House of Representatives

Explanatory Memorandum

(Circulated by authority of the Acting Treasurer, the Hon Chris Hurford MP)

GENERAL OUTLINE

The Loan (Income Equalization Deposits) Amendment Bill 1984 amends the Loan (Income Equalization Deposits) Act 1976.

The broad purpose of the Bill is the same as that of the Principal Act; that is, to provide primary producers with an incentive to set aside income in high income years for use in lower income years. The particular purpose of the Bill is to change the basis of that incentive from an income tax deferral (with interest paid on the tax deferral as well as the investment component) to a concessionary interest rate applying to eligible deposits.

That interest rate (identified as the Class A rate) will be two percentage points above the short term bond rate, adjusted each calendar quarter.

Ineligible deposits will receive interest at a rate three percentage points below the short term bond rate (identified as the Class B rate).

As far as possible, the eligibility criteria and provisions relating to withdrawal and making of deposits have remained the same as those applying under the Principal Act. However, one important aspect in which eligibility will be determined differently under the new legislation is that depositors will be required to provide self-estimates, for the current income year, of the income amounts which form the eligibility criteria. This is necessary because the concessionary element, that is, the highest interest rate, will often be paid before the precise levels of those income amounts can be determined by the Commissioner of Taxation.

Interest will be initially paid on the basis of self-estimates. The Authorized Person under the Bill will recoup any overpayments of interest when the Commissioner's determination is known. Unwitting overestimation will not be penalised; in fact deposits made according to overestimates will be withdrawable immediately the Commissioner's determination is known. Overestimation with intent to defraud is an offence under the Bill.

Under the Bill, depositors who hold IEDs made before 1 September, 1983 (identified as Class C deposits) will be able to convert their deposits into the new scheme. If the conversion application is made within 60 days of commencement of the amending legislation, such conversions will have effect from 1 September, 1983 and interest will be paid on the deposits concerned at the Class A or Class B rate, whichever is applicable, as from that date. Such conversions will be deemed to be withdrawn Class C deposits and will be subject to income tax as if the withdrawal had taken place on 1 September, 1983. Conversions of Class C deposits into deposits at the Class A or B rate which occur after 60 days from commencement will have effect, for interest and taxation purposes, as at the date of receipt of the conversion application.

The administrator for the scheme is described as the Authorized Person who, from 1 January, 1985, will be the Secretary of the Department of Primary Industry. The Authorized Person will receive self-estimates of the relevant income measures from depositors. The Authorized Person will then forward to the Commissioner a list of depositors, requesting determinations of the relevant income amounts in respect of each depositor for the purposes of calculating revised interest entitlements. Depositors will be informed of the assessed income measures by way of a certificate from the Authorized Person.

The Bill provides for prosecution in cases where depositors do not notify the Authorized Person of the cessation of primary production business - that is, of eligibility for the concessionary interest rate.

The Bill contains provisions for appeals against certain administrative decisions to be made to the Administrative Appeals Tribunal.

The Bill contains a secrecy provision relating to information provided by depositors, or by the Commissioner of Taxation, to the Authorized Person.