House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister Assisting the Treasurer, The Hon. Chris Hurford MP)

General Outline

Income Tax Assessment Amendment Bill (No. 3) 1984

The Income Tax Assessment Amendment Bill (No. 3) 1984 will amend the income tax law:

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to introduce new taxation arrangements for superannuation, termination of employment and kindred payments, effective for payments made on or after 1 July 1983. (The new arrangements were announced by the Treasurer in his Economic Statement of 19 May 1983 and in further statements dated 30 May 1983 and 7 August 1983);

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to extend the operation of the PAYE system from 1 August 1984 so that it applies to superannuation and other termination payments to which the new tax arrangements apply;

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as part of those arrangements, to provide for the establishment of approved deposit funds to receive on deposit termination payments to which the new taxing rules would otherwise apply and to introduce a legislative framework governing the availability of tax exemption for the income of such funds;

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as a complementary measure to the termination payment proposals, to exempt from tax the income derived by life assurance companies from certain annuity business;

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to modify the special code which applies to the assessment of annuities and superannuation pensions;

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to make other changes consequential on introduction of the new taxing arrangements for termination payments, including changes to the existing taxation treatment of certain superannuation funds;

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to tax the annuity business of friendly societies, trade unions and other employee associations on a basis compatible with that proposed for the annuity business of life offices;

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to overcome a number of technical deficiencies relating to the taxation of profits arising from the sale of property acquired for the purpose of profit-making by sale (1983-84 Budget announcement);

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to authorise income tax deductions for subscriptions to shares in licensed management and investment companies (proposal announced on 14 September 1983);

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to tax as from 1983-84 income derived by friendly societies from the investment of funds from life, disability and accident insurance business (proposal announced on 19 May 1983);

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to allow a rebate of tax at the standard rate where a bonus or similar amount is included in assessable income in respect of a policy of life assurance issued by a friendly society (proposal announced on 17 April 1984);

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to clarify the operation of provisions authorising deductions for expenditure on repairs, expenses of borrowings and expenses relating to the preparation of lease documents or to the grant of patents, to ensure that such expenditures are deductible only to the extent that they are incurred for the purpose of producing assessable income (proposal announced on 18 April 1984);

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to reduce the paperwork burdens associated with the prescribed payments system by removing the requirement for payees to furnish deduction forms with income tax returns (proposal announced on 3 May 1984);

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to exempt from tax rent subsidy payments made direct to tenants under the Commonwealth/State mortgage and rent relief scheme (with effect from 17 August 1982);

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to extend the deduction allowable, over 10 or 20 years at the taxpayer's option, for capital expenditure on mineral transport facilities to include capital contributions made after 9 March 1984 to capital expenditure on government-owned railway rolling-stock (proposal announced on 9 March 1984);

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to grant an income tax deduction for gifts to the value of $2 or more made on or after 27 June 1983 and before 1 December 1983 to the IDEC African Famine Appeal.

INCOME TAX (COMPANIES, CORPORATE UNIT TRUSTS AND SUPERANNUATION FUNDS) AMENDMENT BILL 1984

To complement proposals contained in the Income Tax Assessment Amendment Bill (No. 3) 1984, this Bill will amend the Income Tax (Companies, Corporate Unit Trusts and Superannuation Funds) Act 1983 to declare and impose the rate of tax payable on the taxable income of certain approved deposit funds which fail to meet statutory requirements for tax exemption - the rate of tax is to be 46 per cent.