House of Representatives

Explanatory Memorandum

(Circulated by authority of the Acting Treasurer, the Hon. Chris Hurford, M.P.)

GENERAL OUTLINE

Taxation Laws Amendment Bill 1986

This Bill will amend -

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the Income Tax Assessment Act 1936 -

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to limit the income tax deduction allowed for interest paid on money borrowed for rental property investments made after 17 July 1985 (proposal announced on 17 July 1985 and modified on 25 September 1985);

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to extend the system of "depreciation" allowances on the construction cost of non-residential income-producing buildings, extensions, alterations and improvements to such residential buildings, etc., where the construction commenced after 17 July 1985 (proposal announced on 17 July 1985);

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to include in the assessable income of the transferor any amount receivable as consideration for the transfer to another person of a right to receive income from property, where the property from which the income is derived is not also transferred (proposal announced on 9 October 1985);

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to modify existing anti-avoidance provision that nullify certain arrangements for the alienation of income for less than 7 years so that they apply only where the parties are associated and not at arm's length in relation to income transfer transactions (proposal announced on 9 October 1985);

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to facilitate "self-assessment" of income tax by allowing an assessment to issue based on information contained solely in the income tax return of the taxpayer;

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to permit, subject to the time limits presently specified in the Act, an assessment to be amended to either increase or decrease the liability of a taxpayer so as to enable a correct assessment to be made;

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to provide for the payment of interest at a commercial rate by a taxpayer, subject to remission at the Commissioner's discretion, where the taxpayer's return understates the correct liability for tax, an assessment is amended to correct that understatement and the penalty tax provisions do not apply;

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to allow income tax deductions for gifts to the Australian Sports Aid Foundation (proposal announced on 10 December 1985);

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the Income Tax (International Agreements) Act 1953 -

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to give the force of law in Australia to an agreement between Australia and the People's Republic of China limited to the taxation of income derived from international air transport which was signed in Beijing on 22 November 1985;

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the Pay-roll Tax (Territories) Assessment Act 1971 -

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to introduce "grouping" provisions into the ACT pay-roll tax law, under which certain related employers are to be treated as a group for the purposes of determining liability to ACT pay-roll tax (proposal announced on 26 July 1985);

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the Taxation (Interest on Overpayments) Act 1983 -

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to provide for the payment of interest by the Commissioner to a taxpayer where the Commissioner detects and corrects an error made by the taxpayer which resulted in overpayment of tax.

Taxation (Interest on Underpayments) Bill 1986

This Bill formally imposes the interest charge, payable under amendments proposed by the Taxation Laws Amendment Bill 1986, in respect of underpayments of income tax.