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.5) 1987

This Bill will amend -

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the Income Tax Assessment Act 1936 -

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to exempt from interest withholding tax interest paid to non-residents by offshore banking units (OBUs) on borrowings from non-residents in relation to offshore banking (proposal announced on 1 July 1986 and expanded on 9 April 1987);

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to provide roll-over relief (that is, deferral of liability) from tax on capital gains for re-organisations of resident unit trusts, commenced after the date of introduction of this Bill (9 December 1987), where a resident company is interposed between the unitholders and the trust (proposal announced on 29 September 1987);

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to tax as eligible termination payments lump sum payments made on the death of a member of a superannuation fund where the recipient had the option to take a pension or annuity instead of the lump sum (proposal announced on 12 January 1987);

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to tax as eligible termination payments lump sum payments, made on the death of an employee, member of a superannuation fund or depositor with an approved deposit fund, to a person who was not a dependant of the deceased person (proposal announced on 12 January 1987) and to disallow the roll-over of such payments if made after the date of introduction of this Bill;

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to impose conditions to be satisfied by annuities purchased as roll-over investments for eligible termination payments (proposal announced on 12 January 1987);

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as a corollary of imposing the new eligibility conditions for roll-over annuity investments, to require that roll-over annuities issued by life assurance companies, friendly societies, trade unions and other employee associations continue to meet those conditions during a year of income if the income derived from that annuity business is to be exempt from tax, and to make the exemption for income derived by those organisations from immediate annuity business not sourced in roll-over payments conditional upon meeting tests similar to those for roll-over annuities (the conditions for immediate annuities to apply to annuities purchased after the date of introduction of the Bill);

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to disallow the roll-over of eligible termination payments made on the commutation of, or as the residual capital value of, a roll-over annuity, where the payment is made on the death of the annuitant and the recipient is not the widow or widower of the deceased person (proposal announced on 12 January 1987);

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to extend the so-called "death benefits" tax exemption, which applies to certain eligible termination payments made to or for the benefit of dependants of a deceased person, to payments of the residual capital value of roll-over deferred annuities that are still in the deferment phase when the annuitant dies (proposal announced on 12 January 1987);

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to disallow deductions for contributions to a superannuation fund by persons who do not have superannuation support from another person, such as an employer, where the contribution consists of a rolled-over eligible termination payment (proposal announced on 12 January 1987);

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consistent with other recent legislation relating to the tax treatment of superannuation funds, to treat 'de facto' spouses on the same basis as legal spouses for the purposes of the eligible termination payment provisions;

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to make it clear that an annuity is presently payable at all times after the commencement of the first payment period;

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to remove, with effect from 21 November 1987, the three year write-off for expenditure on buildings used in scientific research or in other qualifying research and development activities (proposal announced on 20 November 1987);

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to exclude from deductibility as "research and development activities", expenditure incurred in respect of the development of computer software that is not for sale, rent, licence, hire or lease to 2 or more persons not associated with the developer (proposal announced on 20 November 1987);

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to back-date the operative dates of the provisions contained in the Taxation Laws Amendment Bill (No.4) 1987 that will enable a "shelf company" to satisfy the common ownership test necessary to establish a group relationship between companies, to the income year in which each of the relevant grouping provisions of the law was first made available, and to extend the operation of the provisions to shelf companies acquired by the issue of new shares associated with the redemption of the subscriber shares (proposal announced on 17 November 1987);

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to extend the coverage of the income tax law to include income derived by non-residents from a range of activities in the offshore areas of Australia and its territories in addition to mineral exploration and exploitation activities which are already within its scope (proposal announced on 21 January 1987);

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to further extend the exemptions from Australian income tax for residents of certain Australian territories to include income derived in the offshore areas of those territories (proposal announced on 21 January 1987);

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to correct a technical deficiency in the description of the offshore areas to which the present income tax coverage of mineral exploration and exploitation activities extend, including those providing rebates for moneys paid on shares for the purposes of petroleum exploration, prospecting or mining (proposal announced on 21 January 1987);

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to exempt from withholding tax dividend income derived by the Australian branches of non-resident life assurance companies where such income is attributable to superannuation and certain life assurance policies;

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to extend the income tax rebate presently available in respect of taxable bonuses received under certain short-term life assurance policies to recipients of similar bonuses paid under policies issued by the State Government Insurance Corporation of Western Australia;

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to make minor changes to the provisional tax instalment provisions to deal with cases where a notice does not comply with the existing requirements of the law concerning the specification of due dates for payment;

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to make minor technical changes to Part IIIA dealing with the taxing of capital gains;

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the Taxation Laws Amendment Act (No. 4) 1987 -

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to modify its transitional provision related to the introduction of statutory thin capitalisation rules by extending, to 31 January 1988, the transitional year for taxpayers with an approved substituted accounting period ending after 30 November 1987 and before 31 January 1988 in lieu of 30 June 1988 (proposal announced on 30 November 1987).

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the Sea Installations Act 1987 -

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to delete from the Schedule to that Act a reference to the Income Tax Assessment Act 1936.

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the Jurisdiction of Courts (Miscellaneous Amendments) Act 1987 -

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to repeal a redundant provision of the Sales Tax Assessment Act (No. 1) 1930;

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the Australian Capital Territory Taxation (Administration) Act 1969 -

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to give full effect to the proposal to bring the taxation treatment of debenture transfers in the ACT into line with the States by removing ACT stamp duty and tax on transfers of debentures (proposal announced on 16 July 1987);

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the Income Tax Act 1986, the Income Tax Rates Act 1986 and the Taxation Laws Amendment (Fringe Benefits and Substantiation) Act 1987 to make consequential technical changes.

Income Tax (Offshore Banking Units)(Withholding Tax Recoupment) Bill 1987

This Bill will declare and impose income tax on the "lost withholding tax amount" (a term defined in proposed new subsection 128NB(2) of the Income Tax Assessment Act 1936) in respect of certain dealings by current and former offshore banking units.