House of Representatives

Explanatory Memorandum

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

General outline and financial impact

Consolidated groups

The key elements to the consolidation measure were introduced in the May Consolidation Act, the June Consolidation Act and the September Consolidation Act.

Schedules 1 to 24 to the New Business Tax System (Consolidation and Other Measures) (No. 2) Bill 2002 contain residual measures relating to discrete and specialist areas of the consolidation regime (e.g. life insurance companies) as well as various other consequential and technical amendments.

Date of effect: The consolidation measure will allow wholly-owned entity groups to choose to consolidate from 1 July 2002.

Proposal announced: The proposals were announced in Treasurer's Press Release No. 58 of 21 September 1999. The consolidation elements in this bill were foreshadowed in Minister for Revenue and Assistant Treasurer's Press Release No. C104/02 of 27 September 2002.

Financial impact: None.

Compliance cost impact: A number of the measures included in this bill are aimed at reducing compliance costs, particularly in relation to the cost setting rules. These changes will remove the need to re-calculate the tax values of all assets when a mistake is discovered and broaden access to an existing transitional concession.

Simplified imputation system

Schedule 27 to 30 to this bill will amend Part 3-6 of the ITAA 1997 to insert rules for the following aspects of the SIS:

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venture capital franking;

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cum dividend sales and securities lending arrangements; and

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machinery provisions, including those for franking returns, assessments and amendments.

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These rules complement the core SIS rules set out in the New Business Tax System (Imputation) Act 2002 , which apply from 1 July 2002.

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In addition, consequential amendments will be made to the ITAA 1936 to:

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section 177EA, the general anti-avoidance provision dealing with franking credit trading and dividend streaming; and

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certain dividend withholding tax provisions dealing with the interaction between the imputation and dividend withholding tax regimes.

Date of effect: These amendments apply to events arising on or after 1 July 2002, when the SIS rules commenced.

Proposal announced: These rules are part of the SIS, which was announced as part of the Government's business tax reform package. The proposal was announced in Treasurer's Press Release No. 58 of 21 September 1999 as a component of the unified entity regime. On 14 May 2002, the Minister for Revenue and Assistant Treasurer announced in Press Release No. C57/02, the Government's program for delivering the next stage of business tax reform measures. In that press release, the Minister confirmed that the simplified imputation system will commence on 1 July 2002.

Financial impact: None.

Compliance cost impact: The SIS is designed to reduce compliance costs incurred by business by providing for simpler processes and increased flexibility.