House of Representatives

Explanatory Memorandum PART A

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

GENERAL OUTLINE

Taxation Laws Amendment (Company Distributions) Bill 1987

The Taxation Laws Amendment (Company Distributions) Bill 1987 will -

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amend the Income Tax Assessment Act 1936 -

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to introduce, from 1 July 1987, a full imputation system of company taxation using a qualifying dividends method under which, by a system of franking, dividends paid by Australian resident companies, to the extent that income tax paid or payable at the company level permits, will be relieved from personal income tax in the hands of resident individual shareholders (proposal announced on 10 December 1986);

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to remove, in respect of the 1986-87 and subsequent income years, the liability of non-resident companies to branch profits tax (proposal announced on 28 July 1986);

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to exclude all non-residents from liability to dividend withholding tax, or from tax by assessment where a non-resident carries on business in Australia at or through a permanent establishment in Australia, in respect of franked dividends paid on or after 1 July 1987 (proposal announced on 10 December 1986);

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to deny the sections 46 and 46A rebates in respect of all intercorporate dividends paid before 1 July 1987, and in respect of unfranked dividends paid after 30 June 1987, on certain shares issued after 1.00pm on 10 December 1986 or used under an arrangement entered into or extended after that time (proposal announced on 10 December 1986); and

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to extend the scope of provisions that deem liquidation distributions to be dividends to include distributions out of amounts (other than indexed capital gains) which are assessable income under any provision of the Income Tax Assessment Act, or out of realised capital gains on assets acquired after 19 September 1985 (proposal announced on 10 December 1986);

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amend the Crimes (Taxation Offences) Act 1980, the Taxation Administration Act 1953, and the Taxation (Interest on Overpayments) Act 1983 -

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to extend the operation of those Acts as appropriate in consequence of the introduction of the full imputation system;

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repeal the Income Tax (Non-Resident Companies) Act 1978 -

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to terminate the imposition of branch profits tax on non- resident companies in relation to the 1986-87 and subsequent income years.

Income Tax (Franking Deficit) Bill 1987

The Income Tax (Franking Deficit) Bill 1987 will impose on a company that has a deficit in its franking account at the end of a franking year, a liability to pay franking deficit tax. The amount of any franking deficit tax payable by a company will be able to be offset against company tax payable at the 49 per cent rate on income of the 1986-87 or later income years that is raised in an assessment (including an amended assessment) after the end of the franking year in which the deficit arose.

Income Tax Rates Amendment Bill 1987

The Income Tax Rates Amendment Bill 1987 will amend the Income Tax Rates Act 1986 -

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to declare the rates of tax payable for the 1987-88 and subsequent financial years by companies and registered organizations and by trustees of prescribed unit trusts, superannuation funds and ineligible approved deposit funds; and

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to declare the rate of tax payable for the 1986-87 and subsequent financial years by trustees in respect of trust income of non-resident company beneficiaries of trust estates.