House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon. Paul Keating, M.P.)

GENERAL OUTLINE

Trust Recoupment Tax Assessment Bill 1985

This Bill will:

•

provide that the trustee of a trust (the head trust where a chain of trusts is involved) the income of which was stripped under a new generation trust stripping scheme will, subject to election arrangements, be liable to trust recoupment tax on the amount of the stripped income (at the rate of 60%);

•

give a right of election to beneficiaries of the stripped trust to enable them to eliminate the liability of that trust to trust recoupment tax by electing to be assessed to personal income tax on amounts equal in aggregate to the stripped trust income;

•

provide that where an election is not made and the stripped trust has ceased to exist, its beneficial ownership has changed or it is unlikely to pay the tax imposed, those persons who have directly or indirectly benefited from the stripped income will be jointly and severally liable for trust recoupment tax;

•

provide rights of contribution and apportionment of liability - via the courts - to persons who are jointly and severally liable for trust recoupment tax;

•

require payment of additional penalty tax where a new generation trust stripping scheme is or has been entered into after 28 April 1983; and

•

render void arrangements entered into after 28 April 1983 which have the dominant purpose and the effect of directly or indirectly defeating, evading or avoiding any liability to tax arising under the legislation.

Trust Recoupment Tax Bill 1985

This Bill will:

•

formally impose the trust recoupment tax payable on taxable amounts ascertained under the Trust Recoupment Tax Assessment Bill 1985; and

•

declare that the rates of tax on such taxable amounts will be as follows:

(a)

on a primary taxable amount applicable to a trustee of a stripped trust - 60%;

(b)

on a secondary taxable amount applicable to an eligible beneficiaries class - 60%;

(c)

on an elected taxable amount applicable in certain cases to a company that is a party to an election - 75%; and

(d)

on a company taxable amount applicable in certain cases to a company that is, or a shareholder who is, a party to an election - 46%.

Trust Recoupment Tax (Consequential Amendments) Bill 1985

This Bill will:

•

amend the Administrative Decisions (Judicial Review) Act 1977 to exclude from review under that Act decisions relating to the assessment of trust recoupment tax (which will be reviewable instead under the objection and appeal provisions of the income tax law);

•

amend the Taxation (Interest on Overpayments) Act 1983 to provide for interest to be payable on amounts of trust recoupment tax refunded by the Commissioner as a result of a successful objection or appeal against a trust recoupment tax assessment; and

•

amend the Local Government (Personal Income Tax Sharing) Act 1976 and the States (Tax Sharing and Health Grants) Act 1981 to include collections of trust recoupment tax in the tax sharing base.