsection 1100ZE(2) and Schedule 3 of the Act]

Offence for holding participants' money in advance of a liquidity event

4.166 An employee share scheme must hold any amounts paid in anticipation of a liquidity event on trust and be returned as soon as practicable if the liquidity event does not occur. [Schedule 4, item 33, subsections 1100ZB(5) and (6) of the Act]

4.167 A failure to keep the money on trust until it is returned to the participant or until the liquidity event occurs is a strict liability offence with a penalty of 60 penalty units. [Schedule 4, items 33 and 37, subsection 1100ZF(1) and Schedule 3 of the Act]

4.168 Failure to return the money as soon as possible is a strict liability offence with a penalty of 20 penalty units. [Schedule 4, items 33 and 37, subsection 1100ZF(2) and Schedule 3 of the Act]

Offers with pre-existing disclosure exemptions

4.169 The Act contains pre-existing disclosure exemptions for certain types of offers (see sections 708 and 1012D). These exemptions generally relate to offers of interests to sophisticated individuals who are able to make informed decisions about the offers (for example the sophisticated investors exemption in subsection 708(8) of the Act).

4.170 An offer made by an employee share scheme can take advantage of these pre-existing exemptions in the Act. This will mean where an offer made by an employee share scheme would normally be required to comply with the streamlined disclosure requirements outlined above, an offer by an employee share scheme taking advantage of these pre-existing disclosure exemptions under Schedule 4 to the main Bill would be able to be made without any disclosure and still receive regulatory relief.

4.171 An offer under an employee share scheme, which would not require disclosure under the Act due to pre-existing exemptions will receive relief under Schedule 4 to the main Bill if:

•

the interests under the scheme are ESS interests;

•

the participants in the scheme are directors, employees or service providers; and

•

if the scheme is utilising the small-scale offering exemption and involves a loan, trust or contribution plan - the scheme complies with the rules concerning loans, trusts or contribution plans.

[Schedule 4, item 33, section 1100R of the Act]

4.172 Offers by employee share schemes using the pre-existing disclosure exemptions are not required to comply with the trust, loan and contribution requirements (except for small scale offers under subsection 708(1) of the Act). This is because such offers generally go to sophisticated individuals who are able to make informed decisions about the offers and who would already be able to receive interests without disclosure in a non-employee share scheme context. [Schedule 4, item 33, subsection 1100R(1) of the Act]

4.173 Offers made under subsection 708(1), the small-scale offering exemption, will be required to comply with the trust, loan and contribution plan requirements. This is because such offers can be provided to any individual, regardless of their level of financial literacy. [Schedule 4, item 33, subsection 1100R(2) of the Act]

4.174 Schedule 4 also puts beyond doubt that offers by employee share schemes cannot take advantage of the no-consideration exemption in 708(15) of the Act, as offers under employee share schemes are provided by businesses in exchange for consideration, namely the labour of the employees. [Schedule 4, item 33, paragraph 1100R(1)(a) and the note under paragraph 1100R(1)(b) of the Act]

ASIC Powers

ASIC exemption and modification powers

4.175 Schedule 4 to the main Bill gives ASIC a variety of regulatory tools to monitor, enforce and modify the requirements for employee share schemes.

4.176 Schedule 4 to the main Bill allows ASIC to exempt or modify Chapters 2L, 5, 5C, 6D and 7 of the Act with regard to employee share schemes. These chapters are the parts of the Act that are amended by Schedule 4 to the main Bill which contain the requirements for businesses which issue and sell financial products and securities. [Schedule 4, item 33, section 1100ZK of the Act]

4.177 Schedule 4 to the main Bill allows ASIC to modify the above chapters of the Act with regard to all employee share schemes, a class of employee share schemes or an individual employee share scheme. [Schedule 4, item 33, subsections 1100ZK(2) to (3) of the Act]

4.178 An exemption or modification by ASIC can be subject to conditions. An employee share scheme which is relying on an exemption, must comply with any conditions of that exemption. Only ASIC may apply to the Court to ensure an employee share scheme complies with a condition of an exemption. [Schedule 4, item 33, subsections 1100ZK(4) to (6) of the Act]

4.179 An exemption that relates to all or a specified class of employee share schemes must be made by legislative instrument. An exemption that relates to a specified employee share scheme must be made in a notifiable instrument. [Schedule 4, item 33, subsections 1100ZK(7) to (8) of the Act]

4.180 ASIC must provide a copy of an exemption that relates to a specified employee share scheme to the relevant body corporate or responsible entity as soon as is reasonably practical after the exemption or declaration is made. [Schedule 4, item 33, subsection 1100ZK(9) of the Act]

4.181 These exemption and modification powers are necessary to ensure flexibility in the regulatory regime. Employee share schemes are complex legal arrangements that are used in a wide variety of industries which interact with a similarly wide variety of regulatory frameworks including rules in relation to selling of securities and financial products, financial advice, hawking and advertising of securities and financial products and disclosure obligations as well as taxation and employment law. Industry practice is also often evolving as new interests enter the market, which require changes in the regulatory framework. Therefore, it is likely there are unforeseen circumstances and situations which would not be appropriate to address in the primary law. The exemption and modification powers provide ASIC the ability to address these situations and ensure the regime operates in line with the policy intent.

4.182 Exemptions made in legislative instruments will be subject to Parliamentary disallowance.

ASIC stop orders

4.183 ASIC may issue a stop order to prevent an offer being made under an employee share scheme.

4.184 ASIC may issue a stop order in relation to an offer under an employee share scheme if:

•

the offer is not worded and presented in a clear, concise and effective manner;

•

a disclosure document which is provided with the offer, does not contain the required material;

•

the offer does not contain the essential terms;

•

the offer contains a misleading or deceptive statement; or

•

a person has contravened, or is likely to contravene an essential term of the offer.

[Schedule 4, item 33, subsections 1100ZL(1) to (2) of the Act]

4.185 Before making the order, ASIC must hold a hearing and give a reasonable opportunity to any interested people to make oral or written submissions about whether such an order should be made. [Schedule 4, item 33, subsection 1100ZL(3) of the Act]

4.186 However, if ASIC considers that a delay in making the order caused by holding a hearing would be prejudicial to public interest, ASIC may make an interim order without holding a hearing for 21 days. [Schedule 4, item 33, subsections 1100ZL(4) to (5) of the Act]

4.187 Such an order by ASIC must be made in writing and be served to the person who is ordered not to offer or issue interests under an employee share scheme. [Schedule 4, item 33, subsection 1100ZL(6) of the Act]

ASIC power to request documents

4.188 ASIC may require a person to provide the offer document and any other documents ASIC thinks necessary in order to form an opinion about whether Schedule 4 to the main Bill has been complied with. [Schedule 4, item 33, subsection 1100ZM(1)]

4.189 The person must provide the information within such reasonable period and in the manner specified by ASIC. Failure to do so is a strict liability offence subject to 60 penalty units. [Schedule 4, items 33 and 37, subsections 1100ZM(2) to (3) and Schedule 3 of the Act]

Lodging documents with ASIC and public inspection

4.190 Schedule 4 to the main Bill does not require employee share scheme disclosure documents be lodged with ASIC. However, in certain circumstances disclosure documents under employee share schemes may be required to be lodged with ASIC under other provisions of the Act.

4.191 The current law provides that, if an employee share scheme disclosure document is lodged with ASIC, members of the public are entitled to inspect the lodged documents unless (see section 1274 of the Act):

•

the employee share scheme relates only to employees;

•

the disclosure document relates to ordinary shares;

•

the body corporate was incorporated less than 10 years ago;

•

all body corporates in the employee share scheme's corporate group are unlisted; and

•

the issuing body corporate has an aggregated turnover of less than $50 million.

4.192 This may make businesses more reluctant to offer employee share schemes as they may be required to make potentially sensitive internal financial information public.

4.193 Schedule 4 to the main Bill removes the requirements contained in the first three dot points above so that employee share scheme disclosure documents are not required to be made public if:

•

all bodies corporate in the employee share schemes corporate group are unlisted; and

•

the issuing body corporate has an aggregated turnover of less than $50 million.

[Schedule 4, items 34 and 35, section 1274 of the Act]

4.194 This will encourage businesses to offer employee share schemes as fewer employee share schemes will be required to make their internal financial information made public.

Modification by Regulations

4.195 Schedule 4 to the main Bill creates regulation-making powers which can modify the operation of the regime.

4.196 Schedule 4 to the main Bill contains regulation-making powers which can:

•

add additional kinds of ESS participants; [Schedule 4, item 33, subparagraphs 1100L(1)(a)(iv) and (1)(b)(iv) of the Act]

•

add new types of ESS interests; [Schedule 4, item 33, subparagraph 1100M(1)(i), paragraphs 1100M(2)(d) and 1100M(3)(d) of the Act]

•

add requirements for offers which do not require payment to participate to obtain the regulatory relief under Schedule 4 to the main Bill; [Schedule 4, item 33, paragraph 1100P(1)(d) of the Act]

•

add requirements for offers which require payment to participate to obtain the regulatory relief under Schedule 4 to the main Bill; [Schedule 4, item 33, paragraphs 1100Q(1)(h) and (2)(c) of the Act]

•

modify the issue cap by lifting the percentage from 5 per cent (for listed bodies corporate or schemes) or 20 per cent (for unlisted bodies corporate); [Schedule 4, item 33, subparagraph 1100V(2)(b)(iii) of the Act]

•

modify the monetary cap, by either lifting the basic cap amount from $30,000, providing alternatives to the monetary cap or adding additional types liquidity events which are exempt from the monetary cap; [Schedule 4, item 33, paragraph 1100ZA(4)(b) and subsections 1100ZA(6), 1100ZA(8) and 1100ZB(8) of the Act]

•

modify the disclosure requirements, including exempting certain types of offer from requiring disclosure; and [Schedule 4, item 33, subsections 1100W(4) and 1100Y(5), paragraphs 1100T(f) and 1100W(2)(j) and subparagraph 1100Y(4)(a)(iv) of the Act]

•

add requirements for trust, contribution plans and loans for employee share schemes. [Schedule 4, item 33, paragraphs 1100S(3)(e), 1100T(f) and 1100U(1)(c) of the Act]

4.197 These regulation-making powers are necessary to ensure flexibility in the regulatory regime.

4.198 Employee share schemes are complex legal arrangements that are used in a wide variety of industries which interact with a similarly wide variety of regulatory frameworks including rules in relation to selling of securities and financial products, financial advice, hawking and advertising of securities and financial products and disclosure obligations as well as taxation and employment law. Industry practice is also often evolving as new interests enter the market, which require changes in the regulatory framework.

4.199 It is therefore likely that there are unforeseen circumstances and situations which it would not be appropriate to address in the primary law. Regulation making powers in addition to ASIC exemption and modification powers are necessary to ensure decisive action can be taken in circumstances where it would be inappropriate for ASIC to intervene, and to ensure the scheme is responsive to government policy.

4.200 Regulations made under Schedule 4 to the main Bill will be disallowable and subject to parliamentary scrutiny.

Subsequent sale provisions

4.201 Generally, disclosure is not required for private sales of interests by a person under the Act after an interest has been issued. However, in some circumstances the on-sale of interests does require disclosure under the Act (see sections 707 and 1012C of the Act).

4.202 Participants in an employee share scheme can sell interests without disclosure if the participant reasonably believes they received that interest under an employee share scheme, and they reasonably believe they are only selling their interest to another participant in the same employee share scheme. [Schedule 4, item 33, section 1100ZD of the Act]

Other amendments

4.203 The existing definitions of 'employee share scheme', 'eligible employee share scheme' and 'employee share scheme buy-back' are repealed and replaced by the new definitions inserted by Schedule 4 to the main Bill. [Schedule 4, items 2, 4, 5 and 33, section 9, definitions of an 'eligible employee share scheme', 'employee share scheme' and 'employee share scheme buy-back' and section 1100L of the Act]

4.204 Consequential amendments are made to the definition and uses of 'contribution plan' throughout the Act and a new definition of 'employee share buy-back' is added. [Schedule 4, items 1, 3, 6, 10, 11, 13 and 18, section 9, definitions of 'contribution plan', 'employee share buy-back' and 'selective buy-back' and sections 709 and 257B of the Act]

4.205 The existing definition of 'ESS Interest' is repealed and replaced by a new definition inserted by Schedule 4 to the main Bill. [Schedule 4, item 7, section 9, definition of 'ESS Interest' of the Act]

4.206 Amendments are made to section 708 to direct readers to the rules for employee share schemes. [Schedule 4, items 16 and 17, section 708 of the Act]

4.207 An ESS contribution plan is excluded from the definition of a managed investment scheme in section 9 of the Act. [Schedule 4, item 9, section 9, definition of 'managed investment scheme' of the Act]

4.208 Amendments are made to sections 703B and 725A to indicate that Part 6D.3A of the Act does not apply to employee share schemes. [Schedule 4, items 14, 15, 19 and 20, sections 703B and 725A of the Act]

4.209 The content relating to employee share schemes in section 911A of the Act is removed as it has been made redundant by Schedule 4 to the main Bill. [Schedule 4, items 21 to 23, section 911A of the Act]

4.210 The content relating to employee share schemes in relation to hawking securities and financial products, and the design and distribution obligations regime in sections 736, 992A and 994B of the Act is removed as it has been made redundant by Schedule 4 to the main Bill. [Schedule 4, items 24 to 26, sections 992A and 994B of the Act]

4.211 Amendments are made to section 1010A and 1010BA of the Act to indicate that Divisions 5A, 5B, 5C and 6 do not apply to employee share schemes, as well as amendments to 1012E to direct readers to the new regime. [Schedule 4, items 27 to 32 and sections 1010A, 1010BA and 1012E]

4.212 Schedule 4 to the main Bill contains a simplified outline of the rules for employee share schemes. [Schedule 4, item 33, section 1100E of the Act]

4.213 Schedule 4 to the main Bill covers interests that are received in this jurisdiction, regardless of where any resulting issue, sale or transfer occurs. [Schedule 4, item 33, section 1100F of the Act]

4.214 Schedule 4 to the main Bill covers offers of ESS interests, invitations for applications for the issue, sale or transfer of ESS interests and invitations to purchase ESS interests. [Schedule 4, item 33, section 1100G of the Act]

4.215 The person who offers interests under Schedule 4 to the main Bill is the person who has capacity or agrees to issue the interests if the offer is accepted. [Schedule 4, item 33, section 1100H of the Act]

4.216 Offers made under an employee share scheme under Schedule 4 to the main Bill can also simultaneously rely on other pre-existing disclosure exemptions in the Act. [Schedule 4, item 33, section 1100J of the Act]

4.217 Schedule 4 to the main Bill does not apply to unlisted registered schemes. [Schedule 4, item 33, section 1100L of the Act]

4.218 Offers made under employee share schemes are not counted for the purpose of determining if the small-scale offerings exemption for disclosure applies under subsection 708(1), unless the employee share scheme is also utilising the small-scale offering exemption. [Schedule 4, item 33, subsection 1100ZC(4) of the Act]

4.219 Any offers made in connection to an employee share scheme are subject to the pre-existing offences for misleading and deceptive conduct present in the Act. These include:

•

section 1041E False and misleading statements (strict and normal offences) in relation to disseminating information that will induce persons to apply for financial products;

•

section 1041F Inducing a person to deal in financial products; and

•

section 1041 Misleading and deceptive conduct (civil liability).

4.220 Schedule 4 to the main Bill also makes amendments to allow a proprietary company to offer options in respect of its shares to existing shareholders of the company or employees of the company or a subsidiary of the company, even where this activity would require disclosure under Chapter 6D. [Schedule 4, item 11, subsection 113(3)(a) of the Act]

Commencement, application, and transitional provisions

4.221 Schedule 4 to the main Bill will commence 6 months after Royal Assent. [Schedule 4, Commencement table]

4.222 Shares from entities listed on financial markets listed in the ASIC Corporations (Definition of Approved Foreign Market) Instrument 2017/669 will be treated as shares from entities listed in Australia for the purposes of Schedule 4 to the main Bill until ASIC issues an instrument under Schedule 4 to the main Bill prescribing a different set of foreign markets. That instrument prescribes foreign markets that are covered by the rules in CO 14/1000. [Schedule 4, item 36, section 1696 of the Act]

Chapter 5: Varying the GDP uplift factor for tax instalments

Outline of chapter

5.1 Schedule 5 to the main Bill amends the TAA 1953 to reduce the GDP adjustment factor for the 2022-23 income year to 2 per cent. The GDP adjustment factor is applied by the Commissioner to work out the amount of PAYG and GST instalments payable by a taxpayer in certain circumstances.

Context of amendments

5.2 Most small businesses and some individuals are required to pay instalments toward their expected annual income tax under the PAYG instalment system. The difference between instalment payments and the taxpayer's final tax liability is reconciled in a wash-up payment or refund at the time an income tax assessment is made (generally at the end of the income year).

5.3 Small business entities that are liable to pay GST may also elect to pay by instalments. The amount of the GST instalments payable by a small business entity is worked out by the Commissioner taking into account the GDP adjustment factor.

5.4 There are a number of methods to determine tax instalments based on previous tax outcomes. These include:

•

the Instalment Rate method - under this method the amount of the instalment is worked out based on income as a proxy for profit within instalment periods; and

•

the Quarterly Instalment Amount method - under this method the amount of the instalment is worked out based on previous tax outcomes that are uplifted based on the nominal increase in GDP over the previous two calendar years.

5.5 Taxpayers can vary their instalments if they consider their income is expected to be lower or higher than the amount determined by the Commissioner.

5.6 The Commissioner has advised that, without this amendment, the GDP adjustment factor that will apply to work out instalments for the 2022-23 income year under the Quarterly Instalment Amount method will be 10 per cent.

5.7 The GDP adjustment factor can be unrepresentative of expected profit growth in income years where economic and business conditions change quickly and the expected income of taxpayers changes accordingly. This can cause taxpayers to be required to pay instalments that are too high compared with their actual income, with the overpaid tax being credited to them after the end of the income year when their final tax liability is assessed.

5.8 Therefore, having regard to the economic and business conditions caused by the Coronavirus, the GDP adjustment factor that applies to work out the amount of instalments payable is reduced to 2 per cent for the 2022-23 income year.

Comparison of key features of new law and current law

Table 5.1 Comparison of new law and current law

Detailed explanation of new law

5.9 Schedule 5 to the main Bill amends section 45-405 in Schedule 1 to the TAA 1953 to reduce the GDP adjustment factor for the 2022-23 income year to 2 per cent.

5.10 Taxpayers who make PAYG and GST instalments on the basis of the Quarterly Instalment Amount method are required to pay a percentage of their GDP adjusted notional tax each quarter as worked out under either section 45-400 or section 45-402 in Schedule 1 to the TAA 1953.

5.11 GDP adjusted notional tax is calculated by the Commissioner under section 45-405 in Schedule 1 to the TAA 1953. Broadly, a taxpayer's GDP adjusted notional tax is calculated by increasing the taxpayer's adjusted taxable income from their most recent income tax return by the GDP adjustment factor to give the adjusted taxable income for the purposes of calculating their notional tax for the current income year.

5.12 The GDP adjustment factor is generally calculated using the formula in subsection 45-405(3) in Schedule 1 to the TAA 1953. However, for the 2022-23 income year, the GDP adjustment factor is set at 2 per cent. [Schedule 5, item 1, subsection 45-405(9) in Schedule 1 to the TAA 1953]

5.13 The Commissioner will apply the reduced GDP adjustment factor to work out the amount of GST instalments payable by small business entities in the 2022-23 income year.

5.14 Taxpayers may still vary their quarterly instalments if they consider their income is expected to be lower or higher than the amount determined by the Commissioner using the 2 per cent GDP adjustment factor.

5.15 The reduction of the GDP adjustment factor does not alter the relevant taxpayer's overall tax liability. Instead, the reduction minimises adverse impacts on cashflow for the 2022-23 income year as instalments fall due.

Commencement, application, and transitional provisions

5.16 The amendments commence on the first day of the first quarter following Royal Assent of the main Bill. [Clause 2]

5.17 These amendments will apply for the purposes of working out the amount of PAYG and GST instalments for instalment quarters of the 2022-23 income year. [Schedule 5, item 2]

5.18 This will ensure that the measure will apply for the purposes of working out the amount of a taxpayer's instalments in relation to the 2022-23 income year (including the PAYG instalments payable by a taxpayer that has a substituted accounting period). For relevant taxpayers with substituted accounting periods that are early balancers for the 2022-23 income year, the reduction of the GDP adjustment factor to 2 per cent does not cause a disadvantage as there is a reduction in the applicable instalments.

5.19 To avoid inoperative provisions remaining in the tax laws, the provisions that give effect to this measure will be automatically repealed on 1 July 2027. [Schedule 5, item 3]

Chapter 6: Low and middle income tax offset

Outline of chapter

6.1 Schedule 6 to the main Bill amends the ITAA 1997 to increase the low and middle income tax offset for the 2021-22 income year by $420 to ease cost of living pressures for Australians.

Context of amendments

6.2 In the 2022-23 Budget, the Government announced that it would increase the low and middle income tax offset for the 2021-22 income year to help ease cost of living pressures for Australians.

6.3 A person is liable to pay income tax in Australia with reference to their taxable income for the income year. The amount of income tax payable is calculated by applying the applicable income tax rate to your taxable income and then reducing it by your tax offsets for the income year.

6.4 Income tax law also provides for a number of tax offsets, which are reductions in the income tax that would otherwise be payable by taxpayers that satisfy the specified requirements. Many of these offsets are contained in Division 61 of the ITAA 1997.

6.5 Subdivision 61-D of the ITAA 1997 provides for one such tax offset - the low and middle income tax offset - for lower income individuals (and certain trustees taxed in the place of these individuals) in the 2018-19, 2019-20, 2020-21 and 2021-22 income years.

6.6 Schedule 6 to the main Bill gives effect to the Government's announcement in the 2022-23 Budget by amending Subdivision 61-D of the ITAA 1997 to increase the low and middle income tax offset for eligible individuals (and trustees) by $420 for the 2021-22 income year.

Summary of new law

6.7 Schedule 6 to the main Bill amends the ITAA 1997 to increase the low and middle income tax offset by $420 for the 2021-22 income year.

6.8 The increase in the low and middle income tax offset will apply to:

•

individuals

-

who are Australian residents at any time during the 2021-22 income year; and

-

whose taxable income for the 2021-22 income year is less than $126,000; or

•

trustees

-

who are liable to be assessed under section 98 of the Income Tax Assessment Act 1936 in respect of a share of the net income of a trust;

-

the beneficiary who is presently entitled to that share is an individual who is an Australian resident at any time during the income year; and

-

that share is less than $126,000.

Comparison of key features of new law and current law

Table 6.1 Comparison of new law and current law

Detailed explanation of new law

6.9 The low and middle income tax offset amount is increased by $420 for the 2021-22 income year. [Schedule 6, item 3, subsection 60-107(1A) of the ITAA 1997]

6.10 This increase applies to eligible persons who have a taxable income that is less than $126,000 for the 2021-22 income year (i.e. persons who are entitled to a low and middle income tax offset amount of greater than $0 for the 2021-22 income year). [Schedule 6, item 3, paragraph 60-107(1A)(b) of the ITAA 1997]

6.11 The increase of $420 applies to persons in each of the four income thresholds to which the existing low and middle income tax offset applies. As a result:

•

persons with taxable incomes below $37,000 would be entitled to a total tax offset amount of $675;

•

persons with taxable incomes exceeding $37,000 but not more than $48,000 would be entitled to a total tax offset amount of $675, plus 7.5 cents for every dollar above $37,000;

•

persons with taxable incomes exceeding $48,000 but not more than $90,000 are entitled to a tax offset amount of $1,500; and

•

persons with taxable income exceeding $90,000 but less than $126,000 are entitled to a tax offset amount of $1,500 less 3 cents for every dollar above $90,000.

6.12 In accordance with the existing law, the low and middle income tax offset does not apply to persons who have a taxable income for the 2021-22 income year that exceeds $126,000.

6.13 The low and middle income tax offset can only reduce the amount of tax payable on an individual's taxable income to a minimum of $0. Any offset amount that remains once an individual's tax payable is zero is not refunded. As a result, some individuals will not have sufficient tax liability to use the entire amount of the additional offset.

6.14 All of the other features of the existing low and middle income tax offset, including the taper-in and taper-out rates and the integrity rules applying to persons below the age of 18 years, remain unchanged. [Schedule 6, item 4, subsections 60-107(2) and (4) of the ITAA 1997]

6.15 Sections 60-105 and 60-107 of the ITAA 1997, which provide for the low and middle income tax offset, will be repealed on 1 July 2022 by the Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Act 2020. Schedule 6 to the main Bill amends the notes under subsections 60-105(3) and 60-107(1) of the ITAA 1997 to update these references. [Schedule 6, items 1 and 2, subsections 60-105(3) and 60-107(1) of the ITAA 1997]

Commencement, application, and transitional provisions

Commencement

6.16 The amendments to the low and middle income tax offset in Schedule 6 to the main Bill commence on the day after the main Bill receives Royal Assent.

Application

6.17 The amendments to the low and middle income tax offset only apply to the 2021-22 income year. [Schedule 6, Item 3, subsection 61-107(1A) of the ITAA 1997]

Chapter 7: Safety net thresholds

Outline of chapter

7.1 There are two PBS Safety Net thresholds - concessional and general. The general patient safety net threshold is currently $1,542.10, which equates to approximately 36 general patient co-payments. The concessional safety set threshold is currently $326.40 which is the equivalent to 48 concessional patient co-payments.

7.2 The purpose of Schedule 7 of the main Bill is to amend the National Health Act 1953 to reduce the safety net thresholds for concessional to 36 scripts (from 48) and general to $1457.10 (from $1542.10) on 1 July 2022.

7.3 References in this Chapter of the Explanatory Memorandum to 'Concessional' refer to Concessional beneficiary patient.

7.4 References in this Chapter of the Explanatory Memorandum to 'General' refer to General beneficial patient.

Context of amendments

7.5 The Australian Government is committed to ensuring that all Australians are able to access high quality health care. The PBS provides significant direct assistance to make medicines affordable.

7.6 Medicines dispensed through the PBS are subject to a patient contribution, for general (non-concessional) patients, this is known as a general patient charge. The general patient charge is the amount the patient pays towards the cost of their PBS subsidised medicine. The Government pays the remaining cost.

7.7 Currently concessional patients pay $6.80 for a script. Once a concessional patient reaches the safety net threshold any scripts for the remainder of the year are cost free to the patient.

7.8 The concessional safety net is based on a multiple of the concessional beneficiary charge which is indexed annually on 1 January each year.

7.9 General patients currently pay up to $42.50 per script and once the safety net threshold is met a general patient pays $6.80 per script for the remainder of the calendar year.

7.10 The general patient safety net is indexed annually.

7.11 Without a reduction to the safety net thresholds, over time it may become more difficult for patients to afford the out-of-pocket costs if they require a lot of medicines.

7.12 Schedule 7 to the main Bill will reduce the concessional safety net by 12 concessional patient co-payments to 36 and the general patient safety net by $85 (equivalent to 2 general patient co-payments) to $1457.10.

Comparison of key features of new law and current law

Table 7.1 Comparison of new law and current law

Detailed explanation of new law

7.13 Schedule 7 of the main Bill commences on 1 July 2022 which means the amendments will apply in relation to the supply of a pharmaceutical benefit on or after 1 July 2022.

7.14 Section 99F of the National Health Act 1953 defines the concessional beneficiary safety net as "the amount worked out by multiplying the concessional beneficiary charge by 48", and the general patient safety net as "the amount of $1486.80". However indexation has increased the general patient Safety Net threshold, to the current $1,542.10, as at 1 January 2022.

7.15 Item 1 of schedule 7 amends the definition of concessional beneficiary safety net at section 99F of the National Health Act 1953 by lowering the number of concessional patient co-payments to 36.

7.16 Item 2 of schedule 7 amends the definition of general patient safety net at section 99F of the National Health Act 1953 by lowering the dollar value to $1457.10.

7.17 After 1 July 2022, the indexation arrangements defined in section 99G of the National Health Act 1953 will resume, with no change to their current operation. That is, on 1 January 2023, normal indexation of the general patient safety net amount (Year to September Quarter) will resume. The concessional beneficiary safety net will continue to be determined as a multiple of concessional patient co-payments, which are indexed, resulting in the overall increase of the concessional beneficiary safety net threshold.

7.18 This change is reducing the baseline. Indexation is based on the CPI and will not be affected by the reset of the baseline.

7.19 The reduction to the concessional beneficiary safety net and the general patient safety net will have an impact on the number of scripts a patient has filled before reaching the safety net threshold.

Chapter 8: 2022 cost of living payment

Outline of Schedule

8.1 Schedule 8 to the main Bill provides for the payment of 2022 cost of living payment of $250 to around 5.9 million Social Security and Veterans' income support and compensation recipients, Farm Household Allowance recipients, and holders of a Pensioner Concession Card, Commonwealth Seniors Health Card or Veteran Gold Card. The cost of living payment is exempt from income tax and not assessed as income for the purposes of the social security law or Veterans' Entitlement Act.

8.2 To be qualified for the 2022 cost of living payment, a person must be residing in Australia and be receiving one of the qualifying payments or hold or have claimed and qualified for one of the qualifying concession cards on 29 March 2022.

Summary of new law

8.3 This Schedule provides for the payment of new 2022 cost of living payment to a range of income support payment recipients, compensation payment recipients and concession card holders.

Comparison of key features of new law and current law

Table 8.1 Comparison of new law and current law

Detailed explanation of new law

Amendments to the Income Tax Assessment Act 1997

8.4 Items 1 to 9 amend sections 11-15, 52-10, 52-40, 52-65, 52-75, 52-131 and 52-150 of the ITAA 1997 to ensure that 2022 cost of living payment under the Social Security Act, Veterans' Entitlements Act and ABSTUDY scheme is tax exempt.

Amendments to the Social Security Act 1991

8.5 Item 10 inserts paragraph 8(8)(yp) of the Social Security Act to ensure that a payment of a 2022 cost of living payment under the Veterans' Entitlements Act is not assessed as income for the purposes of the social security law.

8.6 Item 11 inserts paragraph 23(4AA)(af) into the Social Security Act before paragraph 23(4AA)(b) of that Act. The new paragraph contains a reference to new Part 2.6D of the Social Security Act.

8.7 The effect of this amendment is that a person qualifies for a 2022 cost of living payment under section 314 of the Social Security Act if on 29 March 2022 they are taken to be receiving a social security benefit or pension under subsection 23(4A) of the Social Security Act on that day.

8.8 Subsection 23(4A) of the Social Security Act treats a person as still 'receiving' a social security pension or benefit (for the purposes of receiving certain supplementary payments listed in subsection 23(4AA) of the Social Security Act) if they ceased to be paid their pension or benefit because employment income reduced the rate of their pension or benefit to nil.

8.9 Item 12 inserts Part 2.6D into the Social Security Act after Part 2.6C.

8.10 New section 314 in Division 1 of the new Part provides for qualification for a 2022 cost of living payment. A person is so qualified if new subsection 316(2)(3) or (4) applies to the person on 29 March 2022, and the person is residing in Australia on that day.

8.11 Subsection 314(2) provides that a person may only receive one payment regardless of how many times the person qualifies under section 314.

8.12 Subsection 314(3) prevents a 2022 cost of living payment under section 314 being paid to a person if such payment has already been paid under the ABSTUDY Scheme or under the Veterans' Entitlements Act.

8.13 New section 315 sets the amount of a person's 2022 cost of living payment at $250.

8.14 New Division 2 of Part 2.6D includes new section 316. Section 316 applies for the purposes of subsection 314(1). Subsection 316(2) lists the payments, the receipt of which will give rise to qualification for the 2022 cost of living payment. The listed payments are:-

•

age pension;

•

disability support pension;

•

carer payment;

•

parenting payment;

•

youth allowance;

•

austudy payment;

•

jobseeker payment;

•

special benefit;

•

carer allowance; and

•

double orphan pension.

8.15 A note to subsection 316(2) alerts the reader that references to youth allowance and jobseeker payment include references to farm household allowance: see section 93 of the Farm Household Support Act 2014.

8.16 Subsection 316(3) provides for qualification for a 2022 cost of living payment if the person has claimed a seniors health card on 29 March 2022, has not withdrawn that claim, and is ultimately found to be qualified for the card on that day, is also qualified for a payment.

8.17 Subsection 216(4) provides for qualification for a 2022 cost of living payment if the person is qualified for a pensioner concession card on that day.

8.18 Item 13 inserts new table item 4M after table item 4L in subsection 1222(2), relating to the manner of recovery of debts. This is consequential to item 28 which inserts new debt provisions in respect of 2022 cost of living payment. The new table item alerts readers to the manner of recovery of any debts of the payment raised.

8.19 Item 14 provides for debts in respect of 2022 cost of living payment. A debt of the payment will only arise when its payment is paid as a result of the recipient knowingly making a false or misleading statement or knowingly providing false information. This may result in a change, revocation, setting aside or superseding of the underlying determination giving rise to qualification for the underlying payment. In this case, the whole amount of the payment is a debt. Other provisions of Part 5 relating to raising debts more broadly do not apply to the payment.

Amendments to the Social Security (Administration) Act 1999

8.20 Item 15 inserts new section 12AH before section 12B, providing that a claim is not required for a 2022 cost of living payment provided for by the main social security Act.

8.21 Item 16 inserts reference to the 2022 cost of living payment into new paragraph 47(1)(gk), which provides for the payment of lump sum benefits to individuals, to require the amount be paid to the person.

8.22 Item 17 inserts new section 47AI after section 47AH to provide for the timing of the payment to the person. Section 47AI provides for the payment to be made in a single lump sum on the date on or after 29 March 2022 that the Secretary considers to be the earliest date on which it is reasonably practicable for the payment to be paid; and in such manner as the Secretary considers appropriate. However, the payment must not be paid on or after 1 July 2023. It would be expected that all persons qualified for the payment would have been paid before this date.

8.23 Item 18 amends provisions relating to the income management regime. The 2022 cost of living payment will be subject to income management if the person receiving the payment is subject to income management. Item 32 inserts a definition of the 2022 cost of living payment into section 123TC, by reference to new part 2.6D of the Social Security Act, or such payment under the ABSTUDY scheme.

8.24 Item 19 modifies the heading to Subdivision DB of Division 5 of Part 3B, to include reference to cost of living payment.

8.25 Item 20 inserts new section 123XPE into Subdivision DB of Division 5 of Part 3B. This provides for 100 percent of the payment to be withheld and subject to income management where the person qualified for the payment is otherwise subject to income management.

8.26 Item 21 amends the definition of restrictable payment in subsection 124PD(1) of the Social Security (Administration) Act to insert reference to the 2022 cost of living payment' under the Social Security Act and the ABSTUDY Scheme. The insertion of these terms into the definition of restrictable payment, in conjunction with existing subsection 124PJ(2) of the Social Security (Administration) Act, will mean that 100 per cent of the payment will be subject to the cashless welfare card if the recipient of the payment is a participant in the cashless welfare card trial in Part 3D of the Social Security (Administration) Act.

Amendments to the Veterans' Entitlement Act 1986

8.27 Item 22 amends subsection 5H(8) of the Veterans' Entitlement Act to specify the 2022 cost of living payment under new Part IIIK (Division 1) in the list of excluded amounts for the purposes of that Act. This amendment in effect ensures that the 2022 cost of living payment does not count as income for income testing purposes under that Act, but instead is an excluded amount. Specifically, item 22 inserts a new paragraph (zzap) in subsection 5H(8) to include the 2022 payment payable under new Part IIIK (Division 1) so that it is not counted as income.

8.28 Item 23 inserts a new Part IIIK into the Veterans Entitlement Act. New Part IIIK provides for the 2022 cost of living payment of $250. Division 1 sets out who are eligible for the payment, the amount of payment, entitlement for the payment and makes it clear that a claim is not required for the payment. Division 2 provides details and list of persons receiving specified payments or who hold the appropriate card as being eligible for the payment.

8.29 The amendments to the Veterans' Entitlements Act will allow the 2022 cost of living payment to be paid to persons receiving the following payments or who hold the appropriate card listed below:

•

service pension;

•

income support supplement;

•

disability compensation payment under the Veterans' Entitlements Act;

•

war widow(er)s pension under the Veterans' Entitlements Act;

•

veteran payment;

•

permanent impairment compensation under the Military Rehabilitation and Compensation Act 2004;

•

special rate disability pension under the Military Rehabilitation and Compensation Act 2004;

•

wholly Dependent Partner payments under the Military Rehabilitation and Compensation Act 2004;

•

those who converted their weekly Permanent Impairment Compensation, or Wholly Dependent Partner Payments under the Military Rehabilitation and Compensation Act 2004 prior to the date their eligibility for 2022 cost of living payment is assessed and those who have received Permanent Impairment compensation under the Safety, Rehabilitation and Compensation (Defence-related Claims) Act 1988;

•

all Repatriation Health Card - For All Conditions (Veteran Gold Card) holders;

•

Education Allowance recipients aged 16 or over;

•

all Commonwealth Seniors Health Card and Pensioner Concession Card holders under the Veterans' Entitlements Act; and

•

claimants under section 8 of the Australian Participants in British Nuclear Tests and British Commonwealth Occupation Force (Treatment) Act 2006 or section 9 of the Treatment Benefits (Special Access) Act 2019 and are eligible persons within the meaning of those Acts.

8.30 Division 1 sets out entitlement to, and the amount and details of, the 2022 cost of living payment for persons who will be eligible for that payment under the Veterans' Entitlement Act.

8.31 New section 67ZP provides for persons who will be eligible for the payment and the amount of the payment. Subsection 67ZP(1) provides that a person is eligible for a 2022 cost of living payment if new Division 2 of Part IIIK applies to the person on 29 March 2022. Subsection 67ZP(1) provides that the amount of the payment is $250.

8.32 New section 67ZQ specifies that a person is only entitled to one payment and prohibits multiple entitlement or payment of the 2022 cost of living payment. Subsection 67ZQ(1) makes it clear that a person can only receive one payment under Division 1, regardless of how many times the person becomes eligible under section 67ZQ. New section 67ZP provides that if a 2022 cost of living payment under the ABSTUDY Scheme or an identical payment under Division 1 of Part 2.6D of the Social Security Act is paid to the person, the 2022 cost of living payment under Division 1 of Part IIIK of the Veterans Entitlement Act cannot be paid to the person.

8.33 New section 67ZR makes it clear that a claim is not required for a person to be paid a 2022 cost of living payment under Division 1 of Part IIIK.

8.34 Section 67ZS of the Veterans' Entitlements Act provides that, where a person is eligible for a 2022 cost of living payment under Division 1, the Repatriation Commission must, subject to subsection (2), pay the payment in a single lump sum of $250 on the date occurring on or after 29 March 2022, that is reasonably practical for the payment to be made and in the manner the Repatriation Commission considers to be appropriate.

8.35 Subsection 67ZS(2) provides that the Commission must not pay the payment on or after 1 July 2023. Thus the payment can only be made between 29 March 2022 and 30 June 2023.

8.36 Division 2 of Part IIIK specifies persons who are eligible to receive the payment for the purposes of subsection 67ZP(1) of Division 1 of Part IIIK.

8.37 Section 67ZU provides for the eligibility of persons receiving specified payments under the Veterans' Entitlement Act, that include service pension, income support supplement, disability compensation payment, and war widow's/widower's pension under Part II or IV of the Act, and veteran payment.

8.38 Subsection 67ZU(1) provides that Division 1 (Eligibility) of new Part IIIK applies to a person on a particular day, if service pension or income support supplement is payable to the person on that day. Note, however, that the day on which the eligibility for the 2022 cost of living payment is determined is on 29 March 2022 (refer to subsection 67ZP(1)).

8.39 Subsection 67ZU(2) provides for circumstances where a person may not be receiving a service pension or income support supplement or such payments are not payable to the person because of a change in employment income during a specified period.

8.40 Subsection 67ZU(2) provides that those who have personal and/or partner employment income that reduces their rate to nil during the 12 week period to their service pension or income support supplement ceasing (the cessation date) on or before the "test day", are still taken to be receiving a payment on the "test day" and therefore qualifies and is eligible for the 2022 cost of living payment. The cessation day must occur no earlier than 12 weeks before the test day.

8.41 Subsection 67ZU(3) provides that a person is eligible for the 2022 cost of living payment on a day, if an amount of disability compensation payment at the general rate of pension and extreme disablement adjustment, intermediate rate, special rate of pension, temporary special rate or an increased rate or pension due to a kind of incapacity set out in section 27 of the Veterans' Entitlement Act, is payable to the veteran on the day (the amount payable being greater than nil for that day) their eligibility is determined.

8.42 Subsection 67ZU(4) provides that a person is eligible for the 2022 cost of living payment on a day, if the person who is a widow or widower of a deceased veteran or a reinstated pensioner in relation to the veteran, if an amount of pension is payable to the person under Part II or Part IV of the Veterans' Entitlement Act under or by reference to subsection 30(1) of that Act, on the day their eligibility is determined and the person's rate of pension is greater than nil for that day.

8.43 Subsection 67ZU(5) provides that, a pension is deemed payable even if the rate of pension is nil, or a pension would not be payable merely because the rate is reduced, or pension is not payable because the pension has been fully offset under Division 4, 5 or 5A of Part II or section 74 of the Veterans' Entitlement Act.

8.44 Subsection 67ZU(6) provides that a person is eligible for the 2022 cost of living payment on a day, if the veteran payment is payable to the person on that day and the veteran payment is payable because of a claim made on or before that day their eligibility for that payment is determined under the Veterans' Entitlement Act.

8.45 Section 67ZV provides for the payment of the 2022 cost of living payment to be paid to certain persons who on a particular day receive payments (Education Allowance) under the Veterans' Children Education Scheme (the VCES). As provided for in subsection 67ZP(2), the day the eligibility is determined is on 29 March 2022.

8.46 According to section 67ZV, the 2022 cost of living payment is payable to a person on a day who on that day their eligibility is determined under Division 2 of Part IIIK is aged 16 or over and receiving a payment under the VCES. Where a person aged 16 or over has made a claim under the VCES and that claim is subsequently granted on a day, the person will be also considered eligible for the 2022 cost of living payment on that day.

8.47 Section 67ZW of the Veterans' Entitlement Act provides for the payment of the 2022 cost of living payment to certain people who are eligible because they hold seniors health cards or gold cards or who are eligible for fringe benefits (where a Pensioner Concession Card is issued) under that Act. As previously discussed the eligibility for the payment is determined on 29 March 2022.

8.48 Subsection 67ZW(1) provides that a person is eligible for the 2022 cost of living payment on a day, if the person makes a claim for a seniors health card under Division 2 of Part VIIC on or before that day, the person does not withdraw that claim on or before that day and the person is able to meet all requirements and become eligible for the seniors card on that day. In effect, if a person has made a successful claim on or before the day their eligibility for the payment is applicable, then that person is eligible to receive the payment. However, if the person has withdrawn their claim on or before the day their eligibility for the payment under Division of Part IIIK becomes applicable, or have ceased to be eligible for the holding of a seniors health card on a particular day, they will not be able to receive the payment. Note that individuals who hold a seniors health card under the Social Security Act cannot hold a seniors health card under the Veterans' Entitlement Act (refer to section 118X).

8.49 Subsection 67ZW(2) provides that a person is eligible for the payment under Division 1 of Part IIIK on a day, if the person is the holder of a seniors health card on that day because of the application of subsection 118XA(3) and the person is eligible for the card on that particular day. Section 118XA provides for the modification of the provisions under Division 1 of Part VIIC relating to the eligibility for a seniors health card.

8.50 A person who holds a Repatriation Health Card - For All Conditions, may be eligible for the 2022 cost of living payment. The Repatriation Health Card - For All Conditions is also known as the Veteran Gold Card and is issued to people who are eligible to be provided with treatment for all injuries or diseases under the Veterans' Entitlements Act, Military Rehabilitation and Compensation Act 2004, the Australian Participants in British Nuclear Tests and British Commonwealth Occupation Force (Treatment) Act 2006 or the Treatment Benefits (Special Access) Act 2019.

8.51 Subsection 67ZW(3) provides that a person is eligible for the payment on a day, if the person on that day, holds a card known as the Repatriation Health Card- For all conditions that evidences the person's eligibility under the Veterans' Entitlement Act or the Military Rehabilitation and Compensation Act 2004 to be provided with treatment for all injuries or diseases, and the person is eligible for that card on that particular day.

8.52 Subsection 67ZW(4) deals with the circumstances where a person either receives treatment or has made a claim under the Australian Participants in British Nuclear Tests and British Commonwealth Occupation Force (Treatment) Act 2006 or the Treatment Benefits (Special Access) Act 2019 for eligibility to be provided for treatment. In essence, if a person has made a successful claim for the Repatriation Health Card - For All Conditions under either of these Acts on or before the day their eligibility under Division 2 of Part IIIK becomes applicable, then the person will be eligible to receive the payment on the day that the person is determined to be eligible to hold the card. However, if the person has withdrawn their claim on or before the day their eligibility is determined or ceased to be eligible for Repatriation Health Card - For All Conditions, the person will not be eligible to receive the 2022 cost of living payment. The day eligibility for the 2022 cost of living payment is determined is on 29 March 2022.

8.53 Subsection 67ZW(5) provides that the payment is payable to a person on a day if the person is eligible for fringe benefits under subsection 53A(1A) of the Veterans' Entitlements Act on that particular day. A person is not eligible for the payment if they are eligible for fringe benefits under other subsections of section 53A of the Veterans' Entitlements Act.

8.54 Section 67ZX of the Veterans' Entitlements Act sets out the criteria for persons who are eligible for the 2022 cost of living payment because they are in receipt of specified payments under the Military Rehabilitation and Compensation Act 2004. These payments are compensation for permanent impairment, special rate disability pension and compensation for wholly dependent partners.

8.55 A person is eligible for the payment if one or both of the following conditions is met on the day their eligibility for the payment is applicable:

•

weekly compensation for permanent impairment is payable to the person under Part 2 of Chapter 4 of the Military Rehabilitation and Compensation Act 2004 on that day or weekly compensation for permanent impairment would have been payable under Part 2 of Chapter 4 for that day if it had not been offset under paragraph 398(3)(b) of the Military Rehabilitation and Compensation Act 2004 or subsection 13(4) of the Military Rehabilitation and Compensation (Consequential and Transitional Provisions) Act 2004; or

•

on or prior to that day, the person had received lump sum compensation for permanent impairment under Part 2 of Chapter 4 of the Military Rehabilitation and Compensation Act 2004.

8.56 A person is eligible for the payment if Special Rate Disability Pension is payable to the person under the Military Rehabilitation and Compensation Act 2004 the day their eligibility for the payment is applicable. The payment is also payable if the Special Rate Disability Pension would have been payable for that day if it had not been offset under section 204 or paragraph 398(3)(b) of the Military Rehabilitation and Compensation Act 2004.

8.57 A wholly dependent partner is eligible for the payment if one or both of the following conditions are met on the day the person's eligibility for the payment is applicable:

•

weekly compensation as a wholly dependent partner is payable to the person under Division 2 of Part 2 of Chapter 5 of the Military Rehabilitation and Compensation Act 2004 on that day, or weekly compensation as a wholly dependent partner would have been payable to the person under Division 2 of Part 2 of Chapter 5 for that day if it had not been offset under paragraph 398(3)(b) of the Military Rehabilitation and Compensation Act 2004; or

•

on or before that day, the person had received lump sum compensation as a wholly dependent partner under Division 2 of Part 2 of Chapter 5 of the Military Rehabilitation and Compensation Act 2004 and before that date the person had not been precluded under subsection 388(6) of the Military Rehabilitation and Compensation Act 2004 from being eligible for any further compensation under the Military Rehabilitation and Compensation Act 2004 following the recovery of damages for the death of the person's partner from the Commonwealth.

8.58 Subsections (1), (2) and (3) of the Veterans' Entitlements Act all refer to the circumstances where compensation payable under the Military Rehabilitation and Compensation Act 2004 is to be regarded as being payable to the person even though the payment rate is nil due to the operation of one of the offsetting provisions in the Military Rehabilitation and Compensation Act 2004.

8.59 Section 67ZY of the Veterans' Entitlements Act provides for the payment to be paid to certain persons who receive payments under the education scheme under section 258 of the Military Rehabilitation and Compensation Act 2004. The payment is payable if the person is, on the day their eligibility becomes applicable, aged 16 or over, and receiving a payment (Education Allowance) under that education scheme. A person is also eligible for the payment where that person is aged 16 or over and has made a claim for that education scheme on the day their eligibility is determined to be applicable and that claim is subsequently granted.

8.60 A person receiving a payment of compensation under section 24 of the Safety, Rehabilitation and Compensation (Defence-related Claims) Act 1988 is eligible for the payment if the compensation was paid because of a claim the person made on or before the day their eligibility for the payment becomes applicable.

8.61 A person must reside in Australia on the day that their eligibility for the payment is determined to be applicable, to be eligible for the payment.

Commencement, application, and transitional provisions

The amendments commence on the day after Royal Assent.

Chapter 9: Fuel duty amendments in the Customs Tariff Amendment (Cost of Living Support) Bill 2022 and Excise Tariff Amendment (Cost of Living Support) Bill 2022

Outline of chapter

9.1 The Excise Bill and Customs Bill amend the Excise Tariff Act and the Customs Tariff Act respectively to temporarily reduce the excise duty rates and excise-equivalent customs duty rates for fuels, including petrol and diesel and similar petroleum-based products, including oils and grease.

Context of amendments

9.2 In the 2022-23 Budget, the Government announced that it would temporarily reduce the excise and excise-equivalent customs duty rates for fuels, including petrol and diesel and similar petroleum-based products, including oils and grease to help reduce cost of living pressures for households and assist Australian businesses.

Summary of new law

Fuel excise and customs duty rates

9.3 The Excise Bill and the Customs Bill respectively amend the Excise Tariff Act and the Customs Tariff Act to temporarily reduce the excise and excise-equivalent customs duty rates applying to fuels, including petrol and diesel and similar petroleum-based products, including oils and grease.

•

From 30 March 2022, the excise and excise-equivalent customs duty rates on fuels, including petrol and diesel and similar petroleum-based products, including oils and grease manufactured or produced in Australia or imported into Australia is reduced by 50 per cent for a period of six months until 28 September 2022.

•

From 29 September 2022, the excise and excise-equivalent customs duty rates for these goods automatically return to the rates that would otherwise have applied on this date (including indexation during the reduction period) as if there had not been a temporary reduction in fuel excise and excise-equivalent customs duty rates.

Comparison of key features of new law and current law

Comparison of new law and current law

Detailed explanation of new law

Fuel excise and customs duty rates

9.4 From 30 March 2022:

•

the excise and excise-equivalent customs duty rates for fuels, including petrol and diesel are reduced by 50 per cent from the rate applying since 1 February 2022 (see paragraph 9.8 below for the reduced rates); and

•

the excise and excise-equivalent customs duty rates for similar oils and grease are reduced to:

-

$0.043 per litre for oils; and

-

$0.043 per kilogram for grease.

9.5 On 1 August 2022 (or the applicable indexation day in August 2022), the reduced rate for fuel duty rates is subject to indexation at the CPI indexed rate.

9.6 From 29 September 2022:

•

the excise and excise-equivalent customs duty rates for fuels, including petrol and diesel, return to the 1 February 2022 rate and are subject to indexation at the CPI indexed rate (using the August 2022 indexation factor); and

•

the excise and excise-equivalent customs duty rates for oils and grease return to:

-

$0.085 per litre for oils; and

-

$0.085 per kilogram for grease.

Temporary reduction in excise and excise-equivalent customs duty rates from 30 March 2022

9.7 From 30 March 2022, the fuel excise and excise-equivalent customs duty rates are reduced by 50 per cent from the rates that have applied since 1 February 2022. [Schedule 1, item 1, subsection 6K(1) of the Excise Tariff Act; and Schedule 1, item 1, subsection 19AABA(1) of the Customs Tariff Act]

9.8 Accordingly, from 30 March 2022, the excise and excise-equivalent customs duty rates applying to fuels, including petrol and diesel and similar products are as follows:

•

petrol and diesel - $0.221 per litre;

•

liquefied petroleum gas - $0.072 per litre;

•

liquefied natural gas and compressed natural gas - $0.152 per litre;

•

denatured ethanol for use in internal combustion engines - $0.073 per litre; and

•

biodiesel - $0.044 per litre.

[Schedule 1, item 1, subsections 6K(1) and (2) of the Excise Tariff Act; and Schedule 1, item 1, subsections 19AABA(1) and (2) of the Customs Tariff Act]

9.9 The reduced fuel excise rates are included in the definition of CPI indexed fuel rate in subsection 6K(8) of the Excise Bill. This specifies that the reduced fuel excise rates are the ones covered in paragraphs (b) and (c) of the existing definition of CPI indexed rate in subsection 6A(10) of the Excise Tariff Act.

9.10 The current fuel excise and excise-equivalent customs duty rates are available from the Australian Taxation Office and Australian Border Force websites.

9.11 From 30 March 2022, the excise and excise-equivalent customs duty rates for oils and grease are reduced to:

•

$0.043 per litre for oil; and

•

$0.043 per kilogram for grease.

[Schedule 1, item 1, subsection 6L(1) of the Excise Tariff Act; and Schedule 1, item 1, subsections 19AABB(1), (5) and (6) of the Customs Tariff Act]

9.12 Reduced excise duty rates apply to fuels, including petrol and diesel and similar petroleum-based products, including oils and grease that were manufactured or produced in Australia:

•

between the period beginning on 30 March 2022 and ending on 28 September 2022 (inclusive); and

•

before 30 March 2022, if:

-

on 30 March 2022, the goods were subject to the CEO's control or were in the stock, custody or possession of, or belonged to, a manufacturer or producer of goods; and

-

no duty of excise had been paid on the goods before 30 March 2022.

[Schedule 1, item 1, subsections 6K(3) and (8) and subsection 6L(2) of the Excise Tariff Act]

9.13 Reduced excise-equivalent customs duty rates apply to fuels, including petrol and diesel and similar petroleum-based products, including oils and grease:

•

imported into Australia between the period beginning on 30 March 2022 and ending on 28 September 2022 (inclusive); and

•

imported into Australia before 30 March 2022, where the time for working out the rate of the import duty on the goods had not occurred before 30 March 2022.

[Schedule 1, item 1, subsections 19AABA(3) and (6) and subsection 19AABB(2) of the Customs Tariff Act]

9.14 The requirements for when the duty rate for imported goods must be paid and worked out are set out in section 132AA of the Customs Act 1901.

9.15 The reduced excise and excise-equivalent customs duty rates for fuels, including petrol and diesel and similar petroleum-based products, including oils and grease are rounded to three decimal places. [Schedule 1, item 1, subsection 6K(2) of the Excise Tariff Act; and Schedule 1, item 1, subsection 19AABA(2) of the Customs Tariff Act]

Exclusion for aviation fuels

9.16 There are no changes to the excise and excise-equivalent customs duty rates for aviation fuels (i.e., fuels used in aircraft). This is because excise and excise-equivalent customs duties on aviation fuels is wholly used to fund the Civil Aviation Safety Authority which is required under the Aviation Fuel Revenues (Special Appropriation) Act 1988.

Indexation of reduced fuel excise and excise-equivalent customs duty rates in August 2022

9.17 In accordance with existing sections 6A and 6AAA of the Excise Tariff Act and sections 19 and 19AAA of the Customs Tariff Act, excise and excise-equivalent customs duty rates for specified goods (including most fuels and similar products) are subject to twice yearly CPI indexation occurring in February and August each year (generally on the first of the month).

9.18 Excise and excise-equivalent customs duty rates on oil and grease are not subject to indexation.

9.19 In February and August each year (generally on the first of the month), the new excise and excise-equivalent customs duty rates are determined by the application of an indexation factor, which is calculated in accordance with the formula in subsection 6A(3) of the Excise Tariff Act and subsection 19(3) of the Customs Tariff Act.

9.20 CPI figures are available from the ABS website. If the ABS does not publish the CPI figure at least five days before the indexation day (i.e., before 1 February or 1 August), then the indexed rate does not take effect until the fifth day after the day the CPI figures are published. This may mean that in some limited situations, indexation may, for example, apply on 2 February or 2 August.

9.21 Under the existing law, on 1 August 2022 (or the later applicable indexation day in August 2022), the excise and excise-equivalent customs duty rates for fuels are subject to indexation at the CPI indexed rate.

9.22 CPI indexed fuel rate is defined as a sub-set of the definition of CPI indexed rate in subsection 6A(10) of the Excise Tariff Act. An equivalent definition of the CPI indexed rate is set out in subsection 19(10) of the Customs Tariff Act. [Schedule 1, item 1, subsection 6K(8) of the Excise Tariff Act]

9.23 The amendments in the Excise Bill and Customs Bill provide that the reduced fuel excise and excise-equivalent customs duty rates remain subject to indexation at the CPI indexed rate on the August adjustment day (that is, the indexation day).

9.24 The August adjustment day for the reduced rates for fuels, including petrol and diesel, is either:

•

1 August 2022; or

•

the replacement indexation day under section 6A of the Excise Tariff Act (or section 19 of the Customs Tariff Act).

[Schedule 1, item 1, subsection 6K(8) of the Excise Tariff Act; and Schedule 1, item 1, subsection 19AABA(7) of the Customs Tariff Act]

9.25 The replacement indexation day has been linked to the replacement day of a rate of duty under subsection 6A(5) of the Excise Tariff Act and subsection 19(5) of the Customs Tariff Act. This is to ensure that despite any amendment to indexation arrangements for fuel, there is a set indexation day that remains unchanged to replace the 1 August 2022 date if it is required.

Annual increase in excise duty on biodiesel on 1 July 2022

9.26 Similar to how indexation continues to apply for applicable fuels, the annual increase in the excise duty rate for biodiesel that applies on 1 July each year until 2030 continues to apply on 1 July 2022 but at 50 per cent for the rate reduction period.

Restoration of excise and excise-equivalent customs duty rates from 29 September 2022

9.27 From 29 September 2022, the excise and excise-equivalent customs duty rates for fuels, including petrol and diesel automatically return to the rates that would have applied had the rates not been reduced. [Schedule 1, item 1, subsections 6K(5) of the Excise Tariff Act; and Schedule 1, item 1, subsections 19AABA(4) of the Customs Tariff Act]

9.28 This means that from 29 September 2022, the excise and excise-equivalent customs duty rates for fuels, including petrol and diesel, return to the rates that applied on 1 February 2022 and are subject to indexation at the CPI-indexed rate (using the August 2022 indexation factor). These full rates continue to be subject to indexation twice each year (in February and August) on an ongoing basis.

9.29 Similarly, the full annual increase in the biodiesel excise rate is included in the biodiesel rate when the rate returns to the full rate on 29 September 2022 and annual increases continue until 2030 under section 6J of the Excise Tariff Act.

9.30 From 29 September 2022, the excise and excise-equivalent customs duty rates for similar petroleum-based products, including oils and grease, which are not subject to indexation, return to the rate that applied prior to the reduction which is:

•

$0.085 per litre for oil; and

•

$0.085 per kilogram for grease.

[Schedule 1, item 1, subsection 6L(4) of the Excise Tariff Act; and Schedule 1, item 1, subsection 19AABB(3) of the Customs Tariff Act]

9.31 The restoration of the excise duty rates applies to fuels, including petrol and diesel and similar petroleum-based products, including oils and grease manufactured or produced in Australia:

•

on or after 29 September 2022; or

•

before 29 September 2022 if:

-

on 29 September 2022, the goods were subject to the CEO's control or were in the stock, custody or possession of, or belonged to, a manufacturer or producer of goods; and

-

no duty of excise had been paid on the goods before 29 September 2022.

[Schedule 1, item 1, subsections 6K(6) and 6L(5) of the Excise Tariff Act]

9.32 The restoration of the excise-equivalent customs duty rates applies to fuels, including petrol and diesel and similar petroleum-based products, including oils and grease:

•

imported into Australia on or after 29 September 2022; and

•

imported into Australia before 29 September 2022, where the time for working out the rate of import duty on the goods had not occurred before 29 September 2022.

[Schedule 1, item 1, subsections 19AABA(5) and 19AABB(4) of the Customs Tariff Act]

Consequential amendments

9.33 The amendments include a consequential amendment to section 19AAC of the Customs Tariff Act to reference the newly inserted provisions. [Schedule 1, item 2, subsection 19AAC(1) of the Customs Tariff Act]

9.34 Schedule 9 to the Bill makes a consequential amendment to the Product Stewardship (Oil) Regulations 2000.

9.35 During the rate reduction period from 30 March 2022 to 28 September 2022, the levy on gazetted oils is $0.043 per litre. At any other time, the levy on these products is $0.085 per litre.

[Schedule 9, item 3, subregulation 4(1A) of the Product Stewardship (Oil) Regulations 2000]

9.36 The amendment ensures that the benefit available for gazetted oil (category 8) under the Product Stewardship for Oil Program continues to be equal to the rate of duty payable on petroleum-based lubricants and fluid oils and their synthetic equivalents despite the reduction in the duty rate during the period from 30 March 2022 to 28 September 2022. This ensures that the benefit available under the scheme for such gazetted oils continues to directly offset the duty rate on these oils that is imposed as a product stewardship for oil levy.

[Schedule 9, items 1 to 3, subregulations 4(1) and (1A) of the Product Stewardship (Oil) Regulations 2000]

Commencement, application, and transitional provisions

Commencement

9.37 The amendments to the Excise Tariff Act and the Customs Tariff Act commence on the day the amendments receive Royal Assent. [Clause 2 of the Excise Bill; and clause 2 of the Customs Bill]

9.38 The amendments in Schedule 9 to the Bill commence immediately after the commencement of the Excise Bill. However, the provisions in Schedule 9 to the Bill do not commence at all if the Excise Bill does not commence. This contingent commencement ensures that the amendments to the benefit rate under the Product Stewardship (Oil) Regulations 2000 only apply if the excise reduction occurs. [Clause 2 of the Bill]

Application provisions

Application date - reduction of excise and customs duties

9.39 The amendments to reduce fuel excise and excise-equivalent customs duty rates apply to goods that are:

•

manufactured or produced in Australia on or after 30 March 2022 (the rate reduction period); or

•

manufactured or produced in Australia prior to 30 March 2022 that were subject to the Commissioner's control or were held or belonged to a manufacturer or producer of the goods and no duty of excise had been paid on the goods before 30 March 2022; or

•

imported into Australia on or after 30 March 2022; or

•

imported before 30 March 2022 where the time for working out the rate of import duty for the goods had not occurred prior to 30 March 2022.

[Schedule 1, item 1, subsections 6K(3), 6K(8) and 6L(2) of the Excise Tariff Act; and Schedule 1, item 1, subsections 19AABA(3), 19AABA(6) and 19AABB(2) of the Customs Tariff Act]

Application date - restoration of excise and customs duties

9.40 The amendments to restore the fuel excise and excise-equivalent customs duty rates to the rates that would otherwise have applied if the amendments had not been made, apply to goods that are:

•

manufactured or produced in Australia on or after 29 September 2022;

•

manufactured or produced in Australia prior to 29 September 2022 that were subject to the Commissioner's control or were held or belonged to a manufacturer or producer of the goods and no duty of excise had been paid on the goods before 29 September 2022;

•

imported into Australia on or after 29 September 2022; or

•

imported before 29 September 2022 where the time for working out the rate of import duty for the goods had not occurred prior to 29 September 2022.

[Schedule 1, item 1, subsections 6K(6) and 6L(5) of the Excise Tariff Act; and Schedule 1, item 1, subsections 19AABA(5) and 19AABB(4) of the Customs Tariff Act]

9.41 This application provision for the reduction and restoration of excise duty rates in the Excise Tariff Act applies despite subsection 5(2) of the Excise Tariff Act. [Schedule 1, item 1, subsections 6K(4), 6K(7), 6L(3) and 6L(6) of the Excise Tariff Act]

9.42 Depending on when the Excise and Customs Bills receive Royal Assent, the amendments may apply retrospectively. However, the reduced duty rates that apply from 30 March 2022 are wholly beneficial for affected manufacturers, producers, importers and users of fuels, including petrol and diesel and similar petroleum-based products, including oils and grease as the Bills result in the temporary reduction in the rates of duty payable.

9.43 The reduction in the benefit payable for gazetted oils under the product stewardship for oil scheme similarly applies from 30 March 2022. The amendment ensures that the benefit payable continues to directly offset the duty rate on these oils that is imposed as a product stewardship for oil levy and does not give rise to a windfall gain.

Chapter 10: Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.<

Treasury Laws Amendment (Cost of Living Support and Other Measures) Bill 2022 Excise Tariff Amendment (Cost of Living Support) Bill 2022 Customs Tariff Amendment (Cost of Living Support) Bill 2022

Schedule 1 - Medicare Levy and Medicare Levy Surcharge Income Thresholds

Overview

10.1 Schedule 1 to the main Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

10.2 Schedule 1 to the main Bill amends the Medicare Levy Act 1986 and the A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999 to increase:

•

the Medicare levy low-income thresholds for individuals and families (along with the dependent child-student component of the family threshold) in line with movements in the CPI;

•

the Medicare levy low-income thresholds for individuals and families eligible for the SAPTO (along with the dependent child-student component of the family threshold), in line with movements in the CPI; and

•

the Medicare levy surcharge low-income threshold in line with movements in the CPI.

10.3 This will ensure that low-income individuals, families, seniors and pensioners who were exempt from the Medicare levy in the 2020-21 income year continue to be exempt in the 2021-22 income year if their income has increased in line with, or less than, movements in the CPI

Human rights implications

10.4 Schedule 1 to the main Bill does not engage any of the applicable rights or freedoms.

Conclusion

10.5 Schedule 1 to the main Bill is compatible with human rights as it does not raise any human rights issues.

Schedule 2 - Deductibility of COVID-19 tests

Overview

10.6 Schedule 2 to the main Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

10.7 Schedule 2 to the main Bill amends the ITAA 1997 by allowing an income tax deduction for taxpayers who incur relevant COVID-19 testing expenses in gaining or producing their assessable income. The deduction applies to those expenses incurred on or after 1 July 2021.

10.8 From 1 July 2021, the amendments provide individual taxpayers with a specific deduction for their loss or outgoing incurred in gaining or producing assessable income. The loss or outgoing must be incurred in respect of a COVID-19 test with the purpose of determining whether the taxpayer should attend their place of work. To qualify, the test must be one that is:

•

a polymerase chain reaction test for testing COVID-19; or

•

a test that is included in the Australian Register of Therapeutic Goods for testing COVID-19 (such as an approved rapid antigen test).

10.9 To claim the deduction under the amendments, taxpayers must meet the general substantiation requirements.

Human rights implications

10.10 Schedule 2 to the main Bill does not engage any applicable rights or freedoms.

Conclusion

10.11 Schedule 2 to the main Bill is compatible with human rights as it does not raise any human rights issues.

Schedule 3 - Deductible gift recipients-new specific recipients

Overview

10.12 Schedule 3 to the main Bill amends the ITAA 1997 to allow the following entities to be deductible gift recipients under the income tax law:

•

Royal Humane Society of New South Wales Incorporated;

•

Perth Korean War Memorial Committee Incorporated;

•

Greek Orthodox Archdiocese of Australia Consolidated Trust Cathedral of the Annunciation of our Lady Restoration Fund;

•

The Australian Future Leaders Foundation Limited;

•

Lord Mayor's Charitable Foundation; and

•

The Ramsay Centre for Western Civilisation Limited.

Human rights implications

10.13 Schedule 3 to the main Bill does not engage any of the applicable rights or freedoms.

Conclusion

10.14 Schedule 3 to the main Bill is compatible with human rights as it does not raise any human rights issues.

Schedule 4 - Employee share scheme

Overview

10.15 Schedule 4 to the main Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

10.16 The Corporations Act 2001 contains a variety of rules for businesses which sell financial products and securities. These rules include a requirement to obtain an Australian financial services licence and restrictions on hawking and advertising and disclosure requirements.

10.17 Financial products and securities offered as a part of certain employee share schemes are excluded from some of these requirements under the Corporations Act 2001. Further exclusions are made in ASIC class orders CO 14/1000 and CO 14/1001. Class Order 14/1000 applies to listed bodies corporate and Class Order 14/1001 applies to unlisted bodies corporate.

10.18 An employee share scheme is an arrangement put in place by a business to reward people who contribute to the business, namely directors, employees and service providers (hereafter referred to as 'participants'), with shares or other interests in the business in exchange for their labour.

10.19 Schedule 4 to the main Bill will provide regulatory relief to allow businesses to create employee share schemes, which they would otherwise be unable to operate due to the requirements under the National Health Act 1953. If an employee share scheme receives relief under Schedule 4 to the main Bill, the standard regulatory requirements for operating a business offering shares and financial products to retail clients under the Corporations Act 2001 will not apply.

10.20 In simple terms, an employee share scheme can receive relief under Schedule 4 to the main Bill if:

•

the interests issued, sold or transferred to participants under the scheme fall within certain eligible categories of interests (for example - shares or options);

•

the participants in the scheme are directors, employees or service providers to the business; and

•

if the scheme requires payment to participate:

-

certain disclosure documents are provided with the offer;

-

if the scheme has an associated contribution plan, loan or trust, the contribution plan, loan or trust meet certain requirements;

-

the total numbers of products issued under the scheme over the previous three years does not exceed the specified percentage of the body's issued capital; and

•

for an unlisted body corporate, all participants are limited to outlay a monetary cap of $30,000 per year (which can be accrued for unexercised options over a 5-year period, up to a maximum of $150,000), plus 70 per cent of dividends and 70 per cent of cash bonuses.

10.21 If an employee share scheme does not meet the requirements for relief under Schedule 4 to the main Bill the business operating the employee share scheme will be in breach of a wide variety of provisions under the Corporations Act 2001, such as issuing shares without appropriate disclosure.

Human rights implications

Offence-specific defences

10.22 Schedule 4 to the main Bill engages the right to a fair trial in Article 14 of the ICCPR. Article 14 of the ICCPR provides that everyone shall be entitled to a fair and public hearing by a competent, independent and impartial tribunal established by law.

10.23 Sections 1100ZH and 1100ZI provide that it is an offence to provide misleading or deceptive information in an ESS offer document or document provided during an exercise period, or to fail to disclose a new circumstance that arises during the offer or exercise period. It is also an offence to fail to notify a body corporate of a misleading or deceptive statement or new circumstance under section 1100ZJ.

10.24 A number of defences to these offences are available, including not knowing that a statement was misleading and deceptive, and placing reasonable reliance on information provided by another person. A person who wishes to rely on one of these exceptions bears the evidential proof of raising the defence.

10.25 Under subsection 13.3(3) of the Criminal Code Act 1995 a defendant who wishes to rely on any exception, provided by the law creating an offence, bears an evidential burden in relation to that matter; the exception need not accompany the description of the offence.

10.26 The reversal of the evidential burden is acceptable in this instance as it is peculiarly within the knowledge of the defendant themselves whether a particular defence is relevant to their case. For instance, an individual relying on the defence that they lacked knowledge that a statement was misleading would easily be able to identify that they were unaware a statement was misleading and then rely on that defence. It would be unreasonable and unnecessary use of government resources to require the regulator to prove beyond a reasonable doubt that each defence did not apply to every individual.

10.27 Accordingly, to the extent that Schedule 4 to the main Bill engages the rights under Article 14 of the ICCPR, it is compatible with human rights as the limitations are appropriate and proportionate.

Strict liability offences

10.28 Schedule 4 to the main Bill engages the right to a fair trial, as well as the presumption of innocence in Article 14 of the ICCPR. Article 14 of the ICCPR provides that everyone shall be entitled to a fair and public hearing by a competent, independent and impartial tribunal established by law.

10.29 Strict liability offences engage with this right as they involve the imposition of criminal liability without a mental fault element. However, strict liability offences are compatible with the presumption of innocence if they are reasonable, necessary and proportionate and in pursuit of a legitimate objective.

10.30 Sections 1100ZE and 1100ZF provide that it is a strict liability offence to:

•

fail to hold money paid by a participant to obtain an interest under an employee share scheme on trust for the participant until the interest is sold or the money is returned to the participant;

•

fail to hold money paid by a participant in anticipation of a liquidity event on trust until the start of the liquidity period or the money is returned to the participant; and

•

fail to return the money to the participant as soon as practicable if the money needs to be returned.

10.31 Strict liability offences are appropriate in these circumstances, as it is appropriate for a person to be penalised if they permit an ESS participant's money to be dealt with improperly regardless of their intention. This is because of the power and information imbalance between businesses and ESS participants, and the potential for employees to lose a significant amount of money if they do not receive the promised ESS interest or the liquidity event does not occur. The obligation to keep money on trust is a common obligation required of businesses handling clients' money and is not particularly onerous and provides low regulatory burden.

10.32 Section 1100ZJ provides that it is an offence of strict liability for a person to fail to inform the business operating an employee share scheme if they become aware of a misleading or deceptive statement or omission in a disclosure document, if the person:

•

is a director of the relevant body corporate (or a proposed director); or

•

the person is named in the disclosure document and has provided information mentioned in the disclosure document.

10.33 A strict liability offence is appropriate in this circumstance as the information imbalance between the director or person making a statement in the disclosure document and a participant means that it is appropriate for such a person to be penalised if they permit incorrect information to be provided to participants regardless of their intention. This is because participants in an employee share scheme are reliant on the information contained in the disclosure documents and may suffer a significant detriment if the information is misleading, deceptive or incomplete.

10.34 Section 1100ZM provides that it is an offence for a person who makes or purports to make an offer of ESS interests to not provide information to ASIC upon request.

10.35 A strict liability offence is appropriate in this circumstance as it is a minimal administrative burden in order to access a regime which provides significant regulatory relief, and so it is appropriate for a person to be penalised for failing to comply with an ASIC document request regardless of their intention.

10.36 Having strict liability apply to these offences also reduces non-compliance by ensuring that regulators can efficiently and expeditiously deal with low-level offending. This in turn bolsters the integrity of the regulatory regime enforced by ASIC and maintains public confidence in the regime.

10.37 The strict liability offences in Schedule 4 to the main Bill meet all the conditions listed in the Attorney-General's Department's A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers.

10.38 The fines for the offences do not exceed 60 penalty units for persons other than a body corporate or 300 penalty units for a body corporate.

10.39 The application of strict liability, as opposed to absolute liability, preserves the defence of honest and reasonable mistake of fact to be proved by the accused on the balance of probabilities. This defence maintains adequate checks and balances for persons who may be accused of such offences.

10.40 Given the harm that could come to ESS participants from improper use of their money, and the superior knowledge that businesses, directors, and other named persons have, these obligations are a reasonable and proportionate means of achieving the legitimate objective of protecting ESS participants' funds.

Conclusion

10.41 Schedule 4 to the main Bill is compatible with human rights because, to the extent that it may limit human rights, those limitations are reasonable, necessary and proportionate.

Schedule 5 - Varying the GDP uplift factor for tax instalments

Overview

10.42 Schedule 5 to the main Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

10.43 Schedule 5 to the main Bill amends the TAA 1953 to reduce the GDP adjustment factor for the 2022-23 income year to 2 per cent. The GDP adjustment factor is applied by the Commissioner to work out the amount of PAYG and GST instalments payable by a taxpayer in certain circumstances.

Human rights implications

10.44 Schedule 5 to the main Bill does not engage any of the applicable rights or freedoms.

Conclusion

10.45 Schedule 5 to the main Bill is compatible with human rights as it does not raise any human rights issues.

Schedule 6 - Low and middle income tax offset

Overview

10.46 Schedule 6 to the main Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

10.47 Schedule 6 to the main Bill amends the ITAA 1997 to increase the low and middle income tax offset for the 2021-22 income year by $420 to ease cost of living pressures for Australians.

Human rights implications

10.48 Schedule 6 to the main Bill does not engage any of the applicable rights or freedoms.

Conclusion

10.49 Schedule 6 to the main Bill is compatible with human rights as it does not raise any human rights issues.

Schedule 7 - Safety net thresholds

Overview

10.50 Schedule 7 to the main Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

10.51 The purpose of Schedule 7 to the main Bill is to amend the National Health Act 1953 to reduce the safety net thresholds for concessional beneficiary patients to 36 scripts (from 48) and general patients to $1457.10 (from $1542.10) on 1 July 2022.

10.52 After 1 May 2022, the indexation arrangements defined in s99G of the National Health Act 1953 will resume, with no change to their current operation. That is, the general patient safety net will be indexed by applying the index number (at section 99F of the National Health Act 1953) from the reference quarter (September) to the new general patient safety net ($1457.10) on the indexation day (1 January 2023).

10.53 The concessional safety net threshold will continue to be determined as a multiple of concessional payment co-payments (which are indexed, resulting in the overall increase of the concessional safety net threshold).

Human rights implications

10.54 Schedule 7 to the main Bill engages Articles 9 and 12(1) of the ICESCR, specifically the rights to health and social security.

10.55 Article 9 of the ICESCR recognises the right to social security. It requires that a country must, within its maximum available resources, ensure access to a social security scheme that provides a minimum essential level of benefits to all individuals and families that will enable them to acquire at least essential health care. Article 12(1) of ICESCR promotes the right of all individuals to enjoy the highest standard of physical and mental health. The PBS assists with advancement of these human rights by providing subsidised access to medicines for Australians.

10.56 Schedule 7 to the main Bill assists with the progressive realisation by all appropriate means of the right of everyone to essential healthcare and the enjoyment of the highest attainable standard of physical and mental health by reducing the safety net thresholds for both concessional beneficiary and general patients, improving the affordability of PBS items. There may be a perception that those patients that met the safety net thresholds prior to 1 July 2022 are disadvantaged as they had to pay a higher amount for medicines that under the new bill post 1 July 2022 will be at a reduced price (or free of charge for concessional beneficiary patients). These patients will continue to be eligible for the safety net rate for their medicines after 1 July 2022 and will benefit from significantly reduced safety net thresholds in future years.

Conclusion

10.57 Schedule 7 to the main Bill is compatible with human rights as it does not raise any human rights issues. The amendments made by this Schedule will have a beneficial impact on human rights by helping to ensure Australians can access the best available medicines through more reliable supply and continued subsidy of new treatments as they emerge.

Schedule 8 - 2022 cost of living payment

10.58 Schedule 8 to the main Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview

10.59 Schedule 8 to the main Bill provides for the payment of 2022 cost of living payment of $250 to approximately 6 million Social Security and Veterans' income support and compensation recipients, Farm Household Allowance recipients, and holders of a Pensioner Concession Card, Commonwealth Seniors Health Card or Commonwealth Gold Card.

10.60 To be qualified for the 2022 cost of living payment, a person must be residing in Australia and be receiving one of the qualifying payments or hold or have claimed and qualified for one of the qualifying concession cards on 29 March 2022.

Human rights implications

10.61 This Schedule engages the following human rights:

•

The right of everyone to social security in Article 9, and the right of everyone to an adequate standard of living for an individual and their family, including adequate food, clothing and housing, and the continuous improvement of living conditions in Article 11 of the ICESCR; and

•

The rights of the child in Article 26 of the Convention on the Rights of the Child.

The right of everyone to social security and an adequate standard of living

10.62 The objective of creating a new cost of living payment promotes Article 9 and Article 11 by providing further payment to assist in achieving an adequate standard of living. The pursuit of this objective also promotes human rights by supporting the Convention on the Rights of Persons with Disabilities.

The rights of the child

10.63 This cost of living payment promotes Article 26 by enhancing the rights of the child to social security, as the payment will be made to a group of recipients with children, including recipients of Parenting Payment Single. The payment is targeted at vulnerable groups who receive Government assistance and has a flow on effect to the children of recipients by increasing the support for families.

Conclusion

10.64 Schedule 8 to the main Bill is compatible with human rights because it promotes the protection of human rights for some of the most vulnerable groups in society.

Schedule 9 - Fuel duty consequential amendments

Overview

10.1 Schedule 9 to the main Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

10.2 Schedule 9 to the main Bill makes a consequential amendment to the Product Stewardship (Oil) Regulations 2000. The amendment ensures that the benefit available for gazetted oil (category 8) under the Product Stewardship for Oil program continues to be equal to the rate of duty payable on petroleum-based lubricants and fluid oils and their synthetic equivalents despite the reduction in the duty rate during the rate reduction period from 30 March 2022 to 28 September 2022.

Human rights implications

10.3 Schedule 9 to the main Bill does not engage any of the applicable rights or freedoms.

Conclusion

10.4 Schedule 9 to the main Bill is compatible with human rights as it does not raise any human rights issues.

Excise Tariff Amendment (Cost of Living Support) Bill 2022

Overview

10.5 The Excise Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

10.6 The Excise Bill amends the Excise Tariff Act to temporarily reduce the excise duty rates for fuels, including petrol and diesel and similar petroleum-based products, including oils and grease by 50 per cent.

Human rights implications

10.7 The Excise Bill does not engage any of the applicable rights or freedoms.

Conclusion

10.8 The Excise Bill is compatible with human rights as this Bill does not raise any human rights issues.

Customs Tariff Amendment (Cost of Living Support) Bill 2022

Overview

10.9 The Customs Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

10.10 The Customs Bill amends the Customs Tariff Act to temporarily reduce the excise-equivalent customs duty rates for fuels, including petrol and diesel and similar petroleum-based products, including oils and grease by 50 per cent.

Human rights implications

10.11 The Customs Bill does not engage any of the applicable rights or freedoms.

Conclusion

10.12 The Customs Bill is compatible with human rights as it does not raise any human rights issues.