House of Representatives

Explanatory Memorandum

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

General outline and financial impact

Simplified imputation system

Schedule 1 to this Bill amends the simplified imputation system to ensure that, in certain situations, private companies that pay franked distributions will not have their franking deficit tax offset reduced in respect of the income year in which they first incur an income tax liability.

Date of effect: These amendments apply in relation to the income year in which this Bill receives Royal Assent and to later income years.

Proposal announced: This measure was announced in the 2004-05 Budget and in the Treasurer's Press Release No. 36 of 11 May 2004.

Financial impact: Nil.

Compliance cost impact: These amendments will provide taxpayers with additional flexibility and are not expected to impact on compliance costs.

CGT roll-over for superannuation entities that merge under new superannuation safety arrangements

Schedule 2 to this Bill amends the Income Tax Assessment Act 1997 to provide an automatic capital gains tax (CGT) roll-over for the transfer of assets of registrable superannuation entities that merge during the transitional period to comply with licensing requirements under superannuation safety reforms.

The CGT roll-over ensures that the capital gain or capital loss that would otherwise be recognised when the transfer of assets occurs is disregarded and that the recognition of the accrued capital gain or loss is deferred until later disposal of the assets by one or more successor registrable superannuation entity trustees.

Date of effect: The roll-over applies to CGT events that happen to CGT assets from 1 July 2004 to 30 June 2006 (inclusive).

Proposal announced: The proposal was announced in the 2004-05 Budget and in the former Minister for Revenue and Assistant Treasurer's Press Release No. C029/04 of 11 May 2004.

Financial impact: Nil.

Compliance cost impact: This measure is expected to have a minimal impact on compliance costs.

Providing capital allowance deductions for certain telecommunications rights

Schedule 3 to this Bill amends the Income Tax Assessment Act 1997 to provide appropriate taxation treatment of expenditure incurred on acquiring certain telecommunications rights.

Date of effect: These amendments apply to eligible expenditure incurred on or after 12 May 2004.

Proposal announced: This proposal was announced in the 2004-05 Budget and in the former Minister for Revenue and Assistant Treasurer's Press Release No. C039/04 of 11 May 2004.

Financial impact: These amendments are estimated to pose a cost to revenue of:

Compliance cost impact: This measure is expected to have a minimal impact on compliance costs.

Changing from annual to quarterly payment of PAYG instalments

Schedule 4 to this Bill amends the Taxation Administration Act 1953 to simplify the movement of taxpayers from paying annual pay as you go (PAYG) instalments to paying quarterly PAYG instalments where they become ineligible to pay annual instalments in certain cases. The amendments apply in cases where ineligibility is the result of registering or becoming required to register under the goods and services tax law or becoming a member of an instalment group. Taxpayers who become ineligible to pay annual instalments during an income year in these circumstances will commence paying quarterly instalments from the first instalment quarter of the following income year for which they are required to pay an instalment under the quarterly payment rules.

Date of effect: These amendments apply for the income year following the income year in which this Bill receives Royal Assent and subsequent years.

Proposal announced: This measure was announced in the 2004-05 Budget.

Financial impact: Nil.

Compliance cost impact: These amendments reduce the compliance costs of taxpayers who become ineligible to pay annual PAYG instalments by removing the requirement for those taxpayers to pay both annual PAYG instalments and quarterly PAYG instalments for the same income year.

Deductible gift recipients

Schedule 5 to this Bill amends the Income Tax Assessment Act 1997 to update the lists of deductible gift recipients (DGRs).

Date of effect: Deductions for gifts to the following organisations, listed as DGRs under Schedule 5, apply from 8 November 2004 to 7 November 2006:

•

Freedom Across Australia.

•

Rotary Leadership Victoria Australian Embassy for Timor-Leste Fund Limited.

•

National Police Memorial.

Deductions for gifts to the following organisations listed as DGRs under Schedule 5, apply as follows:

•

Page Research Centre Limited from 13 January 2005.

•

Russian Welfare Aid to Russia Fund from 23 December 2004 to 22 December 2006.

Proposal announced: The deductibility of gifts to the Rotary Leadership Victoria Australian Embassy for Timor-Leste Fund Limited was announced in the Minister for Revenue and Assistant Treasurer's Press Release No. 15 of 23 November 2004.

Financial impact: The DGR listings have the following cost to revenue:

•

Rotary Leadership Victoria Australian Embassy for Timor-Leste Fund Limited: $100,000 per year.

•

National Police Memorial: $100,000 for the life of the project.

The cost to revenue of the remaining DGR listings is unquantifiable but is likely to be insignificant.

Compliance cost impact: Nil.

Goods and services tax and real property

Schedule 6 to this Bill amends the A New Tax System (Goods and Services Tax) Act 1999 to prevent entities from reducing or eliminating their goods and services tax (GST) liability on supplies of real property through unintended outcomes arising from the interaction of a number of special rules in the Act. It also clarifies the operation of the margin scheme and ensures entities joining a GST group have appropriate adjustments to input tax credits.

Date of effect: The amendment which requires written agreement to use the margin scheme will apply from the date this Bill receives Royal Assent. All other amendments will apply from the date this Bill is introduced into Parliament.

Proposal announced: This measure has not previously been announced.

Financial impact: These amendments are expected to result in an unquantifiable gain to GST revenue.

Compliance cost impact: These amendments are not expected to impact significantly on compliance costs.

Superannuation and family law

Schedule 7 to this Bill amends the Income Tax Assessment Act 1936 (ITAA 1936) to provide appropriate tax treatment for superannuation annuities that have been split upon marriage breakdown. The broad aim of these amendments is to ensure that where a superannuation annuity is split upon marriage breakdown then the taxation consequences will be the same as those that currently apply where an equivalent benefit in a superannuation fund is split.

Schedule 7 also amends the ITAA 1936 to correct minor anomalies in relation to how the taxation law applies when superannuation benefits are split on marriage breakdown.

Date of effect: Royal Assent.

Proposal announced: These measures have not previously been announced.

Financial impact: The cost to revenue over the forward estimates period is expected to be very small.

Compliance cost impact: Minimal.

Fringe benefits tax - worker entitlement funds

Schedule 8 to this Bill amends the Fringe Benefits Tax Assessment Act 1986 to remove the condition that contributions to approved worker entitlement funds must be required under an industrial instrument in order to be eligible for an exemption from fringe benefits tax (FBT).

Date of effect: These amendments will apply in respect of the FBT year beginning 1 April 2005 and in respect of all later FBT years.

Proposal announced: These amendments have not been announced. Consultation with industry on the current exemption provisions for contributions to worker entitlement funds was, however, foreshadowed by the former Minister for Revenue and Assistant Treasurer in Press Release No. C019/04 of 1 April 2004.

Financial impact: The financial impact is unquantifiable but expected to be insignificant.

Compliance cost impact: This measure is expected to have a minimal impact on compliance costs.