Taxation (Deficit Reduction) Act (No. 1) 1993

(57 of 1993)

An Act to amend the law relating to taxation (Incorporating amendments up to Act No. 94 of 1995)

(Assented to 27 October 1993)

Part 1 PRELIMINARY

1 Short title

This Act may be cited as the Taxation (Deficit Reduction) Act (No. 1) 1993.

2 Commencement

This Act commences on the day on which it receives the Royal Assent.

Part 2 Amendment of the Fringe Benefits Tax Assessment Act 1986

Division 1 Principal Act

3 Principal Act

In this Part, Principal Act means the Fringe Benefits Tax Assessment Act 1986.

Division 2 Amendments relating to non-deductible expenses

4 Object of Division

The object of this Division is to make amendments of the Principal Act that are consequential on the amendments of sections 51, 51AB, 51AE, 51AG and 54 of the Income Tax Assessment Act 1936 made by this Act.

5 Repeal of sections 64, 64A and 65

Sections 64, 64A and 65 of the Principal Act are repealed.

6 Interpretation

Section 136 of the Principal Act is amended:

(a) by inserting “(on the assumption that subsection 51AE(5AA) of the Income Tax Assessment Act 1936 had not been enacted)” after “extent to which” in the definition of non-deductible entertainment expenditure in subsection (1);

(b) by omitting from subsection (1) the definitions of deductible entertainment expenditure , depreciable property and eligible entertainment expenditure .

7 Application of amendments

The amendments made by this Division apply to assessments of the fringe benefits taxable amount of an employer of the year of tax beginning on 1 April 1994 and of all later years of tax.

Division 3 Repeal of redundant provision

8 Object of Division

The object of this Division is to repeal section 65CAA of the Principal Act. That section only applied to the year of tax that began on 1 April 1991. It contains cross-references to sections 64 and 65 of the Principal Act. Those sections are repealed by this Act.

9 Repeal of section 65CAA

Section 65CAA of the Principal Act is repealed.

10 Consequential amendments

(1) The following provisions of the Principal Act are amended by omitting “sections 62 and 65CAA” (wherever occurring) and substituting “section 62”:

Sections 61A, 61C, 61D, 63 and 65A.

(2) The following provisions of the Principal Act are amended by omitting “but for this section and section 65CAA” and substituting “but for this section”:

Sections 61B, 61E and 61F.

11 Savings

Despite the repeal and amendments made by this Division, the Principal Act continues to apply, in relation to the year of tax that began on 1 April 1991, as if that repeal and those amendments had not been made.

Part 3 Amendment of the Income Tax Assessment Act 1936

Division 1 Principal Act

12 Principal Act

In this Part, Principal Act means the Income Tax Assessment Act 1936.

Division 2 Amendments to deny deductions to certain non-employees for certain car parking expenses

13 Object of Division

The object of this Division is to deny deductions to certain non-employees for certain car parking expenses.

14 Insertion of new section

After section 51AGA of the Principal Act the following section is inserted:

51AGB No deductions for certain self-employed persons, partnerships and trusts for certain car parking expenses

When section applies

(1) This section applies if:

(a) apart from this section, a deduction (the gross deduction ) is allowable to a taxpayer under this Act in respect of expenditure to the extent to which it is incurred in respect of the provision of car parking facilities for a car on a day; and

(b) any of the following subparagraphs applies:

(i) both:

(A) the taxpayer is a natural person (other than a person in the capacity of trustee); and

(B) on that day, the taxpayer (the parker ) has a primary place of self-employment;

(ii) all of the following apply:

(A) the taxpayer is a partnership;

(B) a partner in the partnership is a natural person;

(iii) both:

(A) the taxpayer is both the trustee of a trust estate and a natural person; and

(B) on that day, the taxpayer (the parker ) has a primary place of self-employment; and

(c) on that day, the car is parked on particular premises (the parking premises ) for one or more daylight periods exceeding 4 hours in total; and

(d) the parking premises are at, or in the vicinity of, that primary place of self-employment; and

(e) a commercial parking station is located within a 1 km radius of the parking premises; and

(f) the expenditure is in respect of the provision of the parking facilities to which that parking relates; and

(g) on that day, the car is used in connection with travel by the parker between:

(i) the place of residence of the parker; and

(ii) that primary place of self-employment; and

(h) the provision of parking facilities for the car during the period or periods is not taken, under the regulations, to be excluded from this section; and

(i) the day is on or after 1 July 1994.

Gross deduction not allowable unless taxpayer elects to use a reduction method

(2) The gross deduction is not allowable to the taxpayer unless the taxpayer elects that subsection (3) or (5) applies.

Taxpayer may elect to reduce gross deduction using the commercial parking station method

(3) The taxpayer may elect that this subsection apply in relation to:

(a) the gross deduction; or

(b) if 2 or more gross deductions relating to a particular car, a particular parker, particular parking premises and a particular day are allowable to the taxpayer - the sum of those gross deductions.

If such an election is made, the gross deduction, or the sum of the gross deductions, as the case may be, is to be reduced by the commercial parking station amount worked out under subsection (4).

Commercial parking station amount

(4) The commercial parking station amount mentioned in subsection (3) is equal to:

(a) if, on the day concerned, there is only one commercial parking station located within a 1 km radius of the parking premises - the lowest fee charged by the operator of the parking station in the ordinary course of business to members of the public for all-day parking on that day; or

(b) if, on that day, there are 2 or more commercial parking stations located within a 1 km radius of the parking premises - the lowest fee charged by any of the operators of those parking stations in the ordinary course of business to members of the public for all-day parking on that day.

Taxpayer may elect to reduce gross deduction using the market value method

(5) The taxpayer may elect that this subsection apply in relation to:

(a) the gross deduction; or

If such an election is made, the gross deduction, or the sum of the gross deductions, as the case may be, is to be reduced by the market value amount worked out under subsection (6).

Market value amount

(6) The market value amount mentioned in subsection (5) is the amount that the taxpayer could reasonably be expected to have been required to pay in respect of the provision of the parking facilities for the car on that day if:

(a) those facilities had been provided by another person; and

(b) the parties to the transaction were dealing with each other at arm’s length.

Market value method to be based on valuer’s report

(7) An election purporting to be made under subsection (5) in relation to one or more days in a year of income has no effect unless:

(a) a suitably qualified valuer gives to the taxpayer a report, in a form approved by the Commissioner, about the valuation of the provision of the car parking facilities; and

(b) the valuer is at arm’s length in relation to the valuation; and

(c) the taxpayer’s return for the year of income, in so far as it relates to subsections (5) and (6), is based on the report.

When commercial parking stations are located within a 1 km radius of parking premises

(8) For the purposes of this section, a commercial parking station is taken to be located within a 1 km radius of particular parking premises if, and only if, a car entrance to the commercial parking station is situated less than 1 km, by the shortest practicable route, from a car entrance to those premises.

Daily rate equivalent for periodic parking arrangements

(9) For the purposes of this section, if the operator of a commercial parking station provides all-day parking in the ordinary course of business to members of the public on a weekly, monthly, yearly or other periodic basis, the operator is taken to charge a fee for all-day parking on a particular day during the period equal to the amount worked out using the formula:

Total fee / Business days in period

where:

Business days in period means the number of business days in that period.

Total fee is the total fee charged by the operator in respect of all-day parking on days in that period.

Anti-avoidance - commercial parking stations

(10) If either or both of the following apply:

(a) a transaction between the operator of a commercial parking station and a customer is not at arm’s length;

(b) the operator of a commercial parking station sets the level of a fee for the sole or dominant purpose of enabling one or more taxpayers to avoid, in whole or in part, the application of this section;

then, for the purposes of this section:

(c) if only paragraph (a) applies - it is to be assumed that the fee is the fee that would have been payable if the operator and the customer had been dealing with each other at arm’s length in relation to the transaction; and

(d) if only paragraph (b) applies - it is to be assumed that the fee is the fee that would have been payable if it had been set without that purpose in mind; and

(e) if both paragraphs (a) and (b) apply - it is to be assumed that the fee is the fee that would have been payable if:

(i) the operator and the customer had been dealing with each other at arm’s length in relation to the transaction; and

(ii) it had been set without that purpose in mind.

Definitions

(11) In this section:

all-day parking has the same meaning as in the Fringe Benefits Tax Assessment Act 1986.

business day has the same meaning as in the Fringe Benefits Tax Assessment Act 1986.

car has the same meaning as in the Fringe Benefits Tax Assessment Act 1986.

commercial parking station has the same meaning as in the Fringe Benefits Tax Assessment Act 1986.

daylight period has the same meaning as in the Fringe Benefits Tax Assessment Act 1986.

expenditure does not include expenditure of a capital nature.

income-producing activity , in relation to a person, means an activity (including an investment activity) carried on for the purpose, or purposes that include the purpose, of producing:

(a) in any case - assessable income (other than salary or wages) of the person of any year of income; or

(b) if the person is a partner in a partnership - assessable income of the partnership of any year of income; or

place of residence has the same meaning as in the Fringe Benefits Tax Assessment Act 1986.

primary place of self-employment , in relation to a person in relation to a day, means premises where:

(a) if the person carried on income-producing activities on that day - on that day; or

(b) in any other case - on the most recent day before that day on which the person carried on income-producing activities;

those premises are or were the sole or primary place from which, or at which, the person carried on income-producing activities.

salary or wages has the same meaning as in section 221A.

15 Keeping of records

Section 262A of the Principal Act is amended by inserting after subsection (4AJ) the following subsection:

(4AK) A person who receives a report under subsection 51AGB(7) must retain the report, or a copy, until the end of 5 years after the receipt of the report.

16 Application of amendments

Section 51AGB of the Principal Act as amended by this Act applies in relation to expenditure incurred by a taxpayer on or after 1 July 1994.

Division 3 Amendments relating to certain non-deductible expenses

17 Object of Division

The object of this Division is to allow deductions for certain expenses incurred in respect of the provision of fringe benefits.

18 Losses and outgoings

Section 51 of the Principal Act is amended by inserting after subsection (6) the following subsection:

(6A) The rule in subsection (6) does not apply to expenditure incurred by the provider of a fringe benefit (within the meaning of the Fringe Benefits Tax Assessment Act 1986), if the expenditure is in respect of the provision of the fringe benefit.

19 Club fees and expenditure relating to leisure facilities

Section 51AB of the Principal Act is amended:

(a) by omitting from subsection (4) “subsection (5)” and substituting “subsections (5) and (5A)”;

(b) by inserting after subsection (5) the following subsection:

(5A) The rule in subsection (4) does not apply to expenditure incurred by the provider of a fringe benefit (within the meaning of the Fringe Benefits Tax Assessment Act 1986), if the expenditure is in respect of the provision of the fringe benefit.

20 Deductions not allowable for entertainment expenses

Section 51AE of the Principal Act is amended by inserting after subsection (5) the following subsection:

(5AA) The rule in subsection (4) does not apply to expenditure incurred by the provider of a fringe benefit (within the meaning of the Fringe Benefits Tax Assessment Act 1986), if the expenditure is in respect of the provision of the fringe benefit.

21 Deductions for travel expenses where person accompanied by relative

Section 51AG of the Principal Act is amended by inserting after subsection (1) the following subsection:

(1A) The rule in subsection (1) does not apply to expenditure incurred by the provider of a fringe benefit (within the meaning of the Fringe Benefits Tax Assessment Act 1986), if the expenditure is in respect of the provision of the fringe benefit.

22 Depreciation

Section 54 of the Principal Act is amended by inserting after subsection (3) the following subsection:

(3A) The rule in subsection (3) does not apply in relation to property to the extent (if any) to which a fringe benefit (within the meaning of the Fringe Benefits Tax Assessment Act 1986) is constituted by the use of the property.

23 Application of amendments

(1) The amendments made by this Division apply in relation to a fringe benefit, if it is a fringe benefit in relation to the year of tax beginning on 1 April 1994 or a later year of tax.

(2) In this section:

year of tax has the same meaning as in the Fringe Benefits Tax Assessment Act 1986.

Division 4 Amendments relating to payments in lieu of annual leave or long service leave

24 Object of Division

The object of this Division is to change the concessional treatment currently available for certain payments that are made in lieu of annual leave or long service leave.

25 Interpretation

Section 159S of the Principal Act is amended:

(a) by omitting paragraph (a) of the definition of eligible assessable income and substituting the following paragraph:

(a) section 26AC, in respect of:

(i) unused annual leave, or unused annual leave and a bonus, loading or other additional payment relating to that leave, that accrued to the taxpayer in respect of service before 18 August 1993; or

(ii) bona fide redundancy amounts, early retirement scheme amounts and invalidity amounts, paid on or after 18 August 1993.

(b) by omitting paragraph (b) of the definition of eligible assessable income and substituting the following paragraph:

(b) subsections 26AD(2), (3) and (4):

(i) in respect of a bona fide redundancy amount, an early retirement scheme amount or an invalidity amount; or

(ii) if subparagraph (i) does not apply to the amount and the eligible service period mentioned in subsection 26AD(2), (3) or (4) began on or before 17 August 1993 - to the extent that the amount exceeds the post 1993 Budget component (if any) of the amount.

annual leave has the same meaning as in section 26AC.

bona fide redundancy amount means a payment made (whether voluntarily, by agreement or by compulsion of law) to a person in a lump sum because of the dismissal of the person from any employment, where:

(a) the dismissal was because of the bona fide redundancy of the person; and

(b) the dismissal took place before the last retirement date (within the meaning of section 27A) in relation to the employment; and

(c) there was, at the time of the dismissal, no agreement in force between the person and the employer, or between the employer and another person, to employ the person after that time.

early retirement scheme amount means a payment made (whether voluntarily, by agreement or by compulsion of law) to a person in a lump sum because of the person’s retirement from any employment or because of the termination of any employment of the person, where:

(a) the retirement or termination was in accordance with an approved early retirement scheme (within the meaning of section 27E); and

(b) the retirement or termination took place before the last retirement date (within the meaning of section 27A) in relation to the employment; and

(c) there was, at the time of the retirement or termination, no agreement in force between the person and the employer, or between the employer and another person, to employ the person after that time.

employment includes holding an office.

invalidity amount means a payment made (whether voluntarily, by agreement or by compulsion of law) to a person in a lump sum because of the person’s retirement from any employment or because of the termination of any employment of the person, where:

(a) either of the following applies:

(i) the payment was made to the person before 1 July 1994 and the retirement or termination was because of the person’s physical or mental incapacity to engage in the employment;

(ii) the payment was made on or after 1 July 1994 and the retirement or termination was because of the disability of the person, where 2 legally qualified medical practitioners have certified that the disability was likely to result in the person being unable ever to be employed in a capacity for which the person is reasonably qualified because of education, training or experience; and

(b) the retirement or termination took place before the last retirement date (within the meaning of section 27A) in relation to the employment.

post 1993 Budget component , in relation to an amount included in the taxpayer’s assessable income under subsection 26AD(2), (3) or (4), means so much of the lump sum payment concerned (that is, the amount mentioned in subsection 26AD(1)) as would be included in the taxpayer’s assessable income under subsection 26AD(3) or (4) if references in those subsections to 15 August 1978 (disregarding any application of subsection 26AD(12) or (13)) were instead references to 17 August 1993.

26 Application of amendments

Subject to section 27, the amendments made by this Division apply to assessments in respect of income of the 1993-94 year of income and of all later years of income.

27 Transitional

Subdivision AAA of Division 17 of Part III of the Principal Act as amended by this Division applies to assessments in respect of income of the 1993-94 year of income as if paragraph (a) of the definition of eligible assessable income in section 159S read as follows:

(a) section 26AC, in respect of:

(i) payments made before 18 August 1993; or

(ii) unused annual leave, or unused annual leave and a bonus, loading or other additional payment relating to that leave, that accrued to the taxpayer in respect of service before 18 August 1993; or

(iii) bona fide redundancy amounts, early retirements scheme amounts and invalidity amounts, paid on or after 18 August 1993.

Division 5 Amendments relating to credit unions

28 Object of Division

The object of this Division is to provide for the special tax treatment of credit unions.

29 Interpretation

Section 6 of the Principal Act is amended by inserting the following definitions in subsection (1):

recognised small credit union has the meaning given by section 6H.

recognised large credit union has the meaning given by section 6H.

recognised medium credit union has the meaning given by section 6H.

30 Insertion of new section

After section 6G of the Principal Act the following section is inserted:

6H Recognised small credit unions, recognised medium credit unions and recognised large credit unions

Recognised small credit union in relation to a year of income

(1) For the purposes of this Act, a credit union is a recognised small credit union in relation to a year of income if:

(a) both:

(i) the year of income is the 1994-95 year of income; and

(ii) either:

(A) the credit union is not a designated credit union; or

(B) the credit union’s notional taxable income of the year of income is less than $50,000; or

(b) both:

(i) the year of income is the 1995-96 year of income or a later year of income; and

(ii) the credit union’s notional taxable income of the year of income is less than $50,000.

Recognised medium credit union in relation to a year of income

(2) For the purposes of this Act, a credit union is a recognised medium credit union in relation to a year of income if:

(a) the year of income is the 1994-95 year of income or a later year of income; and

(b) the credit union is not a recognised small credit union in relation to the year of income; and

Recognised large credit union in relation to a year of income

(3) For the purposes of this Act, a credit union is a recognised large credit union in relation to a year of income if:

(a) the year of income is the 1994-95 year of income or a later year of income; and

(b) the credit union is neither:

(i) a recognised small credit union in relation to the year of income; nor

(ii) a recognised medium credit union in relation to the year of income.

Designated credit union

(4) For the purposes of this section, a credit union is a designated credit union if:

(a) it was in existence on 1 July 1993; and

(b) assuming that its accounts for the last accounting period that ended before 1 July 1993 had been prepared in accordance with generally accepted accounting principles - the amount that would have been shown in those accounts as the gross value of its assets as at the end of that accounting period is more than $30 million.

Notional taxable income

(5) For the purposes of this section, the notional taxable income of a credit union of a year of income is the sum of the following amounts (worked out on the assumption that subsections 23G(2A) and 117(3) had not been enacted):

(a) the credit union’s taxable income of the year of income;

(b) so much of the total income derived during the year of income by the credit union as is exempt from income tax because of subsection 23G(2).

Definitions

(6) In this section:

accounts , in relation to a credit union, means accounts prepared for the purposes of reporting annually to the shareholders in the credit union.

accounting period , in relation to a credit union, means a period at the end of which the balance of its accounts is struck.

credit union has the same meaning as in section 23G, but does not include:

(a) a life assurance company within the meaning of Division 8 of Part III; or

(b) a registered organization within the meaning of Division 8A of Part III.

31 Exemption of interest received by credit unions

Section 23G of the Principal Act is amended by inserting after subsection (2) the following subsection:

(2A) Subsection (2) does not apply to a credit union in relation to a year of income if:

(a) the credit union is a recognised medium credit union in relation to the year of income; or

(b) the credit union is a recognised large credit union in relation to the year of income.

32 Co-operative companies

Section 117 of the Principal Act is amended by inserting after subsection (2) the following subsection:

(3) Subsection (2) does not apply to a credit union in relation to a year of income if:

(a) the credit union is a recognised medium credit union in relation to the year of income; or

(b) the credit union is a recognised large credit union in relation to the year of income.

33 Sums received to be taxed

Section 119 of the Principal Act is amended by adding at the end the following subsections:

(2) For the purposes of subsection (1), if a credit union (within the meaning of section 23G) receives a payment of, or in the nature of, interest, the payment is taken to be for the rendering of services.

(3) Subsection (2) does not limit the generality of subsection (1).

34 Application of amendment

The amendment made by section 33 applies to assessments in respect of income of the 1994-95 year of income and of all later years of income.

Part 4 Amendment of the Income Tax Rates Act 1986

Division 1 Principal Act

35 Principal Act

In this Part, Principal Act means the Income Tax Rates Act 1986.

Division 2 Credit unions

36 Object of Division

The object of this Division is to provide special rates of tax for certain credit unions.

37 Rates of tax payable by companies

(1) Section 23 of the Principal Act is amended by adding at the end the following subsection:

(6) The amount of tax payable by a company that is a recognised medium credit union in relation to a year of income must not exceed 49.5% of the amount by which the taxable income exceeds $50,000 less any rebate or credit to which the company is entitled.

(2) The amendment made by subsection (1) applies to assessments in respect of income of the 1994-95 year of income and of all later years of income.

(3) In the application of subsection 23(6) of the Principal Act as amended by this Act for the 1994-95 year of income the reference in the subsection to 49.5% is to be read as a reference to 30%.

(4) In the application of subsection 23(2) of the Principal Act as amended by this Act to a recognised large credit union for the 1994-95 year of income the reference in the subsection to 33% is to be read as a reference to 20%.

Part 5 Amendment of the Medicare Levy Act 1986

38 Object of Part

The object of this Part is to adjust the medicare levy low income thresholds.

39 Principal Act

In this Part, Principal Act means the Medicare Levy Act 1986.

40 Levy in cases of small incomes

Section 7 of the Principal Act is amended:

(a) by omitting “$11,887” and substituting “$12,688”;

(b) by omitting from subsection (2) “$12,680” and substituting “$13,643”.

41 Amount of levy - person who has spouse or dependants

Section 8 of the Principal Act is amended by omitting from subsections (5) and (6) “$20,070” and substituting “$21,366”.

42 Application of amendments

The amendments made by this Part do not apply for a financial year earlier than the financial year beginning on 1 July 1993.