Senate

Explanatory Memorandum

(Circulated by authority of the Acting Treasurer, the Hon J.S. Dawkins, M.P.)

GENERAL OUTLINE

This Bill will amend:

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the Income Tax Assessment Act 1936 -

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to make the following changes to the way income tax is paid by companies, unit trusts taxed as companies, superannuation funds, approved deposit funds and pooled superannuation trusts for income of the 1989-90 and subsequent income years (proposal announced in the Budget on 15 August 1989) -

Collection of tax

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a company or fund which has a notional tax liability of $20,000 or more (and does not estimate its liability to be less than $20,000) will be required to make two payments of tax - the first payment, being 85 per cent of notional tax or (if a lesser amount) the estimated total liability, will be due on 28 July in the year following the year of income and the final payment will be due on the following 15 March;

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a company or fund which has a notional tax of more than $1,000 but less than $20,000, or has a notional tax of $20,000 or more but estimates its tax to be in the range of $1,000 - $20,000, will have the option of paying in the same way as a company or fund referred to in the preceding note, or making a single final payment on 15 December;

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as a transitional measure, the $20,000 threshold referred to above will be $400,000 for the year of income ending 30 June 1990;

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any other taxable company or fund will have to make a single final payment due on 15 March;

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a company or fund with a substituted accounting period will have to pay in the equivalent time frame, but no payment will fall due after 15 June in the year following the year of income;

Return of income

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a company or fund will be required to furnish a return of income specifying the tax payable on the taxable income or net income, as the case may be, by the date on which the company or fund is required to make the final payment of its tax liability;

Return constitutes assessment

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the return of a company or fund will be deemed to be a notice of assessment, and the Commissioner of Taxation will be taken to have served the assessment on the date on which the final tax liability is payable or the return is furnished, whichever is the later;

Franking of dividends

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changes complementing the changes to company tax collections relevant for calculating franking credits and debits will be included within the imputation system for company dividends;

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to adjust the statutory period for making debit and credit amendments for all taxpayers to 4 years and make a mechanism available for extending the period within which the Commissioner may amend an assessment in certain cases;

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to require taxpayers' records to be kept for a period of five years instead of the current seven years consistent with the above change, subject to an appropriate extension where the period for amendment is extended, and to change the law to take into account records kept in electronic form;

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to facilitate the self-determination by all taxpayers of entitlements to foreign tax credits and franking deficit tax offsets;

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to allow a deduction for costs in ascertaining and meeting taxpayers' income tax obligations (proposal announced in the Budget on 15 August 1989);

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to authorise deductions for expenditure incurred on or after 1 January 1990 by a life assurance company in gaining the investment component of certain life insurance premium income (proposal announced in the Budget on 15 August 1989);

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to modify the imputation system by precluding all dividends paid under share-based financing arrangements from being frankable dividends (proposal announced in the Budget on 15 August 1989);

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to extend from 1 July 1989 to 1 September 1989 the time allowed for restoration of deposits in certain approved deposit funds in order to qualify for tax exemption (proposal announced on 26 June 1989);

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to correct a technical deficiency in provisions which deal with the exclusion of otherwise taxable contributions from the assessable income of a complying superannuation fund (proposal announced on 16 October 1989);

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to modify the prescribed payments system so that only a householder who in fact assumes the responsibilities of a builder in relation to a construction project is treated as an owner-builder;

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to allow income tax deductions for gifts to building funds for hostels that provide residential accommodation for school students from rural areas (proposal announced on 8 August 1989);

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to reduce the rate of withholding from certain withdrawals from film accounts from 49 per cent to 47 per cent;

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to make consequential changes following the renumbering of the Social Security Act.

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the Crimes (Taxation Offences) Act 1980 -

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to modify the definition of "income tax" in that Act to account for changes made by this Bill to the Income Tax Assessment Act 1936 in respect of the new system for the collection of tax payable by companies and certain other entities.

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the Taxation Administration Act 1953 -

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to account in that Act for changes made by this Bill to the Income Tax Assessment Act 1936 in respect of the new system for the collection of tax payable by companies and certain other entities.