House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon. P.J. Keating, M.P.)

GENERAL OUTLINE

TAXATION LAWS AMENDMENT BILL (NO. 3) 1987

The Bill will amend -

•

the Income Tax Assessment Act 1936 -

• .

to ensure that the intercorporate dividend rebate is limited or denied in cases where a dividend stripping operation gives rise to a capital gain or a capital loss to which Part IIIA applies (proposal announced on 4 June 1987);

• .

to deny the intercorporate dividend rebate in respect of dividends paid out of profits arising on the revaluation of an asset as part of a scheme to avoid tax on disposal of the asset concerned (proposal announced on 4 June 1987);

• .

to deny franking credits to companies, and franking rebates to individuals and certain trustees, under the imputation system of company taxation where a dividend is paid in the course of a dividend stripping scheme (proposal announced on 4 June 1987);

• .

to overcome technical deficiencies in the provisions which deem certain payments by private companies to be dividends (proposal announced on 4 June 1987);

• .

to provide that the tax on capital gains will not apply in certain circumstances at the time a taxpayer ceases to be a resident of Australia (proposal announced on 23 December 1986);

• .

to ensure that, for the purposes of determining a capital gain, the cost base of an interest or units in a trust will not be reduced where the trustee distributes income freed from tax by deductions allowed for certain income-producing buildings (proposal announced on 17 December 1986);

• .

to vary the date on which a taxpayer is taken, for the purposes of the tax on capital gains, to have acquired bonus shares in a company or bonus units in a unit trust issued in respect of shares or units acquired before 20 September 1985, where a payment is subsequently made by the shareholder or unitholder in respect of the bonus shares or units (proposal announced on 10 December 1986);

• .

to determine the capital gains treatment of bonus shares issued after 30 June 1987, other than bonus shares paid out of a genuine share premium account (proposal announced on 10 December 1986);

• .

to maintain eligibility for deductions for contributions to private superannuation funds where there are also certain employer provided superannuation benefits (proposal announced 22 December 1986);

• .

to remove, from 1 January 1987, the exemption of income in the form of allowances paid under the Commonwealth's Assistance for Isolated Children Scheme and the Veterans' Children Education Scheme to or in respect of students 16 years or over (1986-87 Budget announcement);

• .

to allow income tax deductions for gifts to the Lionel Murphy Foundation (proposal announced on 24 April 1987) and to the Australian-Hellenic Memorial Trust Fund (proposal announced on 1 April 1987);

• .

to amend the income tax gift provisions to reflect name changes to certain organisations currently listed in the provisions;

• .

to increase from $280 to $430 for married taxpayers (including de facto marrieds), and decrease from $190 to $180 for other taxpayers, the existing rebates of tax (and increase the income levels above which they shade-out) available for taxpayers wholly or mainly dependent on social security unemployment, sickness or special benefits, and recipients of certain Commonwealth educational allowances (1987-88 Budget announcement);

• .

to provide the method of calculating provisional tax for the 1987-88 income year; and

• .

to omit the requirements to impose provisional tax and instalments of company tax by the Act which imposes income tax upon taxable income.

•

This Bill will also amend -

• .

the Taxation Administration Act 1953 to make it clear that the modification, by section 14ZKA of the Act, of State and Territory limitation laws applies to both the amount of primary taxes outstanding and to any additional tax for late payment of those taxes; and

• .

the Taxation Laws Amendment Act (No. 2) 1987 to ensure that the provisions of that Act, which amended section 46A of the Income Tax Assessment Act 1936 consequent upon the phasing out of liability of private companies to additional tax under Division 7 of the Assessment Act, apply to dividends paid on or after 1 July 1986.

INCOME TAX AMENDMENT BILL (NO. 2) 1987

The Bill will amend the Income Tax Act 1986 -

•

to formally impose tax payable for the 1987-88 and all subsequent financial years, at the rates of tax declared by the Income Tax Rates Act 1986, by -

• .

individuals, and trustees generally;

• .

companies and registered organisations; and

• .

trustees of prescribed unit trusts, superannuation funds, ineligible approved deposit funds and certain other trusts; and

•

to repeal certain sections dealing with the imposition of a liability to pay provisional tax and instalments of company tax, following amendments of the Income Tax Assessment Act 1936.

MEDICARE LEVY AMENDMENT BILL 1987

The Bill will amend the Medicare Levy Act 1986 -

•

to declare and impose a basic rate of Medicare levy of 1.25 per cent for 1987-88 and subsequent income years (1986-87 Budget announcement); and

•

to exempt from the levy individuals with taxable incomes of $8,980 or less and families and sole parents with family incomes of $15,090 or less; the family or sole parent threshold to be raised by a further $2,100 for each dependent child or student (1987-88 Budget announcement).