Explanatory Memorandum
(Circulated by the authority of the Treasurer,the Hon Peter Costello, MP)General outline and financial impact
AMENDMENTS OF THE INCOME TAX ASSESSMENT ACT 1936
Amends the offshore banking unit (OBU) and withholding tax provisions of the income tax law to:
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- allow OBUs undertaking funds management to invest in Australian assets on behalf of offshore persons, subject to a 10 per cent limit (by value) on the Australian asset component of each investment portfolio. However, the income earned from managing the Australian component of the portfolio will not be eligible for the concessional tax rate;
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- exempt, from interest withholding tax, gold fees paid by OBUs as part of gold borrowings;
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- allow borrowing and lending in Australian currency between related OBUs; and
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- deny an income tax deduction for foreign tax paid by OBUs where a foreign tax credit is also available because of the operation of a double tax treaty.
Date of effect: The proposed OBU measures will apply from the commencement of the OBU's 1996-97 year of income. The interest withholding tax measure will apply to interest paid by an OBU during the 1996-97 and subsequent years of income.
Proposal announced: Not previously announced by the Government. Announced by the previous Government in its Innovate Australia Statement of 6 December 1995.
Financial impact: There will be a negligible cost to the revenue.
Compliance cost impact: There will be an increase in record keeping for those OBUs that intend to take advantage of the relaxation in the rules for fund managers because they will need to calculate the Australian asset component for each portfolio.
Complying funds - expenses of investing in pooled superannuation trusts or life assurance policies
This measure will allow complying superannuation funds and complying approved deposit funds (ADFs) to claim deductions for expenses relating to investments in pooled superannuation trusts and life assurance policies issued by life assurance companies and registered organisations.
Date of effect: 1 July 1988.
Proposal announced: Not previously announced.
Financial impact: There will be a small but unquantifiable cost to the revenue.
Compliance cost impact: Superannuation funds and ADFs are currently required to identify their expenses that are not deductible. If they are not already doing that, it will be necessary for them to identify the proportion of their expenses that relate to current pension liabilities. Those amounts will continue to be non-deductible because income derived from assets used to pay pension liabilities is exempt at all investment levels.
Amends the income tax law to allow income tax deductions for gifts made to The Central Synagogue Restoration Fund and The Borneo Memorials Trust Fund.
Date of effect: 23 December 1995.
Proposals announced: 22 December 1995 by the former Government.
Financial impact: No significant impact on the revenue.
Compliance cost impact: Taxpayers will be required to keep a record of gifts made to enable deductions to be claimed.
Amends the income tax law to repeal section 261.
Date of effect: Date of introduction of the Bill into the Parliament.
Proposal announced: Not previously announced.
Financial impact: The revenue impact will be negligible.
Compliance cost impact: The repeal of the section will simplify loan documentation for the banking industry.
Taxation of income derived from sources outside Australia
Amends various provisions relating to the taxation of foreign source income to:
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- ensure that a company will not lose its entitlement to an underlying foreign tax credit under the foreign tax credit system (FTCS) when a liquidator is appointed to a related company.
Date of effect: This amendment will apply from the 1987-88 year of income - the time of commencement of the FTCS.
Proposal announced: Not previously announced.
Financial impact: The revenue cost of this measure is negligible.
Compliance cost impact: Compliance costs should be reduced because the measure will provide greater certainty.
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- make technical corrections to the provisions that apply in relation to capital gains and losses when calculating the attributable income of a controlled foreign corporation.
Date of effect: These amendments will apply to disposals of assets after 2 April 1992.
Proposal announced: Not previously announced.
Financial impact: There will be no effect on revenue.
Compliance cost impact: The measures will have no effect on compliance costs.
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- change the basis on which foreign investment fund income is accrued from residency during a year of income to residency during the notional accounting period of a foreign investment fund (FIF) or foreign life assurance policy (FLP).
Date of effect: This amendment will apply to assessments for the 1996-97 and later years of income.
Proposal announced: Not previously announced.
Financial impact: It is not possible to quantify any revenue gain or loss arising from this amendment.
Compliance cost impact: There will be no effect on the cost of compliance.
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- allow foreign investment fund income accrued from a FIF or a FLP to be reduced by assessable distributions that relate to that income.
Date of effect: These amendments will apply from 1 January 1993 - the date of commencement of the FIF measures.
Proposal announced: Not previously announced.
Financial impact: There will be a small but unquantifiable cost to revenue in removing the present double taxation of certain income from investments in foreign funds.
Compliance cost impact: This measure will have no effect on compliance costs.
Forgiveness of commercial debts
Inserts a new Schedule, dealing with the forgiveness of commercial debts, into the income tax law. The Schedule defines a commercial debt, and contains rules that apply the net amounts of debts forgiven in a year of income to reduce the debtor's accumulated revenue losses, net capital losses, certain undeducted expenditures and cost bases of assets. In certain circumstances, the net forgiven amount of a debtor which is a company is apportioned among companies related to the debtor company.
Date of effect: The amendments will apply to commercial debts forgiven after the day the Bill is introduced in the Parliament. However, if forgiveness occurs after that day pursuant to an agreement or arrangement entered into on or before that day, the forgiveness will not be affected by the amendments.
Proposal announced: Not previously announced by this Government but the provisions broadly reflect the measures announced by the previous Government as part of the 1995-96 Budget.
Financial impact: There will be negligible impact on revenue in 1996-97. The estimated revenue gains in following years will be $20 million in 1997-98, $40 million in 1998-99, rising to $130 million by 2003-2004.
Compliance cost impact: It will be necessary for debtors affected by this amendment to measure and record the value of debts forgiven. That information ought to be readily available from business records that would be kept anyway. The additional compliance cost is likely to arise from needing to be aware of these changes in the taxation law and ensuring that appropriate reductions are made to accumulated losses, capital losses, undeducted expenditures and asset cost bases. In relevant cases, there will be an onus on a company that is one of a related group of companies to ascertain the net forgiven amount of debt of other group companies and undeducted revenue losses and net capital losses of other group companies. Debt forgiveness is not usually an ongoing aspect of business and the required adjustments are not routine. The likelihood is, therefore, that taxpayers would seek professional assistance in dealing with the taxation effects of debt forgiveness.
AMENDMENTS OF THE SUPERANNUATION GUARANTEE (ADMINISTRATION) ACT 1992
The Aberfoyle Award Superannuation Scheme
Amends the Superannuation Guarantee (Administration) Act 1992 to ensure that the earnings base specified in the Aberfoyle Superannuation Award is recognised as a valid notional earnings base for the purposes of that Act.
Date of effect: 1 July 1992, applying in relation to assessments of superannuation guarantee shortfall for years up to and including the 1995-96 year.
Proposal announced: Not previously announced.
Financial impact: There will be no effect on the revenue.
Compliance cost impact: This measure will reduce compliance costs for employers contributing to the Aberfoyle Award Superannuation Scheme. Those employers would otherwise be required to calculate their potential liability to pay the superannuation guarantee charge by reference to each employee's ordinary time earnings.
AMENDMENTS OF THE SUPERANNUATION INDUSTRY (SUPERVISION) ACT 1993 AND THE INCOME TAX ASSESSMENT ACT 1936
Tax file numbers - use for superannuation purposes
Amends the superannuation law to:
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- require regulated superannuation funds and approved deposit funds (funds) to seek tax file numbers (TFNs) from their beneficiaries and pass them on when transferring beneficiaries to other funds and exempt public sector superannuation schemes (exempt schemes);
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- allow exempt schemes to seek TFNs from their beneficiaries and pass them on when transferring beneficiaries to other exempt schemes and funds;
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- require employers to quote employees' TFNs to funds on the employees' behalf;
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- allow employers to quote employees' TFNs to exempt schemes on the employees' behalf;
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- allow funds and exempt schemes to use TFNs for locating and amalgamating beneficiaries' benefits and identifying beneficiaries;
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- consolidate provisions relating to TFNs;
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- require funds and pooled superannuation trusts (superannuation entities) to provide their TFNs to the Insurance and Superannuation Commissioner (ISC) in certain circumstances;
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- allow the ISC to require superannuation entities' TFNs in certain circumstances;
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- allow the ISC to pass superannuation entities' TFNs to the Commissioner of Taxation (ATO); and
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- allow the ISC to use superannuation entity TFNs collected under superannuation legislation previously applying to the superannuation industry for the purpose of superannuation legislation which currently applies to the industry.
Amends the income tax law to:
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- deem TFNs of beneficiaries quoted for superannuation purposes as quoted also for taxation purposes; and
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- allow the ATO to use the TFNs of individuals held by the ATO for the purpose of processing reasonable benefit limits forms.
Date of effect: The amendments will apply from the 60th day after Royal Assent, except for amendments requiring funds to seek TFNs from existing beneficiaries which commence with either the first member or fund statement (as chosen by the fund) that is sent to the beneficiary on or after that 60th day.
Proposal announced: Not announced by this Government but most measures were announced by the former Government on 28 June 1994.
Financial impact: No impact on revenue is expected.
Compliance cost impact: If employees quote their TFNs for superannuation purposes, this measure will increase employers' compliance costs as they will be required to pass on the TFN to the employees' fund. Funds and exempt schemes may have additional compliance costs through seeking and processing beneficiaries' TFNs. However, these are expected to be offset by increased efficiency which the extended use of TFNs will bring.
AMENDMENTS OF THE FRINGE BENEFITS TAX ASSESSMENT ACT 1986
Amends the fringe benefits tax law to ensure that benefits with a value less than $100 can qualify for the exemption from fringe benefits tax for minor benefits.
Date of effect: Royal Assent.
Proposal announced: This measure was announced on 18 February 1996 in the document Capital Gains Tax and Fringe Benefits Tax Reform .
Financial impact: This measure will have an unquantifiable cost to revenue.
Compliance cost impact: There is likely to be a small reduction in compliance costs, mainly because record keeping obligations will be reduced for benefits which will become exempt.
AMENDMENTS OF TAXATION LAWS AMENDMENT ACT (NO. 4) 1995
Amends certain application dates and section references in the Act to:
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- restore the application dates to those intended by Parliament; and
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- replace incorrect section references with the correct section references.
Date of effect: The proposed amendments will apply from 16 December 1995, that is immediately after the commencement of Schedules 1 and 2 of Taxation Laws Amendment Act (No. 4) 1995 .
Proposal announced: Not previously announced.
Financial impact: Nil.
Compliance cost impact: None.