Senate

Revised Explanatory Memorandum

(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

General outline and financial impact

Monthly Pay As You Go instalments

Schedule 1 to this Bill amends Division 45 of Schedule 1 to the Taxation Administration Act 1953 to require certain large entities to pay Pay As You Go (PAYG) instalments monthly.

The PAYG instalment system requires entities with business or investment income to pay instalments towards their income tax liability. It is designed to ensure the efficient collection of income tax, including the Medicare levy, Higher Education Loans Program (HELP) debts, and debts under the Student Financial Supplement Scheme and the Aboriginal Study Assistance Scheme (ABSTUDY).

Schedule 1 requires large entities to pay PAYG instalments monthly rather than quarterly or annually. Entities will be transitioned into the monthly PAYG instalment system over a four year period. This change does not increase the overall tax liability of an entity. Rather it makes PAYG instalments more responsive to the economic position of an entity and better aligns the timing of PAYG instalments with Government payments. This reduces the risk of an entity accumulating large tax debts.

Date of effect : The amendments introduced by Schedule 1 apply to corporate tax entities from 1 January 2014.

The amendments apply to all other entities from 1 January 2016.

Proposal announced : The Government announced the changes to the timing of instalment payments for corporate tax entities as part of the 2012-13 Mid-Year Economic Financial Outlook. The Government announced that the measure would apply to other large entities as part of the 2013-14 Budget.

Financial impact : This measure is expected increase revenue by $10.15 billion over the forward estimates.

Human rights implications : This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 1, paragraphs 1.61 to 1.67

Compliance cost impact : Low.

Tax loss incentive for designated infrastructure projects

Schedule 2 to this Bill amends the Income Tax Assessment Act 1997 to provide a tax incentive for entities that carry on a nationally significant infrastructure project that has been designated by the Infrastructure Coordinator.

The tax incentive:

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uplifts the value of such entities' carry forward tax losses by the long-term bond rate; and

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exempts such entities from the continuity of ownership, same business, trust loss and bad debt deduction tests.

Date of effect : This measure applies for the 2012-13 and later income years. The measure has a concessional retrospective element.

Proposal announced : This measure was announced by the Deputy Prime Minister and Treasurer and the Minister for Infrastructure and Transport in a Joint Media Release No 054 of 10 May 2011.

Financial impact : This measure has an unquantifiable but small impact on revenue over the forward estimates.

Human rights implications : This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 2, paragraphs 2.182 to 2.186.

Compliance cost impact : Compliance costs will be reduced by the removal of the continuity of ownership, same business tests, trust loss and bad debt deduction tests.

Summary of regulation impact statement

Regulation impact on business

Impact : This measure will affect some companies and fixed trusts that carry on designated infrastructure projects.

Main points :

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Companies and fixed trusts that carry on designated infrastructure projects, and do not carry on activities that are not for the purpose of the project, can uplift their tax losses and are allowed to utilise losses and bad debt deductions without applying the continuity of ownership and same business tests.

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To limit the potential cost to revenue, the measure has been capped at projects with an estimated capital expenditure of $25 billion. In the absence of a cap, taxpayers would be able to self-regulate their access to the concessions. However, to manage potential costs to revenue and to ensure the highest value projects are supported, a decision maker (the Infrastructure Coordinator) will deem certain projects to be designated infrastructure projects.

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Before entities can access the concessions, an entity (not necessarily the entity that uses the concessions) must apply for a project to be designated as a designated infrastructure project and the entity must meet additional integrity requirements (such as notifying the Commissioner of Taxation that is eligible for the concessions).

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However, these costs are likely to be small relative to the size of the project and the sophisticated nature of the entities involved.

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Entities may only carry on one project in an entity. This avoids the need to identify which part of the assessable income and allowable deductions for an entity (worked out under the ordinary income tax law) are eligible for the concessions.

Improving the transparency of Australia's business tax system

Schedule 5 to this Bill amends the Taxation Administration Act 1953 to:

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require the Commissioner of Taxation to publish limited information about the tax affairs of large corporate taxpayers;

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allow for the publication of certain aggregate tax information irrespective of whether the publication, in conjunction with publicly available information, may be reasonably capable of being attributed to a particular taxpayer (other than a natural person); and

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allow for enhanced information sharing between Government agencies in relation to decisions under the Foreign Acquisitions and Takeovers Act 1975 and Australia's Foreign Investment Policy.

Date of effect : These amendments apply to the 2013-14 income year and later income years.

Proposal announced : On 4 February 2013, the Assistant Treasurer announced the Government's intention to improve the transparency of the business tax system. These measures were canvassed in a discussion paper that was released on 3 April 2013.

Financial impact : Nil.

Human rights implications : Schedule 5 to this Bill does not raise any human rights issues, as the amendments contained therein do not affect individuals. The amendments in item 5 of Schedule 5 could potentially apply to individuals and therefore engage the right to privacy under Article 17 of the International Covenant on Civil and Political Rights . See Statement of Compatibility with Human Rights - Chapter 3, paragraphs 3.70 to 3.81

Compliance cost impact : Nil. The amendments relate only to information that is already reported to the Commissioner of Taxation. No additional information will be sought from taxpayers under this amendment.

Petroleum Resource Rent Tax

Schedule 6 of the Bill amends the Petroleum Resource Rent Tax Assessment Act 1987 to address the unintended impacts arising from the decision of the Full Federal Court in Esso Australia Resources Pty Ltd v Commissioner of Taxation [2012] FCAFC 5.

Date of effect : The amendments apply generally to payments made in relation to petroleum projects from the applicable commencement date of the petroleum project. For most projects the applicable commencement date is 1 July 1986.

However, for payments made to a third party to procure project services, the relevant amendments apply from 1 July 2012 where the petroleum resource rent tax (PRRT) taxpayer has furnished a PRRT return in relation to their project interest prior to 14 December 2012.

The amendments apply retrospectively to address the outcomes of a Full Federal Court decision which would otherwise impose significant and unintended compliance and tax burdens on industry.

Proposal announced : This measure was announced in the Joint Media Release No.166 dated 14 December 2012 by the Deputy Prime Minister and Treasurer, the Minister for Resources and Energy and the Assistant Treasurer.

Financial impact : This measure has the following revenue implications:

Human rights implications : This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 4, paragraphs 4.74 to 4.77.

Compliance cost impact : The amendments reduce compliance costs for most PRRT taxpayers. Removing the capital gains tax discount for foreign individuals

Removing the Capital Gains Tax Discount for Foreign Individuals

Schedule 7 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to remove the capital gains tax (CGT) discount on discount capital gains accrued after 8 May 2012 for foreign resident and temporary resident individuals.

This Schedule also makes consequential amendments to the ITAA 1997.

Date of effect : This measure applies to disposals of CGT assets after 8 May 2012.

Proposal announced : The measure was announced as part of the 2012-2013 Budget and by the Assistant Treasurer, Minister Assisting for Deregulation's Media Release No. 026 of 8 May 2012.

Financial impact : This measure is estimated to have a $55.0 million gain to revenue over the forward estimates period.

Human rights implications : This Bill does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 5, paragraphs 5.68 to 5.75.

Compliance cost impact : This measure is expected to impose small compliance costs on affected entities.

Tax exemption for payments under the Defence Abuse Reparation Scheme

Schedule 8 to this Bill amends the Income Tax Assessment Act 1997 to exempt from income tax, payments made under the Defence Abuse Reparation Scheme.

Date of effect : This measure applies to the 2012-13 income year and later income years.

Proposal announced : This measure was announced in the 2013-14 Budget.

Financial impact : Nil.

Human rights implications : This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 6, paragraphs 6.14 to 6.17.

Compliance cost impact : Nil.

GST-free treatment for National Disability Insurance Scheme funded supports

Schedule 9 to this Bill ensures that certain services and other things supplied to a participant as a part of a National Disability Insurance Scheme (NDIS) plan under the National Disability Insurance Scheme Act 2013 (NDIS Act) are GST-free.

Date of effect : The amendments made by this Schedule apply in relation to supplies made on or after the proclamation date for when an NDIS plan is in effect under the NDIS Act.

Proposal announced : This measure was announced on 14 May 2013 as part of the 2013-14 Budget.

Financial impact : This measure is estimated to have a negligible revenue impact over the forward estimates period.

Human rights implications : Schedule 9 to this Bill is compatible with human rights. See Statement of Compatibility with Human Rights -Chapter 7, paragraphs 7.29 to 7.36.

Compliance cost impact : This measure is expected to have a low overall compliance cost impact, comprising a low implementation impact and a low increase in ongoing compliance costs relative to the affected group.

Deductible gift recipients

Schedule 10 to this Bill amends the Income Tax Assessment Act 1997 to update the list of specifically listed deductible gift recipients (DGRs).

Date of effect : The listing of United Way Australia applies to gifts made after 25 April 2013. The listings of Australian Neighbourhood Houses & Centres Association (ANHCA) Inc., the Australia Foundation in support of Human Rights Watch Limited, Layne Beachley - Aim for the Stars Foundation Limited, Aurora Education Foundation Limited and Social Traders Ltd apply to gifts made after 30 June 2013. The existing listings of the Charlie Perkins Scholarship Trust and Roberta Sykes Indigenous Education Foundation have been extended indefinitely.

Proposal announced : The listing of United Way Australia was announced on 14 May 2013 as part of the 2013-14 Budget. The listings of Australian Neighbourhood Houses & Centres Association (ANHCA) Inc., the Australia Foundation in support of Human Rights Watch Limited, Layne Beachley - Aim for the Stars Foundation Limited, Aurora Education Foundation Limited and Social Traders Ltd, and the extension of the existing listings for the Charlie Perkins Scholarship Trust and Roberta Sykes Indigenous Education Foundation, have not been previously announced.

Financial impact : The revenue implications of this measure are as follows:

Human rights implications : This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 8, paragraphs 8.30 to 8.36.

Compliance cost impact : Nil.

Miscellaneous amendments

Schedule 11 to this Bill makes a number of miscellaneous amendments to the taxation and superannuation laws. These amendments are part of the Government's commitment to the care and maintenance of the taxation and superannuation systems.

These amendments include: clarifying the tax treatment of native title benefits distributed through charities (Part 2); ensuring the fringe benefits tax rebate operates as intended (Part 3); and updating a number of significant taxation and superannuation thresholds to reflect reporting changes made by the Australian Bureau of Statistics (Part 4).

Date of effect : The amendments have various application dates that are explained in detail in this explanatory memorandum. While some of these amendments have retrospective application, taxpayers should not be adversely impacted.

Proposal announced : The amendments in Part 4 (indexation updates) were foreshadowed by the release of a proposals paper on the Treasury website on 17 April 2013. The amendment in Part 5 that clarifies the operation of the research and development provisions was foreshadowed on the Treasury website on 12 April 2013 as part of the consultation process for the quarterly credits exposure draft. The other amendments have not previously been announced.

Financial impact : These amendments are expected to have a minimal or nil revenue impact. However, some of the amendments are integrity measures that protect what could be substantial amounts of revenue.

Human rights implications : This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 9, paragraphs 9.69 to 9.80.

Compliance cost impact : Negligible.