House of Representatives

Explanatory Memorandum

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

GENERAL OUTLINE

This Bill will amend -

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the Income Tax Assessment Act 1936 -

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to remove supervisory provisions relating to superannuation funds and approved deposit funds which have been relocated as requirements administered under the Occupational Superannuation Standards Act 1987;

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to tax certain private company dividends and excessive income from non-arm's length transactions derived by approved deposit funds (proposal announced on 12 January 1987);

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to allow income tax deductions for gifts to the Ninth Australian Division Memorial of Participation (Alamein) Fund and to the Korean and South East Asian and Vietnam War Memorials Anzac Square Trust Fund (proposals announced on 16 June 1987);

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to enable a "shelf" company acquired by a company group during the 1986-87 year of income or a subsequent year, to satisfy the common ownership test necessary to establish a group relationship between companies (proposal announced on 29 June 1987);

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to extend by six months the final date by which eligible plant must be used, or installed ready for use, to qualify for the investment allowance (proposal announced on 12 June 1987);

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to abolish, with effect from the commencement of the 1987-88 year of income, the "negative gearing" limitation on deductions for interest on borrowings used to acquire rental property investments (1987-88 Budget announcement);

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to reduce, from 4% to 2 1/2% the annual rate of deduction available for capital expenditure on the construction of new income-producing buildings, with effect from 16 September 1987 (1987-88 Budget announcement);

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to introduce a system of income averaging for abnormal income of Australian resident taxpayers who are artists, composers, inventors, performers, production associates, sportspersons and writers (proposal announced in the 1986-87 Budget).

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to make clear that the investment return on certain financial instruments described as annuities is taxable as it accrues (under Division 16E) rather than when it is received (proposal announced on 19 and 26 September 1986);

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to effect minor technical changes to Division 16E, (which provides for the assessment, on an accruals basis, of the return on 'qualifying securities', issued after 16 December 1984);

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to preclude the allowance of deductions under Division 16E, on an accruals basis, in respect of the discount or deferred interest component of "qualifying securities" issued in Australia to or on behalf of a non-resident associate of the issuer (proposal announced on 23 April 1987);

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to apply rules against "thin-capitalisation" limiting deductions for interest incurred by Australian companies or entities on borrowings from foreign non-arm's length sources to the extent that the borrowings exceed a debt/equity ratio of 6:1 for financial institutions or 3:1 for other investments (proposal announced on 30 April 1987);

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to provide for the repeal of a number of Acts the operation of which is no longer required;

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the Income Tax Rates Act 1986 -

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to impose tax at a special rate on excessive non-arm's length income derived by approved deposit funds;

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to bring income of artists, composers, inventors, performers, production associates, sportspersons and writers that is abnormal income for the purposes of Division 16A of the Income Tax Assessment Act 1936, within the averaging arrangements that apply for taxing capital gains;

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the Occupational Superannuation Standards Act 1987 -

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by remedying certain technical defects, to ensure that the Insurance and Superannuation Commission is effectively able to oversight compliance by superannuation and approved deposit funds with operating standards and other relevant conditions;

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the Taxation Administration Act 1953 -

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to permit the Insurance and Superannuation Commissioner to take prosecution action in appropriate cases against the trustees of a superannuation fund or an approved deposit fund;

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the Taxation Laws Amendment Act (No.3) 1987 -

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to make a consequential change to the method of calculating provisional tax for the 1987-88 income year to take into account the new income averaging arrangements for artists, composers, inventors, performers, production associates, sportspersons and writers.