House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

General outline and financial impact

Supplies in return for rights to develop land

Part 1 of Schedule 1 to this bill amends the GST Act to:

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treat a supply, by an Australian government agency, of a right to develop land as not being consideration for another supply (commonly referred to as an in kind developer contribution) where the other supply complies with requirements imposed by or under an Australian law; and

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treat the supply, by an Australian government agency, of a right to develop land as a supply that is not made for consideration to the extent it is made in return for another supply (of an in kind developer contribution) that complies with requirements imposed by or under an Australian law.

Date of effect: The amendments apply, and are taken to have applied, in relation to net amounts for tax periods starting on or after 1 July 2000.

Proposal announced: Not previously announced.

Financial impact: Negligible.

Compliance cost impact: Reduction in compliance costs.

Special transitional credits for rental cars

Part 2 of Schedule 1 to this bill amends the GST Transition Act to provide a special one-off credit to businesses that held rental cars on 1 July 2000.

Date of effect: Royal Assent.

Proposal announced: Not previously announced.

Financial impact: $36 million over 2 years. This estimate takes into account the fact that the credit will be subject to income tax.

Compliance cost impact: Minimal.

Summary of regulation impact statement

Regulation impact on business

Impact: The amendment is expected to marginally increase compliance costs for those rental car businesses that choose to claim the special credit. However as a one-off transitional credit the impact is limited.

Main points:

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Rental car businesses will be required to determine the sale price on the disposal of rental cars that were held at the start of 1 July 2000.

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Lessees will be required to obtain this information from their lessors. There was consultation with both large and small rental car businesses in determining the calculation method for this special credit.

Income tax-related transactions

Part 3 of Schedule 1 to this bill amends the GST Act to ensure that the following transfers are not subject to GST. Transfers of:

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tax losses under Subdivision 170-A of the ITAA 1997;

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net capital losses under Subdivision 170-B of the ITAA 1997; or

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foreign tax credits under section 160AFE of the ITAA 1936,

that relate to the 2001-2002 income years and later income years.

Date of effect: The amendments apply, and are taken to have applied, in relation to net amounts for tax periods starting (or that started) on or after 1 December 2001.

Proposal announced: Not announced.

Financial impact: Negligible.

Compliance cost impact: Nil.

General insurance

Schedule 2 to this bill amends the ITAA 1936 affecting general insurance companies to ensure that:

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the provision for outstanding claims is worked out on a present value basis; and

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gross premium income is included in assessable income in the year it is received or receivable and net premium income that relates to risk exposure in subsequent years is appropriately deferred.

This Schedule also amends the ITAA 1936 to ensure that the provision for outstanding claims of self-insurers in respect of workers compensation liabilities is taxed consistently with the provision for outstanding claims of general insurance companies.

Date of effect: The amendments relating to the provision for outstanding claims apply to the general insurance activities of general insurance companies from the 1991-1992 income year, the reinsurance activities of general insurance companies from the 1995-1996 income year and to self insurers from the 1997-1998 income year. The amendments relating to the basis of apportioning premium income of general insurance companies apply from the 1999-2000 income year.

Proposal announced: The amendments relating to the provision for outstanding claims were announced in the former Assistant Treasurers Press Release No. 7 of 18 February 2000. The amendments relating to the basis of apportioning premium income have not previously been announced.

Financial impact: Nil. However, the amendments confirm a long standing view of the law and protect the revenue that otherwise would be at risk.

Compliance cost impact: Nil.

Intercorporate dividend rebate

Schedule 3 to this bill amends subsection 46F(3) of the ITAA 1936 to broaden the eligibility criteria for accessing the ICDR for unfranked dividends paid between members of the same wholly-owned group.

The proposed amendment broadens the current eligibility requirement, which is restricted to a whole of year requirement, to include a rule based on the company paying the dividend and the company receiving it being part of the same wholly-owned group at all times during the period of 12 months ending on the day on which the dividend was paid.

Date of effect: The amendment applies to dividends paid on or after 1 July 2000.

Proposal announced: Minister for Revenue and Assistant Treasurers Press Release No. C11/02 of 1 March 2002.

Financial impact: The proposed amendment produces a small unquantifiable cost.

Compliance cost impact: The proposed amendment is not expected to impose any significant compliance burden on companies affected by the measure.