House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister representing the Acting Treasurer, the Hon. W.C. Fife, M.P.)

Main features

The main features of the Income Tax Assessment Amendment Bill (No. 2) 1982 are as follows:

Disclosure of information to certain Royal Commissions (Clause 3)

The Bill will give effect to proposals announced on 14 April 1982 to amend section 16 of the Income Tax Assessment Act to permit the Commissioner of Taxation, without breach by him of the secrecy provisions of the income tax law, to disclose information to certain Royal Commissions. They are the Royal Commission appointed to inquire into certain activities of the Federated Ship Painters and Dockers Union, the Royal Commission appointed to inquire into drug trafficking and any other Royal Commission that is given terms of reference which permit it to obtain information from income tax records.

A Royal Commission will in turn be permitted to disclose information obtained from the Commissioner, but without identifying any individual or company, in its report to the Governor-General or in its public proceedings. As well, a Royal Commission may divulge taxation information, including the identity of any party, to the Attorney-General where it appears that a law of the Commonwealth may have been breached. The Attorney-General may, in turn, convey that information to the Australian Federal Police. Subject to these exceptions, any person to whom information about the taxation affairs of a person or company is communicated will be subject to strict secrecy constraints of the kind now applicable to taxation officers and other authorised recipients of taxation information.

Taxation information obtained by persons outside the Taxation Office by the operation of this Bill will not be permitted to be used in any prosecution proceedings.

Rebate of tax in respect of home loan interest (Clause 4 )

The Bill also gives effect to the proposals, announced on 18 March 1982 as part of the Government's housing assistance package, to allow an individual resident taxpayer a rebate of tax for home loan interest payments made on or after 1 July 1982 in respect of his or her sole or principal residence situated in Australia.

The rebate will be 32 cents for each dollar of interest paid, subject to an upper limit, but will not exceed the tax otherwise payable on an assessment. The rebate will apply in relation to interest paid during the first 5 years in which a taxpayer occupies as a sole or principal residence any residence in Australia which he or she owns or partly owns. The 5 year period will be measured from the date the person first occupied a sole or principal residence in Australia in which he or she had ownership rights of one kind or another. In the case of a married person or a person in a de facto marriage relationship, the 5 year owner-occupancy period will run from the earliest date on which either of the partners first became an owner-occupier of such a residence.

The basic upper limit of the rebate will be $500 per dwelling in the first year of owner-occupancy and will reduce by $100 per year for each of the succeeding 4 years. The limit will be increased by $200 in any year in which a dependent child or dependent student lives with the taxpayer in the dwelling for which the interest is paid.

The rebate will be available to home-owners who first occupied a sole or principal residence on or after 1 July 1977 or who occupy it not later than 30 June 1985. It will be allowable in respect of interest on a loan paid on or after 1 July 1982 if the taxpayer had an interest in the dwelling in that year and provided the interest on the loan accrued while the taxpayer was the occupier of the dwelling. In the year of income in which the fifth anniversary of the date of first occupation of a dwelling, which was the sole or principal residence of a person, occurs, interest paid will be rebatable only to the extent that -

(a)

where the first occupation date was before 1 July 1982 - the interest accrued before the end of the year of income in which the fifth anniversary occurred; or

(b)

where the first occupation date was on or after 1 July 1982 - the interest accrued before the date of the fifth anniversary.

A rebate is not to be allowable in respect of any interest which accrues or is paid after the year of income in which the fifth anniversary of first occupation of a sole or principal residence by either the taxpayer or his or her spouse (including a de facto marriage partner) occurs. Occupation of a residence without the requisite ownership of the dwelling will not be counted for these purposes.

Interest will qualify for the rebate (subject to the upper limits mentioned below) if it is paid on moneys lent to a taxpayer and applied by the taxpayer for certain specified purposes connected with a dwelling used by the taxpayer as his or her sole or principal residence. Those purposes include the acquisition of land on which a dwelling is subsequently constructed, the construction of a dwelling or the acquisition of land on which there is already a dwelling. Interest on moneys used to extend a dwelling by adding additional living space will also qualify but not where the moneys are used to build improvements such as swimming pools, garages or fences.

Where moneys are borrowed partly for the purposes of acquiring a dwelling and partly for other purposes, so much only of the interest as is attributable to that part of the moneys applied to acquire the dwelling will qualify for the rebate. Where a dwelling is used partly as a sole or principal residence and partly for other purposes the Commissioner will be empowered to allow a rebate in respect of the amount of interest which is reasonable in all the circumstances. This could occur, for example, where a person borrows moneys to purchase a building containing a flat above a shop and occupies the flat as his or her residence. In this case, the intention is that interest on money attributable to the flat would be rebatable.

As mentioned earlier, the rebate of tax calculated at 32 per cent of qualifying interest paid and otherwise allowable is to be subject to an upper limit. The amount of the limit in a year of income will depend on the date of first occupation by the particular taxpayer of his or her sole or principal residence and will be available in the year of income on the basis of the number of whole months in the year that the taxpayer owned and occupied the dwelling. A person will, for this purpose, be deemed to occupy a dwelling for the whole of a month if it is used as his or her sole or principal residence for 16 or more days in that month.

Where the first occupation date of a taxpayer is before 1 July 1982, the rebate will be limited as follows:

(a)

in the case of the year of income commencing on 1 July 1982 -

(i)

where the first occupation date is in the 1977-78 income year - $100;

(ii)

where the first occupation date is in the 1978-79 income year - $200;

(iii)

where the first occupation date is in the 1979-80 income year - $300;

(iv)

where the first occupation date is in the 1980-81 income year - $400; and

(v)

where the first occupation date is in the 1981-82 income year - $500; and

(b)

in the case of the 1983-84 year of income or a subsequent year of income - an amount which is $100 less than the amount which applied in the immediately preceding year.

Where the first occupation date of a taxpayer is on or after 1 July 1982, the rebate limit will, in the first income year in which that date falls, be a proportionate part of $500 calculated on the basis of the number of whole months in the year of income that the person occupied the dwelling. In the second income year the amount of the limit will continue to be dependent on the number of whole months in the year that the taxpayer occupied the dwelling and will be the balance of the amount of $500 not taken into account in the first year and that proportion of $400 applicable to the number of whole months in the second year of occupation. In subsequent years the limit will be calculated in a similar fashion, with the relevant upper limits decreasing by $100 in each year.

The annual rebate limit will be subject to a $200 increase where the dwelling is also a home of a dependent child or a dependent student of the owner/occupier. The additional amount will be reduced on a pro rata basis if the dwelling is a home of the dependant for only part of the year.

No rebate will be allowable after the year of income in which the fifth anniversary of the date of first occupation of a sole or principal residence by the taxpayer occurs.

The scheme will allow for a rebate limit to be calculated in respect of each occupier of a dwelling who has a relevant interest in it. Where more than one person qualifies in respect of a period of occupancy of a dwelling, those persons will be given the opportunity to decide the part each is to have of the limit applicable to him or her in respect of the common-occupation period. Notice of the agreement will need to be lodged with the Commissioner of Taxation on or before 31 August in the year of income following that to which the agreement relates or before such later date as may be appropriate. Where the persons do not make such an agreement, each will be entitled to a proportionate part of the rebate limit otherwise applicable to that person in respect of the common-occupation period, calculated having regard to the proportion that that person's rebatable interest bears to the total rebatable interest in the common-occupation period.

If, during the period of 5 years calculated from the time a taxpayer first occupies a sole or principal residence in which he or she had an interest, the taxpayer acquires another residence which he or she occupies as the sole or principal residence, the interest in relation to that residence will be eligible for rebate but the upper limit of the rebate will continue to be calculated from the date of occupation of the person's first sole or principal residence.

In a case where a taxpayer is entitled to a rebate, or would have been so entitled if he or she were liable to pay tax, the taxpayer will be able to elect to transfer the whole or a part of the rebate to his or her spouse.

Interest payments which are otherwise allowable as a deduction from assessable income under ordinary income tax rules will continue to be allowed as a deduction and will not attract the rebate.

More detailed explanations of each of the provisions of the Bill are contained in the notes that follow.