House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon. John Howard, M.P.)

Introductory note

The purpose of this memorandum is to explain the provisions of the above Bills. The three main features of the Bills, which will give effect to ministerial statements of 24 May 1979, 3 June 1979 and 14 June 1979, respectively, are:

Non-carry-forward of certain tax avoidance losses (Clauses 3 to 5 of first Bill)

Deductions for any carry-forward losses of a previous year that are generated by participation in certain tax avoidance schemes entered into prior to the relevant generally-applicable operative date of remedial legislation are to be denied. Stated shortly, the losses concerned are those generated by "Curran"-type schemes, trading stock schemes, pre-payment schemes and expenditure recoupment schemes.

Losses generated under such schemes entered into in the 1977-78 or a prior year of income will not be available to reduce income derived in the 1978-79 income year or any subsequent income year. Where scheme losses of this kind have been generated in the 1978-79 income year, those losses will not be deductible against income of the 1979-80 or subsequent years.

Investment allowance (Clause 6 of first Bill)

The arrangements for the transition from the 40 per cent to the 20 per cent phase of the investment allowance are being varied to allow part of the cost of plant to attract the 40 per cent rate of allowance where the plant was not completed and in use by 30 June 1979.

The amendment will not affect entitlement to the 40 per cent rate of allowance in respect of plant completed and first used by 30 June 1979, but will apply to plant that would not under existing rules qualify for the 40 per cent rate of allowance only because of it not being first used or installed ready for use by 30 June 1979. It will ensure that expenditure incurred by 3 June 1979 on plant installed or partly installed on that date will qualify for the 40 per cent deduction, the balance of the expenditure attracting a 20 per cent deduction.

Income Equalization Deposits (Clause 8 of first Bill and second Bill

The present restrictions limiting to 40 per cent of the gross receipts derived from primary production in a year of income, and to an overall total of $100,000, the maximum amounts in respect of Income Equalization Deposits that may be claimed as income tax deductions are to be increased to 60 per cent and $250,000, respectively, with effect for the 1978-79 income year and subsequent years.

The following notes explain each of the clauses of the Bills.