House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

General outline and financial impact

Income tax deductions for gifts

Schedule 1 to this Bill amends the income tax law to:

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allow income tax deductions for gifts over $2 made to certain funds and organisations;

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extend the period of time within which gifts to the Mount Macedon Memorial Cross Restoration, Development and Maintenance Trust Fund are tax deductible; and

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update the index to the gift provisions for the new funds and organisations.

Date of effect : Applies to gifts made to:

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The Global Foundation after 2 November 1999;

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the Community Disaster Relief (Sydney Hail Storm Assistance) Fund after 14 April 1999 and before 15 April 2001;

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the Australian Ex-Prisoners of War Memorial Fund after 19 October 1999 and before 20 October 2001;

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the Foundation for Rural and Regional Renewal Public Fund after 28 March 2000;

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the Mount Macedon Memorial Cross Restoration, Development and Maintenance Trust Fund after 30 June 2000 and before 1 July 2001;

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the United Hellenic Earthquake Appeal after 6 September 1999 and before 7 September 2000;

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the Foundation for Gambling Studies after 8 March 2000; and

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the RSL and 6th Division Australian-Hellenic Educational Memorial Fund after 13 June 2000 and before 14 June 2002.

Proposal announced : At various times throughout 1999 and 2000.

Financial impact : Minimal.

Compliance cost impact : Minimal.

Pay as you go (PAYG) instalments for certain beneficiaries of trusts

Schedule 2 to this Bill makes amendments to the PAYG instalments legislation which will require beneficiaries who are absolutely entitled to the assets of a trust, to include in their instalment income for a period, their share of the amount that the trust has earned in that period.

The amendments will also require the beneficiaries of certain investment trusts to include in their instalment income for a particular period, any amounts distributed to them, or applied for their benefit, in that period. Those amounts will be included regardless of whether the amounts are assessable income of the income year which includes that period.

The PAYG instalments legislation will also be amended to make minor changes consequential upon measures contained in the New Business Tax System (Miscellaneous) Bill (No. 2) 2000.

Date of effect : The amendments will apply for the 2000-2001 income year and later income years.

Proposal announced : The measures contained in this Bill form part of the PAYG instalments regime as announced in ANTS but their detail has not previously been announced.

Financial impact : The measures will result in a gain to the revenue as set out in the following table:

Compliance cost impact : The measures will significantly reduce the compliance costs that would otherwise be imposed on both the affected beneficiaries and the trustees of the relevant trusts.

Summary of regulation impact statement

Regulation impact on business

Impact : The proposed amendments will:

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simplify the way beneficiaries who are absolutely entitled to the assets of a trust and beneficiaries of certain investment trusts work out their instalment income; and

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minimise the compliance burden on the trustees of those trusts,

while maintaining the PAYG instalments base.

Main points :

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The affected beneficiaries will have a more certain and simpler way of working out their instalment income from the trusts.

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The trustees of the affected trusts will be able to rely on the systems they already have in place to notify their beneficiaries of their income from the trust.

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In some cases, this will mean that the return enjoyed by the beneficiaries on their investment in the affected trusts will not be diminished because of higher administration costs borne by the trustees.

CGT small business provisions

Schedule 3 to this Bill makes corrections to the capital gains tax (CGT) small business concessions in the Income Tax Assessment Act 1997 (ITAA 1997) to broaden access to the concessions introduced by the New Business Tax System (Capital Gains Tax) Act 1999 .

Date of effect : The amendments apply to CGT events happening after 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999.

Proposal announced : The measures are consistent with the proposal announced in Treasurer's Press Release No. 58 of 21 September 1999 (refer to Attachments E and F) and Treasurer's Press Release No. 59 of the same date and are a consequence of consultation following the enactment of the CGT small business concessions.

Financial impact : Nil.

Compliance costs :Minimal.

Minor CGT changes

Schedule 4 to this Bill will make corrections to the CGT provisions in the ITAA 1997 and the Income Tax (Transitional Provisions) Act 1997 (ITTP 1997), rewritten as part of the Tax Law Improvement Project. Itwill also make a correction to the Income Tax Assessment Act 1936 (ITAA 1936).

The corrections to the CGT provisions reinstate the position of the ITAA 1936 or make other minor amendments such as rectifying incorrect cross-references. None of the corrections change the policy reflected in the ITAA 1936.

Date of effect : With the exception of the amendments proposed by items 2, 6 and 30 all of the amendments will apply to assessments for the 1998-1999 income year and later income years.

Details of the date of effect relating to items 2, 6 and 30 are included in the relevant Chapter of this Explanatory Memorandum.

Proposal announced : The amendments augment the rewritten provisions of the ITAA 1936 that were inserted in the ITAA 1997 by Act No. 46 of 1998.

Financial impact : Nil.

Compliance cost impact : There are no additional compliance costs associated with the corrections.

Technical amendment

Schedule 5 to this Bill makes a minor technical amendment to the ITAA 1997 to replace a reference to 'foreign public official' with 'public official' in the non-deductibility of bribes measures.

Date of effect : The amendments will apply from the date of Royal Assent of Taxation Laws Amendment Act (No. 2) 2000 .

Proposal announced : Not previously announced.

Financial impact : Nil.

Compliance cost impact : Nil.

Discount capital gains: integrity measures

Schedule 6 to this Bill amends the ITAA 1997 to ensure the integrity measures in Division 115 operate more appropriately. The changes will also extend the availability of the CGT discount.

Date of effect : The amendments apply to CGT events happening after 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999.

Proposal announced : These measures are consistent with the proposal announced in Treasurer's Press Release No. 58 of 21 September 1999 (refer to Attachment D) and are a consequence of consultation following the enactment of Division 115. In addition, Assistant Treasurer's Press Release No. 26 of 16 June 2000 foreshadowed amendments to the CGT discount integrity measure.

Financial impact : Nil.

Compliance costs : These measures may impose some additional compliance costs on taxpayers by requiring calculations of notional capital gains.