House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Primary Industries and Energy, the Honourable John Kerin MP).

NOTES ON CLAUSES

PART 1 - PRELIMINARY

Clause 1: Short title

13. This clause provides the short title of the Act.

Clause 2: Commencement

14. Deposits in the new scheme can be made on or after 1 July 1989.

PART 2 - AMENDMENT OF THE LOAN (INCOME EQUALIZATION DEPOSITS) ACT 1976.

Clause 3: Principal Act

15. This clause sets out that these amendments are being made to the Loan (Income Equalization Deposits) Act 1976.

Clause 4: Interpretation

16. The definitions relating to the previous scheme (which operated between 1983 and 30 June 1989) have been omitted from Section 3. That scheme set up a range of deposits which earned a variety of interest rates according to specified eligibility criteria. As these arrangements will be abandoned from 1 July 1989 these definitions are unnecessary for the new scheme. They will, however, be preserved by clause 29 of this Bill until all deposits in that scheme have been repaid.

17. The definition of a primary producer who is eligible to make deposits has been changed to exclude companies. The scheme is not available to companies as they are not affected by the interaction of fluctuating incomes and the marginal tax rate structure.

18. The assessable amount of deposits is defined as that part to be included in the depositor's assessable income for income tax purposes when the deposit, or any part of it, is withdrawn. It also establishes the investment component, which is that part of the deposit which will earn interest. The investment component will be a percentage of the deposit, calculated according to a rate which the Minister shall set by regulation.

Clause 5: Borrowings by accepting deposits

19. Section 4 establishes that the Minister will borrow money by accepting deposits in accordance with the provisions of this Act (sub-section (1)). One such requirement (sub-section 2A) is that the owner of a deposit be an eligible primary producer, as set out in section 3. Another requirement (sub-section (d)) is that the minimum amount of deposit shall be $5,000 and above that amount deposits can be made in multiples of $1,000.

Clause 6: Interest payable in respect of deposits

20. This section (Section 4A) is amended to establish that interest is paid only on the investment component of deposits (sub-section (2)). It also establishes that the interest payable on the investment component is the short-term bond rate (sub-section (3)), as defined in section 3.

21. As a result the previous sections 4A to 4D, which established the interest payable on deposits made in the scheme between 1983 and 1989, are repealed.

Clause 7: Manner of making deposits

22. This section establishes that deposits will not be accepted unless certain conditions are met. One such condition is that the depositor provide certain information in the application form for making deposits.

23. The depositor will also be required to pay a fee when he lodges a deposit. Charging a fee for using the scheme is consistent with covering the costs of providing this service. A fee of $20 per deposit is proposed to apply from 1 July 1989. A fee set at this level will cover the costs of handling deposits and withdrawals, including amortisation of the necessary computer facilities.

Clause 8: Repeal of section 12A

24. Section 12A dealt with conversion of stock and pre September 1983 deposits into specified classes of deposits in the scheme which operated from 1983 until 30 June 1989. This clause is now redundant and is therefore repealed.

Clause 9: Repeal of section 15

25. This section (section 15) defined recouped and unrecouped income tax deductions in respect of deposits made in the previous tax-linked scheme (pre- September 1983). For the purposes of the new provisions this definition has been replaced by the definition of an "assessable amount", as defined in the amended section 3. Section 15 is therefore repealed.

Clause 10: Repayment within 12 months where financial difficulties

26. The Act presently provides that deposits should be made for a minimum term of 12 months but deposits can be withdrawn within 12 months where the depositor is experiencing serious financial difficulty arising out of circumstances not in existence when the deposit was made and which could not have been foreseen then. This provision will continue in the new scheme.

27. Only minor changes are made to this section (section 16). These will remove reference to conversion deposits and deposits made after 31 January 1977 - such references are now redundant. It is also proposed to remove a requirement (sub-section (3)) that where a person had more than 1 deposit which included an assessable amount, if he withdraws one deposit under this section he should withdraw all previous deposits. This requirement is considered to be unduly harsh.

Clause 11: Repayment after 12 months

28. Section 17 provides for normal withdrawals of deposits after 12 months, and will continue largely unchanged. The only amendments are similar to the amendments to section 16 and remove reference to conversion deposits and the requirement that an assessable deposit can be withdrawn only if earlier deposits are withdrawn also.

Clause 12: Request under section 16 or 17 to include statement of assessable amount

29. Section 18 is proposed to establish that where a person withdraws a deposit under section 16 or 17 he shall provide with his request a statement of the assessable amount in relation to that withdrawal. It also provides that he can seek to have varied (downwards) the prescribed rate of deduction of tax which would otherwise apply (under subsection 20B(1)). The previous section 18 is repealed.

Repayment where no assessable amount

30. This clause establishes section 18A of the Act to provide that where a person seeks to withdraw a deposit, or part of a deposit, on the grounds that it has not attracted a tax deduction, he must provide a copy of his notice of assessment (of tax). The notice of assessment allows the administrator of the scheme to be certain whether the deposit indeed attracted any tax deduction.

31. The clause also provides for penalties where the depositor includes an assessable amount in a withdrawal under section 18A. The penalty is 20 per cent per annum on the tax that should have been withheld from the withdrawal for the period from repayment until tax is assessed on that year's income.

Repayment where owner not eligible primary producer

32. Sections 19 and 19A previously provided for the withdrawal of deposits where they resulted in total deposits exceeding the limit of $250,000 - or where a depositor ceased to be a primary producer and thus became ineligible to hold deposits.

33. Under the new scheme deposits might exceed the $250,000 limit through errors in estimating the tax deductible component of a deposit. But as the $250,000 limit applies to tax deductible deposits it is of little consequence if deposits exceed the limit and they will attract the prescribed interest on the investment component as defined. Consequently there is no reference to any $250,000 limit in the Loan (Income Equalization Deposits) Act.

34. As a result sections 19 and 19A can be simplified considerably. The previously existing sections are therefore repealed.

35. Section 19 now simply provides that where the scheme's administrator is satisfied that the depositor was not an eligible primary producer or has ceased to be an eligible primary producer he is to declare the deposit to be repayable.

36. There is a grace period of 120 days after a primary producer leaves the industry to take account of those moving from one business to another; this was provided in the original Act.

37. Section 19 would not apply where a primary producer was withdrawing deposits under sections 16 or 17.

Clause 13: Deposits repayable in case of death or bankruptcy

38. Section 20, providing for repayment in the case of death or bankruptcy, is amended to remove a redundant reference to companies and to correct cross-references in the amended legislation.

Clause 14: Advice of right to give assessable amount statement etc in section 19 or 20 cases

39. Section 20A provides that where a deposit is repayable under either section 19(1)(b) or 20 (that is, by virtue of the depositor ceasing primary production, death or bankruptcy) the administrator of the scheme shall advise the depositor that he can, within 14 days, provide a statement of the assessable amount of the repayment and also seek to have the prescribed rate of deduction of tax from the repayment reduced.

40. The administrator cannot repay the deposit until the depositor has had 14 days from the issuing of the statement to provide this information.

Authorised person to make deduction in respect of assessable amounts

41. Section 20B establishes the deduction of tax on withdrawal where deposits have attracted a tax deduction. The rate of deduction shall be that prescribed in regulations. The rate of deduction shall apply to the assessable amount of the withdrawal except in the case of withdrawals under sections 19 or 20 (ceasing to be an eligible primary producer, death or bankruptcy) where it will apply to the whole deposit unless a statement requesting otherwise has been received.

42. Subsection 20B(2) provides that deductions of tax be remitted to the Commissioner of Taxation.

Reduction in prescribed percentage of deduction under section 20B

43. Section 20C provides that the depositor can vary the rate of deduction of tax downwards where he expects his income for that year to be low enough to attract a lower rate. Where a depositor seeks such a variation he must inform the administrator of this expected taxable income for the year and the tax that this is likely to attract. The section also provides a right of appeal to the Administrative Appeals Tribunal if a downwards variation is not accepted.

Penalty tax payable if assessable amounts understated

44. Section 20D provides penalties to apply if a person understates his assessable income when seeking a downward deduction of tax. These penalties are similar to those where a depositor understates his assessable deposit on withdrawal. The penalty is 20 per cent per annum on the tax that should have been withheld from the withdrawal for the period from repayment of the deposit until the depositor's tax for that year is assessed.

Recovery of amounts by Commissioner

45. Section 20E will enable the Commissioner of Taxation to collect penalties applied under subsection 18A(4) or section 20D.

Remission of penalties

46. Section 20F allows the Commissioner for Taxation to remit penalties where he sees fit. The usual rights of objection and appeal against any decision not to remit penalties will be available (section 20F(3)).

Clause 15: Deposits repayable only in certain amounts

47. This section is amended to provide for minimum withdrawals under sections 16 and 17 of $5,000 and in multiples of $1,000 where the withdrawal exceeds $5,000. Where the remaining deposit is $5,000 or less a withdrawal should comprise the full amount.

Clause 16: Request under Section 16 to lapse in certain circumstances

48. The references to Sections 18 and 19 in this section are replaced by reference to 18A.

Clause 17: Provisions applicable where request under section 16 pending 12 months after making a deposit

49. Section 24 is amended to make depositors who cease to be primary producers eligible for the provisions available where death or bankruptcy occurs where a hardship provision withdrawal (Section 16) is pending.

Clause 18: Form of requests etc

50. This section (section 25) is amended to include statements.

Clause 19: Lodging of deposits etc

51. Section 26 is amended to include statements.

Clause 20: Offences

52. Section 27A is amended to remove from the penalty provisions of this Act those actions which would attract penalties under the Income Tax Assessment Act. These provisions concern where a depositor ceases to be an eligible primary producer. The section will also provide penalties where false information is given (under sections 18 or 20A) to vary the prescribed percentage of withholding tax.

Clause 21: Regulations

53. Reference to a liquidator (section 28(1)(a)) is removed as it is redundant.

PART 3 - TRANSITIONAL PROVISIONS RELATING TO AMENDMENTS MADE BY PART 2

54. This part of the Act establishes the transitional arrangements whereby deposits made in the pre 1983 tax-related scheme are transferred into the new scheme. It also provides for the eventual repayment of deposits made in the scheme which operated from 1 September 1983 until 30 June 1989.

Clause 22: Interpretation

55. The previous two schemes, and deposits in each, are defined; these definitions are self-explanatory.

Clause 23: First IED scheme deposits taken to be made under amended IED Act

56. This section will provide that the scheme established by these amendments will apply to all deposits made in the previous tax-linked scheme as if they had been made on or after 1 July 1989. As a consequence there is no need to specify that no fee is payable on lodging these deposits, no deposit limit of $5,000 applies to them and no $250,000 limit applies.

Clause 24: Meaning of "depositor" and "owner" etc of first IED scheme deposit unaffected by amendments

57. This clause assumes that the owners of deposits in the pre 1983 scheme remain the owners of those deposits in the new scheme. As a result, where deposits were made by companies prior to 1983, these deposits will continue and can be withdrawn under the new provisions.

Clause 25: First IED scheme deposits repayable under section 17 despite being deemed to be made on 1 July 1989

58. This section provides that pre-1983 deposits can be withdrawn at any time after 1 July 1989 and are not subject to any 12 month term.

Clause 26: First IED scheme deposits not required to be repaid if owner ceases to be eligible primary producer

59. The provisions of the new scheme shall not apply to pre-1983 deposits where a holder of deposits ceases primary production.

Clause 27: Certain provisions of former IED Act to replace those of amended IED Act.

60. Deposits made before 1983 are repayable in $100 amounts. As well, companies will be able to withdraw pre-1983 deposits on winding-up.

Clause 28: First IED scheme deposits that were repayable before 1 July 1989 continue to be repayable

61. Repayments of pre 1983 deposits that were being made will proceed, notwithstanding the amendments to the scheme.

Clause 29: Continued application of former IED Act in relation to second IED scheme deposits

62. Deposits made between 1 September 1983 and 1 July 1989 will not be affected by these amendments.

Clause 30: Second IED scheme deposits repayable on 30 June 1992

63. Deposits made between 1 September 1983 and 1 July 1989 will be repaid on 30 June 1992, if not already repaid.

PART 4 - AMENDMENT OF THE INCOME TAX ASSESSMENT ACT 1936

64. This Part contains the provisions necessary to restore the tax-effects of the IED scheme whereby deposits, subject to certain limitations, will be tax deductible in the income year of deposit and assessable in the year of withdrawal. The tax-effects of deduction on deposit and inclusion in assessable income on withdrawal will arise in respect of an action taken in a year of income. The "relevant period" concept used in the previous tax-linked IED scheme of a twelve month period ending two months after the end of a year of income will not apply. The main taxation features of the new scheme were summarised in paragraph 7.

PART 4 - AMENDMENT OF THE INCOME TAX ASSESSMENT ACT 1936

Clause 31: Principal Act

65. This clause facilitates reference to the Income Tax Assessment Act 1936, in this Part referred to as "the Principal Act".

Clause 32: Beneficiaries who are owners of income equalization deposits

66. Section 98 of the Principal Act makes the trustee of a trustee estate liable to tax in respect of the share of the net income of the trust estate to which a beneficiary who is under a legal disability has a presently existing entitlement.

67. Under the Loan (Income Equalization Deposits) Act 1976, as amended by this Bill, the trustee of a deceased estate may make a deposit on behalf of a beneficiary who is presently entitled to income of the trust estate. In this case, the beneficiary is for the purposes of Division 16C of Part III of the Principal Act the "owner" of the deposit and also an "eligible primary producer" where the trustee of the trust estate carries on a business of primary production.

68. New subsection 97A(1) proposes that where a beneficiary who is under a legal disability -

(a)

is presently entitled to a share of the income of a trust estate during a year of income; and

(b)

is the owner of the deposit and, at the time when the deposit was made, was an eligible primary producer,

the beneficiary is to be assessed under Division 6 of Part III of the Principal Act as if no disability existed.

69. It follows that in respect of the relevant year of income the beneficiary is to be assessed in respect of his or her share under the provisions of section 97 of the Principal Act, with a deduction being allowed for the income equalization deposit in the assessment. The trustee is not liable to be assessed under section 98 in respect of the beneficiary's share of the trust estate.

70. New subsection 97A(1A) will provide a similar facility to a beneficiary deemed to be presently entitled to income of a trust estate by subsection 95A(2) of the Principal Act. Subsection 95A(2) deems a beneficiary to be presently entitled to income of a trust estate for the purposes of the Principal Act where the beneficiary has a vested and indefeasible interest in any income of the trust estate.

71. A beneficiary to whom proposed subsection 97A(1A) applies, will by the operation of subsections 97(2) and 98(2) be assessed under section 97 on the trust income of which he or she is deemed to be presently entitled, and thus obtain a deduction for any income equalization deposit. Subsection 97A(2) provides that the necessary definitions for the section to operate have the same meanings as in Division 16C of Part III of the Principal Act.

Clause 33: Interpretation

72. Section 159GA in Division 16C of Part III of the Principal Act contains the definitions required for the previous tax-linked IED scheme which operated for deposits made before 1 September 1983. The new IED scheme to commence from 1 July 1989 enables the omission of some definitions and requires further definitions for its operation.

73. Paragraph 33(a) of the Bill proposes to omit subsection 159GA(1) of the Principal Act and thereby remove the definitions no longer required for the new scheme. Paragraph 33(a) also proposes to insert a new subsection 159GA(1) containing the following definitions explained hereunder. For ease of reference in the Principal Act, the Loan (Income Equalization Deposits) Act 1976, amended by Part 2 of this Bill, is defined as the 'Deposits Act'. Also, the definitions of 'owner' and 'eligible primary producer' are given the same meaning as in the Deposits Act.

'assessable primary production income' is a term used in the definitions of "primary production deductions" and "taxable primary production income" (discussed later) and means so much of a taxpayer's assessable income in a year of income derived from carrying on in Australia a business of primary production. The term "primary production" is defined in subsection 6(1) of the Principal Act to mean production resulting directly from -

(a)

the cultivation of land;

(b)

the maintenance of animals or poultry for sale or for their bodily produce including natural increase;

(c)

fishing and forest operations; and

(d)

the manufacture of dairy produce by those who produced the raw material.

'current IED scheme deposit' refers to a deposit made after 30 June 1989 under the Deposits Act, but does not include any deposit to the previous tax-linked scheme - that is a "first IED scheme converted deposit" as defined hereunder.

'deposit' is the term used to describe a deposit made to the new scheme (i.e., after 30 June 1989) in pursuance of the Deposits Act, and also includes deposits to the previous tax-linked scheme (a "first IED scheme converted deposit").

'first IED scheme deposit' is defined by reference to Part 3 of the Bill, and means an income equalization deposit made before 1 September 1983, other than a deposit converted under section 12A of the Deposits Act, as in force at that time, or that became repayable before 1 July 1989 .

'first IED scheme coverted deposit' describes a deposit to the previous tax-linked scheme that, by virtue of clause 23 of this Bill, is to be taken as received into the new scheme on 1 July 1989.

'primary production deductions' is a term used in the definition of "taxable primary production income" and defines the deductions allowable against the "assessable primary production income" for the purposes of obtaining the "taxable primary production income". The tax deductible deposits of a taxpayer for a year of income are limited in one instance to the taxable primary production income of the taxpayer for the year of the deposit. The deductions are those exclusively related to the production of the taxpayer's assessable primary production income (paragraph (a)) and a relevant proportion of other deductions, other than apportionable deductions as defined in subsection 6(1) of the Principal Act, that may appropriately be related to that income (paragraph (b)).

'taxable primary production income' of a taxpayer for a year of income is a term used in proposed new subsection 159GC(3) and means the sum of the following -

•

the amount (if any) remaining after deducting from the taxpayer's assessable primary production income for the income year any relevant primary production deductions for that income year (paragraph (a));

•

if the taxpayer is a partner in a partnership so much as the Commissioner of Taxation considers reasonable of any amount that would result under paragraph (a) if the partnership were a taxpayer (paragraph (b)); and

•

if the taxpayer is a beneficiary presently entitled to a share in the net income of a trust estate, so much as the Commissioner considers reasonable of any amounts that would result under paragraphs (a) and (b) if the trust estate were a taxpayer (paragraph (c)).

'unrecouped deduction' is a term used in subsections 159GC and 159GD of the Principal Act and, in accordance with subsection 159GA(3), is the amount of a deposit that may be included in the assessable income of a depositor when a deposit becomes repayable.

74. Paragraph 33(b) of the Bill proposes to omit subsection 159GA(2) of the Principal Act and paragraph (c) proposes to omit subsections 159GA(4) and (5) and substitute a new subsection (4). The new subsection 159GA(4) will ensure that unrecouped deductions in respect of deposits in the previous tax-linked scheme continue to exist when the relevant deposit is absorbed into the new scheme (refer clause 23 of the Bill).

Clause 34: Repeal of sections 159GB and 159GC deductions in respect of income equalization deposits

75. Clause 34 of the Bill proposes to repeal sections 159GB and 159GC of the Principal Act.

76. The previous operation of subsections 159GB(1) and (2) of the Principal Act will now be achieved by the definitions of "owner" and "eligible primary producer" in subsection 159GA(1). A beneficiary entitled to a share of income of a primary production business carried on by the trustee of a trust estate, may be entitled to deductions for deposits made by the beneficiary on his or her own account or where they are made by the trustee on behalf of the beneficiary. The restriction previously imposed by subsection 159GB(3) on certain beneficiaries has been removed.

77. Section 159GC of the Principal Act allowed, subject to certain eligibility criteria, income tax deductions for deposits made before 1 September 1983. Clause 34 of the Bill proposes to substitute a new section 159GC containing the deduction criteria proposed for deposits under the new tax- linked IED scheme made on or after 1 July 1989.

78. Proposed subsection 159GC(1) provides that, subject to certain exclusions, a deduction is allowable from the assessable income of a taxpayer in an income year for a deposit made under the Deposits Act in that income year, being a deposit made on or after 1 July 1989 other than a "first IED scheme converted deposit" as defined in subsection 159GA(1). At the time of deposit the taxpayer must be the owner of the deposit, that is he or she made the deposit, or in the case of a deposit made by a trustee on behalf of a beneficiary, he or she is the beneficiary. In addition, the taxpayer must also be an eligible primary producer, as defined in subsection 159GA(1).

79. Subsection (2) further provides that a deduction is not allowable under subsection (1) if, during the year of income when the deposit was made, the deposit subsequently becomes repayable due to -

•

a declaration under section 16 of the Deposits Act in the event of the taxpayer requesting the repayment of the deposit as he or she is experiencing serious financial difficulties (paragraph (a));

•

a declaration under proposed new section 19 of that Act (see clause 12 of this Bill) in consequence of the taxpayer ceasing to be an eligible primary producer (paragraph (b)); or

•

a declaration under section 20 of that Act in consequence of the taxpayer having died or become bankrupt (paragraph (c)).

80. Subsection (3) proposes to restrict the amount that would otherwise be allowable to a taxpayer as a deduction for a year of income under subsection (1). The subsection will ensure that deductions allowable in a year of income cannot exceed the lesser of :

(a)

the taxable primary production income of the taxpayer, as defined in proposed subsection 159GA(1) for the year of income (paragraph (a)); and

(b)

the amount calculated using the formula, $250,000 less the total unrecouped deductions (paragraph (b)).

81. The term "total unrecouped deductions" used in paragraph (b) is the total amount of unrecouped deductions (defined in subsection 159GA(3)) made by the taxpayer and existing at the end of the relevant year of income in respect of :

(i)

deposits made by the taxpayer before the relevant year of income under the new tax-linked scheme (subparagraph (b)(i)); and

(ii)

deposits made by the taxpayer under the previous tax-linked scheme (subparagraph (b)(ii)).

82. As a consequence, unrecouped deductions in respect of deposits that are withdrawn during the year of income, and therefore included in the assessable income of the taxpayer, are not part of the calculation.

83. The application of the subsection is illustrated in the following example. In the current year of income a taxpayer's taxable primary production income is $30,000 and unrecouped deductions existing in respect of earlier year deposits still in the scheme amount to $230,000. The application of proposed subsection (3) would restrict the tax deduction under the scheme in the year of income to $20,000.

84. Subsection (4), applies where amounts otherwise deductible in respect of 2 or more deposits cannot be allowed in full because of the application of subsection (3). It provides for deposits to be regarded as deductible, up to the specified limits, in the order in which they were made. If, in the above example two separate deposits of $12,000 were made, then the first deposit and $8,000 of the second deposit would be allowable deductions.

Clause 35: Unrecouped deduction included in assessable income on deposit becoming repayable

85. Clause 35 will amend section 159GD of the Principal Act which enables the assessable amount of a deposit to be ascertained when that deposit subsequently becomes repayable.

86. Briefly, the section provides that, when a deposit becomes repayable in a year of income the assessable income of the taxpayer is to include an amount equal to the unrecouped deductions in respect of the deposit. An unrecouped deduction in respect of a deposit, in accordance with subsection 159GA(3), is the amount that may be included in the assessable income of a deposit when a deposit becomes repayable. Where part only of a deposit becomes repayable and an unrecouped deduction existed in respect of the deposit, the excess, if any, of the deposit over the unrecouped deduction will be regarded as being the first component to become repayable.

87. For example, consider a situation where a taxpayer withdraws $6,000 from an earlier $8,000 deposit of which $6,500 was an allowable deduction under section 159GC of the Principal Act and therefore an unrecouped deduction in the terms of subsection 159GA(3). Section 159GD would provide that the $6,000 withdrawal includes $1,500 which is not assessable and an assessable amount of $4,500. Following the $6,000 withdrawal, the remaining $2,000 represents an unrecouped deduction and would be assessable on withdrawal from the scheme.

88. The amendments proposed to section 159GD of the Principal Act by this clause widen the existing framework of the section to encompass features of the new tax-linked IED scheme.

89. Paragraph 35(a) provides for section 159GD as amended to cover repayments cf deposits under both the previous and the new scheme. Paragraph 35(b) incorporates the term 'Deposits Act' as defined in new subsection 159GA(1).

90. Paragraph 35(c) extends the application of section 159GD to deposits repayable under new section 18A of the Deposits Act (refer clause 12). Section 18A of the Deposits Act proposes that, subject to certain criteria being satisfied, the component of a deposit that will not be part of the owner's assessable income on withdrawal, being the whole or part of the deposit, may be withdrawn at any time. The amendment to subsection 159GD(1) will ensure that where in fact there is an unrecouped deduction in respect of such a withdrawal, the relevant amount is included in the assessable income of the depositor in the income year in which the request for the withdrawal was made.

91. Paragraphs 35(d) and (f) provide for consistent terminology in both the Principal Act and the Deposits Act.

92. Paragraph 35(e) will omit existing subsections 159GD(2) and (2A) and insert new subsections 159GD(1A) and 159GD(2) in the Principal Act. New Subsection 159GD(1A) is similar in its application to existing subsection 159GD(2) which applies on the death or bankruptcy of the depositor. The subsection will provide for any unrecouped deductions to be included in assessable income in situations where a current IED scheme deposit (as defined in subsection 159GA(1)) becomes repayable in consequence of new section 19 of the Deposits Act (see clause 12) because the owner ceased to be an eligible primary producer. The relevant amount will be included in the assessable income of the year of income when cessation occurred.

93. New subsection 159GD(2) is to apply in the same manner as the replaced subsection 159GD(2) but will extend to the repayment of deposits under both the proposed and previous tax-linked schemes. The subsection retains the existing reference to companies for the purposes of first IED scheme converted deposits (see also clause 27). Subsection 159GD(2A) related to the previous scheme and is now redundant.

Clause 36: Credit for amounts withheld under section 20B of Deposits Act

94. Proposed new section 20B of the Deposits Act (see clause 14) provides that a deduction of tax will be made when a deposit, which includes an unrecouped deduction, is withdrawn from the scheme.

95. New section 159GDA which is inserted by this clause provides that, where an amount has been deducted under section 20B of the Deposits Act from a deposit that has become repayable (paragraph (a)) and an amount is included in the owner's assessable income as a consequence of the repayment of the deposit in the year of income (paragraph (b)), the Commissioner shall credit the amount in payment successively of:

•

any tax payable in respect of the year of income (paragraph (c)); and

•

any other liability arising under any Act of which the Commissioner of Taxation has the general administration (subparagraph d(i)); or

•

any penalty arising from situations where the owner understates the assessable amount in a withdrawal for the purposes of withholding tax (subparagraph d(ii)).

Any excess credit remaining will be refunded.

Clause 37: Application

96. Subclause 37(1) provides that proposed new section 97A (see notes on clause 32) will only apply to deposits made on or after 1 July 1989. Subclause 37(2) further provides that, in respect of deposits made before 1 July 1989, the other provisions of Part 4 of this Bill will not apply to:

•

the allowability of deductions (paragraph (a)); or

•

the assessability of income where such a deposit becomes repayable before 1 July 1989 (paragraph (b)).