House of Representatives

Explanatory Memorandum

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

General outline and financial impact

Medical expenses tax offset

Schedule 1 to this bill amends the ITAA 1936 to broaden the list of eligible medical expenses under the medical expenses tax offset to include payments made in maintaining properly trained dogs for guiding or assisting people with a disability.

Date of effect: The amendment applies in relation to the 2002-2003 income year and later income years.

Proposal announced: The measure was announced in Treasurer's Press Release No. 44 of 13 May 2003.

Financial impact: The cost to revenue of this measure is unquantifiable, but expected to be insignificant.

Compliance cost impact: Taxpayers who become eligible to claim for maintaining a hearing or assistance dog will be required to keep evidence of their expenses. This is not expected to impose a significant compliance cost.

Deduction for transport between workplaces

Schedule 2 to this bill amends the income tax law to provide an income tax deduction for certain expenses incurred in travel between workplaces.

Date of effect: The amendments apply to assessments for the 2001-2002 income year and later years.

Proposal announced: The measure was announced in Treasurer's Press Release No. 78 of 8 October 2001.

Financial impact: Nil.

Compliance cost impact: Nil.

Small business capital gains tax relief and discretionary trusts

Schedule 3 to this bill amends the ITAA 1997 to improve the operation of the test that is used to determine when an entity controls a discretionary trust for the purpose of applying the small business CGT concessions.

The modified test will ensure that, subject to transitional arrangements, an entity will be taken to control a discretionary trust only if, for any of the four income years before the income year for which access to the small business CGT concessions is sought:

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the trustee paid to, or applied for the benefit of, the entity and/or its small business CGT affiliates any income or capital of the trust; and

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the amount paid or applied to the entity and/or its small business CGT affiliates is at least 40% of the total amount of income or capital paid or applied by the trustee for that income year (subject to the Commissioner's discretion where the amount paid or applied to the entity and/or its small business CGT affiliates is between 40% and 50%).

Distributions to exempt entities and deductible gift recipients (DGRs) will be ignored for the purposes of applying the new control test.

In addition, for an income year in which the discretionary trust has a tax loss and for which the trustee does not make any distribution of income or capital, the trustee may nominate up to four beneficiaries as being controllers of the trust.

Date of effect: The amendments apply to CGT events happening after 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999. Under a transitional rule, for CGT events that happen before 30 June 2004, taxpayers can choose to apply the existing control test for discretionary trusts.

Proposal announced: The measure was announced in Minister for Revenue and Assistant Treasurer's Press Release No. C097/03 of 16 October 2003.

Financial impact: The measure is expected to have minimal revenue impact.

Compliance cost impact: The measure will have minimal compliance costs.

Energy Grants (Credits) Scheme transitional arrangements

Schedule 4 to this bill amends the transitional arrangements of the Energy Grants (Credits) Scheme (EGCS), which deal with the treatment of claims for fuel purchased in the three years preceding the introduction of the scheme. The changes will rectify an anomaly that may have seen an unintended entitlement to concessional treatment created in certain circumstances under the EGCS that did not previously exist in the schemes that it replaces.

Date of effect: Items 1 to 7 of Schedule 4 commence retrospectively on 1 July 2003, the date the existing provisions took effect. Item 8, which deals with the recovery of payments made for claims lodged before these amendments occurred but made ineligible by these amendments, takes effect on the day that this bill receives Royal Assent.

Proposal announced: The measure has not been announced.

Financial impact: There is no financial impact if the measure is implemented. However, a negative impact of up to approximately $11 million is possible if it is not implemented.

Compliance cost impact: Nil.

Net input tax credits and capital gains tax

Schedule 5 to this bill amends the ITAA 1997 to ensure that GST net input tax credits are excluded from the cost base, reduced cost base and other relevant amounts used for the purposes of working out the amount of a capital gain or capital loss.

Date of effect: The amendments apply to CGT events that happen after the day this bill is introduced into the Parliament.

Proposal announced: The measure has not been announced.

Financial impact: There is likely to be a small positive impact on revenue, although the extent of the impact is unquantifiable.

Compliance cost impact: This measure is likely to have a minimal compliance cost impact.

Confidentiality of Australian Business Number information

Schedule 6 to this bill amends the A New Tax System (Australian Business Number) Act 1999 (ABN Act) to ensure that the law operates as intended.

The amendments put beyond doubt the scope of the purposes for which protected Australian Business Number (ABN) information is able to be disclosed to Commonwealth agency heads and States and Territories department heads. The disclosure extends the purposes of carrying out their agencies' functions. This will make it easier for businesses to conduct their dealings with the Commonwealth, State and Territory Governments.

Date of effect: The amendments apply to disclosures that occurred on or after 15 October 2001. The amendments will align the ABN Act with an amendment to the A New Tax System (Australian Business Number) Regulations 1999 (ABN Regulations) that was gazetted on that date.

Proposal announced: The measure has not been announced.

Financial impact: Nil.

Compliance cost impact: Nil.

Deduction for contributions relating to fund-raising events

Schedule 7 to this bill amends the income tax law to provide an income tax deduction for contributions of cash or property to a deductible gift recipient (DGR), where a minor benefit is received in return.

Date of effect: The amendments apply to contributions made on or after 1 July 2004.

Proposal announced: The measure was announced in Prime Minister's Press Release of 9 September 2003.

Financial impact: Nil.

Compliance cost impact: Nil.

Distributions to certain entities

Schedule 8 to this bill amends the ITAA 1936 to include a new Subdivision dealing with certain loans, payments and forgiven debts by a trustee to a shareholder (or their associate) of a private company.

The amendments are designed to ensure that a trustee cannot shelter trust income at the prevailing company tax rate by creating a present entitlement to a private company without paying it and then distributing the underlying cash to a shareholder of the company. The rules replace the former section 109UB of the ITAA 1936 that had a similar, but more limited, application.

Date of effect: The amendments generally apply to payments, loans and debts forgiven on or after 12 December 2002.

Proposal announced: The measure was announced in Treasurer's Press Release No. 81 of 12 December 2002. Further details of the measure were announced in Treasurer's Press Release No. 55 of 25 June 2003.

Financial impact: The financial impact of the measure is expected to be negligible.

Compliance cost impact: Nil.

Section 46FA - deductions for dividends on-paid to non-resident owner

Schedule 9 to this bill amends Part III of the ITAA 1936 to ensure that the section 46FA deduction, which allows certain resident companies a deduction for on-payments of certain unfranked or partly franked non-portfolio dividends to their wholly-owned foreign parents, continues to be available to taxpayers.

Date of effect: The amendment will generally apply to dividends paid after 30 June 2003, subject to the transitional rule allowing groups to consolidate either before 30 June 2003 or on the first day of the first income year after 30 June 2003 and before 1 July 2004.

Other amendments to ensure consistency with other provisions in the income tax law, including the simplified imputation system, will apply to dividends paid on or after 1 July 2002.

Proposal announced: The measure has not been announced.

Financial impact: Nil.

Compliance cost impact: Nil. The amendments merely ensure that the deduction continues to be available to taxpayers, subject to certain conditions being met.

Endorsement of charities to access relevant tax concessions

Schedule 10 to this bill requires charities, including public benevolent institutions and health promotion charities to be endorsed by the Commissioner in order to access all relevant taxation concessions.

Schedule 10 also requires any charity so endorsed to display their charitable status on the Australian Business Register (ABR).

These changes are part of the Government's response to the Report of the Inquiry into the Definition of Charities and Related Organisations. It will allow greater scrutiny of the use of taxation concessions by charities and improve public confidence in the provision of taxation support to the charitable sector.

Date of effect: 1 July 2004.

Proposal announced: The measure was announced in Treasurer's Press Release No. 49 of 29 August 2002.

Financial impact: This measure was announced as part of the Government's response to the Report of the Inquiry into the Definition of Charities and Related Organisations, which involves a cost to revenue of $2 million in 2004-2005 and $4 million in 2005-2006.

Compliance cost impact: The number of charities likely to seek endorsement is unknown. It is expected that additional compliance costs arising as a result of this measure will be low.

Specific gift recipients

Schedule 11 to this bill amends the ITAA 1997 to update the lists of specifically-listed deductible gift recipients (DGRs).

Date of effect:

Deductions for gifts to specifically-listed DGRs under Schedule 11:

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Dunn and Lewis Youth Development Foundation Limited from 10 November 2003 to 9 November 2005;

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Crime Stoppers South Australia Limited from 19 September 2003;

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Country Education Foundation of Australia Limited from 20 August 2003; and

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Bowral Vietnam Memorial Walk Trust Incorporated from 16 August 2003 to 16 August 2005.

Proposal announced: The new specifically-listed DGRs contained in Schedule 11 were announced in Minister for Revenue and Assistant Treasurer's press releases during 2002 and 2003.

Financial impact: The amendments in Schedule 11 have an unquantifiable, but insubstantial, cost to revenue.

Compliance cost impact: Nil.