Second Reading Speech
by the Assistant Treasurer the Hon. George Gear, MPI move that the Bill be now read a second time.
The Bill will amend the taxation laws in a number of respects.
It will give effect to three changes announced in the 1993-94 Budget. One change will provide relief for small business by deferring the initial payment of company income tax in respect of the 1993-94 income year. Another will exempt from income tax income derived by non-profit organisations established for the purpose of promoting the development of tourism. The third change will provide sales tax exemption for goods used in various activities of the Royal Society for the Prevention of Cruelty to Animals.
The Bill also proposes changes to the imputation system as a result of the reduction in the company tax rate, for 1993-94 and later years of income, from 39 per cent to 33 per cent.
The Bill makes a number of amendments to the method of calculating and apportioning certain deductions allowable to life assurance companies.
It also amends the capital gains tax provisions so that they do not apply to capital gains and losses realised on the disposal of policies of life assurance, or rights under policies of life assurance, by complying superannuation funds, complying approved deposit funds and pooled superannuation trusts.
The Bill will also amend the provisional tax provisions of the taxation law to maintain the current uplift factor of 8 per cent for the calculation of provisional tax for the 1993-94 year of income.
Other changes are proposed to the petroleum mining provisions, fringe benefits tax, superannuation guarantee charge and petroleum resource rent tax.
The Bill also includes several technical amendments to the taxation law.
I now turn to a more detailed discussion of these measures.
Deferral of initial payment of company tax
The Bill will give effect to the announcement in the 1993-94 Budget of relief for small business by deferring the initial payment of company income tax in respect of the 1993-94 year of income.
The companies affected are those with a tax liability of $1,000 or more but less than $300,000, and which pay their tax in two instalments. The due date for the initial payment will be deferred by nine weeks from the 28th day of the month following the balance date to the 28th day of the third month following the balance date.
As for previous deferrals in the 1990-91 and 1991-92 income years, the amendments will ensure that franking deficit tax and franking credits and debits will be determined as if there had been no deferral of the initial tax payment.
The measure will defer revenue of $10 million from the 1993-94 year of income.
With effect from 1 July 1993, income derived by non-profit organisations established for the purpose of promoting the development of tourism will be exempt from income tax.
Consistent with that change, special fringe benefits tax arrangements, which provide some organisations with a tax rebate of 48 per cent of their fringe benefits tax liability, will be extended to non-profit, non-government tourism industry organisations. This rebate will apply to relevant organisations from 1 April 1994.
The amendments will have no effect on revenue.
Mr Speaker, as part of the 1993-94 Budget the Treasurer announced a change to the sales tax legislation to provide exemption for goods used in various activities of the Royal Society for the Prevention of Cruelty to Animals (RSPCA).
The change will provide an exemption from sales tax on goods used by the various State, Territory and national bodies that comprise the group of organisations known as the RSPCA, mainly in carrying out their inspectorial functions and the operation of animal shelters.
The exemption will not extend to goods used mainly in their commercial activities such as boarding kennels.
The amendments, which apply from 13 March 1993, will cost the revenue approximately $500,000 in 1993-94 and later years. In addition there will be refunds of tax paid from 13 March 1993 to 30 June 1993.
The Bill contains changes to the imputation system as a result of the reduction in the company tax rate, for 1993-94 and later years of income, from 39 per cent to 33 per cent as announced in the Investing in the Nation statement.
At the time of the reduction companies may have unused imputation credits arising from tax paid at the higher rate. In order to allow companies to pass on to their shareholders the full value of any imputation credits for tax paid at the 39 per cent rate, the imputation system will now operate using dual franking accounts instead of the existing single account.
Broadly, there will be one account for tax paid at the 39 per cent rate and another for tax paid at the 33 per cent rate. The 39 per cent account will operate in respect of any surplus 39 per cent credits at the time of the rate reduction, any franked dividends received that have 39 per cent credits attached to them and any further payments of tax that may be made at the 39 per cent rate as a result of, say, amended assessments for years when that rate applied.
In the absence of this change, under the present single account the value of these 39 per cent imputation credits when passed on to individual shareholders would be reduced.
The dual franking accounts will operate quite separately but in the same manner as the existing single account. They will operate from the commencement of a company's 1994-95 franking year.
The Bill also contains transitional measures to prevent franked dividends paid by early balancing companies with imputation credits calculated on the basis of the 33 per cent rate from being channelled through later balancing companies which effectively pass those dividends on to individual shareholders with higher imputation credits based on the 39 per cent rate.
The overall cost of the reduction of the company tax rate, with which these measures are associated, is $440 million in 1993-94, $1,830 million in 1994-95, $1,620 million in 1995-96 and $1,700 million in 1996-97.
Income tax deductions for life assurance companies
The Bill will give effect to the measures announced in the Treasurer's Press Release of 31 May 1993. These measures concern amendments to certain formulas in the tax law which enable the tax payable by a life assurance company to be determined.
The formulas provide for the calculation of the amount of specific deductions to be allowed to a life assurance company and the apportionment of those and other deductions against the differently taxed classes of income of a life assurance company.
The formulas are based on income derived by a life assurance company. One amount of income presently included in the formulas arises as a result of a life assurance company agreeing to pay the tax liability of a superannuation fund.
This is a facility instituted for the ease of administration of superannuation funds. It operates by a life assurance company agreeing to include in its assessable income an amount which otherwise would be taxable income of a superannuation fund.
The inclusion of these transferred amounts in the formulas has an adverse effect on the tax payable by a life assurance company. This was never intended to be the case and will now be corrected by an amendment to exclude these transferred amounts from the formulas.
Other amounts will be included in the formula which apportions deductions to the differently taxed classes of income of a life assurance company. These other amounts represent the premiums received by a company which are treated as assessable income of the company for the purpose of calculating its allowable deductions.
Because the inclusion of these other amounts increases allowable deductions they should also be taken into account in apportioning those deductions to the differently taxed classes of income. The inclusion of these premiums in the apportionment formula will provide a fairer allocation of deductions to the respective classes.
The revenue impact of these measures, which will operate from 1 June 1993, cannot be quantified.
Life assurance policies and capital gains
Generally capital gains realised on the disposal of assets are included in assessable income and subject to income tax. A specific exemption is provided for capital gains made on the disposal of an interest in a policy of life assurance, or rights under a policy of life assurance.
However this exemption is only available where the person making the disposal is the "original beneficial owner" of the policy (or rights under the policy) or a person who did not acquire the rights or interest for money or other consideration.
This Bill will amend the capital gains tax provisions so that they do not apply to capital gains and losses realised on the disposal of policies of life assurance, or rights under policies of life assurance, by complying superannuation funds, approved deposit funds or pooled superannuation trusts, whether or not the fund or trust is the "original beneficial owner" of the policy.
This amendment will ensure that the taxation treatment of capital gains from life assurance policies realised by superannuation funds and similar bodies is consistent with their general concessional taxation treatment.
The proposed exemption will apply to disposals of policies of life assurance taking place during or after the year of income in which 1 July 1988 occurred. It will therefore apply with effect from the income year in which the current provisions relating to the taxation of superannuation and related business contained in Part IX of the Income Tax Assessment Act 1936 took effect.
The impact to revenue is not expected to be substantial.
The Bill makes the necessary amendments to retain the current provisional uplift factor of 8 per cent as announced by the Treasurer in June 1993. The uplift factor of 8 per cent will be applied to the 1992-93 incomes for the purposes of calculating 1993-94 provisional tax.
The amendments will have no effect on revenue.
Amendments to the petroleum mining provisions
This Bill gives effect to my announcement on 4 August 1993 that the petroleum mining provisions would be amended to ensure that deductions are not available for expenditure incurred in carrying out activities overseas that do not generate assessable income in Australia.
Income earned by Australian companies from carrying on a business in certain overseas locations is presently exempt from tax in Australia. However, a technical defect in the petroleum mining provisions could allow Australian petroleum mining companies to claim deductions for expenditure incurred in exploration and mining activities in these locations.
This was clearly never intended to be the case. It is a basic principle of tax law that deductions are not allowable for expenditure incurred for the purpose of producing exempt income.
The cost to the revenue of the defect could exceed $1 billion. The Government believes that it would not be appropriate to allow a small number of taxpayers to benefit from this defect at the expense of the general community. Taxpayers could not reasonably have expected to gain given that the Parliament's intention was absolutely clear.
Accordingly, the amendments are to apply to expenditure incurred after 7.30pm, by standard time in the ACT, on 21 August 1990, the commencement time of the amendments that gave rise to the defect .
Under the existing fringe benefits tax law, an airline transport fringe benefit arises where an airline operator or travel agent provides transport to an employee. The taxable value of the benefit is the 'stand-by value' of the transport provided less any contribution made by the employee.
Under that part of the definition of 'stand-by value' which covers travel over a domestic route, 'stand-by value' is calculated by reference to the 'economy air fare' of either the provider of the service or Australian Airlines depending on whether the transport provided is on a scheduled flight or not.
The definition of 'stand-by value' will be amended so that no particular airline will be referred to for valuation purposes. Reference to a particular airline is no longer appropriate in a deregulated airline industry. Also, where an airline has a published economy air fare which differs in value from a non-published economy air fare, only the published economy air fare will be used.
The Bill will also amend the fringe benefits law by removing the requirement for certain employers to disclose the sources of information used in compiling their fringe benefits tax return.
The amendments, which apply from the date of Royal Assent, are not expected to have any significant impact on the revenue.
Superannuation guarantee charge
This Bill will amend the Superannuation Guarantee (Administration) Act 1992 to allow the superannuation guarantee shortfall component to be paid into a complying approved deposit fund.
The Bill will also amend the Income Tax Assessment Act 1936 to ensure that any shortfall component received by a complying approved deposit fund is a taxable contribution.
The amendments will apply from the date of Royal Assent.
The Bill will amend the Occupational Superannuation Standards Act 1987 and the Superannuation Industry Supervision Bill 1993 to allow approved deposit funds to accept the superannuation guarantee shortfall component.
The proposed amendments will increase the number of funds that can accept a superannuation guarantee shortfall component, particularly if that shortfall component consists of a small amount.
The proposed amendments will have no effect on revenue.
Last November a Report to Parliament on the operation of the Petroleum Resource Rent Tax Assessment Act 1987 was tabled by the Honourable Alan Griffiths MP, then Minister for Resources. The Government committed itself at that time to further consider some issues raised in submissions to the Report, and to further consult with petroleum industry representatives. This consultation has extended to confidential discussion of draft legislation.
As a result of this process, it was announced in the Budget that amendments would be made to the Petroleum Resource Rent Tax law to help ensure that it does not delay exploration following changes in interests in projects or otherwise distort commercial decision-making, and to ease compliance by resource rent taxpayers.
This Bill will make four amendments, applying generally from 1 July 1993. The amendments will:
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- treat transfers of part of a taxpayer's interest in a petroleum project in the same way as transfers of a taxpayer's whole interest;
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- enable exploration expenditure incurred in the financial year a person farms into a project to be set off against their assessable receipts from other projects, or to be set off against the assessable receipts derived by another company in the same wholly-owned company group, from other projects;
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- enable exploration expenditure incurred in the financial year a person abandons a petroleum project to be set off against receipts from other projects; and
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- double the time for lodgment of expenditure transfer notices and annual petroleum resource rent tax returns.
These amendments will have a small but unquantifiable cost to the revenue.
The Bill also includes several technical amendments to the taxation laws. These technical amendments include changes to "tidy up" aspects of the legislation which simplified the prescribed payments system, simplified the gift provisions, removed the Commissioner's priority for debts in relation to certain unremitted amounts and implemented the Australia-Vietnam comprehensive double tax agreement. These amendments will have no impact on revenue.
I present the Explanatory Memorandum which contains more detailed explanations of the provisions of the Bill.
I commend the Bill to the House.