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) 1986

This Bill will amend -

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the Income Tax Assessment Act 1936 -

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to provide, for the 1987-88 and subsequent years of income, for the payment of provisional tax by quarterly instalments during the year of income by taxpayers whose annual provisional tax liability exceeds $2000 (September 1985 Tax Reform announcement);

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to treat as assessable income certain realised foreign exchange gains of a capital nature and allow corresponding income tax deductions for losses, to the extent that the gains or losses are related to the production of assessable income or in carrying on a business for that purpose (proposal announced on 18 February 1986);

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to ensure that dividends paid on redeemable preference shares and any other shares issued as part of a short-term financing arrangement for an effective term to maturity of 2 years or less will not be eligible for the intercorporate dividend rebate, but will be tax deductible to the issuing company (7 April 1986 announcement); and

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to exempt from tax the income of The British Phosphate Commissioners Banaba Contingency Fund;

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the Crimes (Taxation Offences) Act 1980 to provide for the application of that Act in relation to offences relating to instalments of provisional tax; and

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the Taxation (Interest on Overpayments) Act 1983 to provide for the payment of interest in respect of overpayments of instalments of provisional tax that occur as a result of a decision to which the Act applies.

Income Tax Amendment Bill 1986

This Bill will amend the Income Tax Act 1986 to formally impose provisional tax in respect of income of the 1987-88 year, so that the provisional tax instalment system being introduced by the accompanying Taxation Laws Amendment Bill (No. 5) 1986 can apply in that financial year.