House of Representatives

Explanatory Memorandum

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

Tax Laws Amendment (2006 Measures No. 2) Bill 2006

Glossary

The following abbreviations and acronyms are used throughout this explanatory memorandum.

General outline and financial impact

Tax exemption of F-111 deseal/reseal ex-gratia lump sum payments

Schedule 1 to this Bill amends the Income Tax Assessment Act 1997 to ensure that ex-gratia lump sum payments made to certain F-111 aircraft maintenance personnel by the Department of Veterans' Affairs are exempt from income tax.

Date of effect : The exemption applies to the 2005-06 income year and later income years.

Proposal announced : This measure was announced by the Minister for Defence and the Minister for Veterans' Affairs in a joint press release of 19 August 2005.

Financial impact : This measure has an estimated cost to revenue of $6 million in 2005-06.

Compliance cost impact : Negligible.

charitable institutions was announced in the Treasurer's Press Release No. 031 of 11 May 2004.

Financial impact : These amendments are expected to result in a small but insignificant gain to GST revenue.

Compliance cost impact : This measure is not expected to impact significantly on compliance costs.

Deductible gift recipients

Schedule 2 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 that are listed as DGRs under this Schedule, apply as follows:

•

Playgroup Victoria Inc. from 24 February 2006.

•

St Michael's Church Restoration Fund from 24 February 2006 until 23 February 2007.

Proposal announced : Not previously announced.

Financial impact : The estimated cost to revenue of listing Playgroup Victoria Inc. and St Michael's Church Restoration Fund is expected to be small.

Compliance cost impact : Nil.

Capital gains tax treatment of options

Schedule 3 to this Bill amends the Income Tax Assessment Act 1997 to correct unintended consequences from the rewrite of the capital gains tax (CGT) provisions completed as part of the Tax Law Improvement Project. This measure broadly reinstates the position in the Income Tax Assessment Act 1936 in relation to options exercised on or after 27 May 2005 (the date of announcement of these amendments).

Date of effect : These amendments apply to options exercised on or after 27 May 2005 (the date of announcement of the amendments).

Proposal announced : This measure was announced by the then former Minister for Revenue and Assistant Treasurer in Press Release No. 045 in 27 May 2005.

Financial impact : The financial implications of this measure are unquantifiable due to lack of data on the extent to which the unintended consequences arise. While the measure has the potential to result in revenue gains or revenue losses from individual transactions, the impact would be a small cost to revenue overall, although significant revenue impacts may arise in particular cases. Any revenue impact is also likely to be deferred relative to the time at which an option is exercised as the revenue impact arises through the impact on the CGT cost base of the asset that is acquired and the impact would only arise when that asset is disposed of.

Compliance cost impact : Minimal.

Compulsory acquisition

Schedule 4 to this Bill amends Subdivision 124-B of the Income Tax Assessment Act 1997 to extend the circumstances in which a taxpayer may choose to obtain a capital gains tax roll-over when an asset is compulsorily acquired. It also includes similar amendments to extend the circumstances in which a taxpayer may choose to obtain a balancing adjustment offset under the uniform capital allowances provisions when a depreciating asset is compulsorily acquired.

Date of effect : These amendments apply to compulsory acquisitions after 1.00 pm (by legal time in the Australian Capital Territory) on 11 November 1999.

Proposal announced : This measure was announced in the Treasurer's Press Release No. 74 (in particular, Attachment M) of 11 November 1999.

Financial impact : Revenue implications are unquantifiable. The measure is expected to have a minor impact against the forward estimates in the order of a $5 million per annum reduction in revenue. There is expected to be a much larger cost in 2005-06 due to the retrospective start date of the measure and the fact that the amendments favour the taxpayer in all cases.

Compliance cost impact : Minimal.

Franking deficit tax

Schedule 5 to this Bill amends the Income Tax Assessment Act 1997 to limit the circumstances in which the franking deficit tax offset is reduced.

Date of effect : These amendments apply to events that occur on or after 1 July 2002 (ie, from the commencement of the simplified imputation system).

Proposal announced : This measure was announced in the 2005-06 Budget by the then former Minister for Revenue and Assistant Treasurer in Press Release No. 30 of 10 May 2005.

Financial impact : Nil.

Compliance cost impact : Minimal.

Choice of superannuation fund

Schedule 6 to this Bill amends the Superannuation Guarantee (Administration) Act 1992 to ensure that employers that are constitutional corporations who make superannuation guarantee contributions to a fund nominated in a state law do not have to make these contributions to that fund, if an employee chooses an alternative fund.

Date of effect : 1 July 2006.

Proposal announced : Not previously been announced.

Financial impact : Nil.

Compliance cost impact : Nil.

Technical corrections and amendments

Schedule 7 to this Bill makes minor corrections and amendments and also some general improvements to the usability of the taxation laws. These corrections and amendments are part of the Government's ongoing commitment to improve the quality of the taxation laws. They fix errors such as duplications of definitions, missing asterisks from defined terms, incorrect numbering and referencing and outdated guide material. They also make some general improvements to the taxation laws such as rewriting the tax offset priority rules.

Date of effect : These corrections, amendments and improvements generally commence on Royal Assent. However, some amendments will apply retrospectively for the reasons set out in Chapter 7.

Proposal announced : Not previously announced.

Financial impact : Nil.

Compliance cost impact : Nil.

Chapter 1 Tax exemption of F-111 deseal/reseal ex-gratia lump sum payments

Outline of chapter

1.1 Schedule 1 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to ensure that ex-gratia lump sum payments made to certain F-111 aircraft maintenance personnel by the Department of Veterans' Affairs are exempt from income tax.

Context of amendments

Lump sum payments to F-111 maintenance personnel

1.2 The Government is making one-off ex-gratia lump sum payments, known as the F-111 deseal/reseal ex-gratia lump sum payment, from the 2005-06 income year to certain personnel who experienced a unique working environment in the maintenance of F-111 aircraft fuel tanks. Eligible personnel are entitled to a lump sum payment of either $40,000 or $10,000.

1.3 The payments are made in recognition of the difficulties eligible personnel suffered in the environment in which they worked regardless of whether there is evidence of any adverse health impacts from that work environment.

Taxable status of the payments

1.4 Whether a payment is subject to tax is determined by its character in the hands of the recipient. A payment that has the character of income according to ordinary concepts is assessable income unless a statutory exemption applies. One-off payments will generally have the character of ordinary income if they are received as a product of employment, services rendered or the carrying on of a business.

1.5 Further, paragraph 26(e) of the Income Tax Assessment Act 1936 (ITAA 1936) includes a gratuity as assessable income where it is given to a taxpayer in respect of any employment.

1.6 As these ex-gratia payments arise out of an employment relationship with the Australian Defence Force, it is possible that they would be characterised as statutory income under paragraph 26(e) of the ITAA 1936.

1.7 To ensure that these payments will not be assessable income, a specific tax exemption is necessary.

Summary of new law

1.8 This measure amends:

•

section 11-15 of the ITAA 1997 to include the ex-gratia payment from the Department of Veterans' Affairs known as the F-111 deseal/reseal ex-gratia lump sum payment. This section is a guide to income derived by certain entities that is exempt from income tax, including defence-related payments; and

•

section 51-5 of the ITAA 1997 to include the F-111 deseal/reseal ex-gratia lump sum payment. This section is the operative provision for exempting from income tax certain defence-related payments.

Detailed explanation of new law

Tax exemption of an ex-gratia payment made to participants in the F-111 deseal/reseal programme

1.9 This measure inserts the F-111 deseal/reseal ex-gratia lump sum payment made to participants in the F-111 deseal/reseal programme into sections 11-15 and 51-5 of the ITAA 1997 which list payments that are exempt from income tax. This ensures that the payments will not be assessable income so that those who receive this ex-gratia payment, including the trustee or executor of a deceased estate, will receive the full benefit of the payment.

1.10 Paragraph 26(e) of the ITAA 1936 includes gratuity payments that arise out of an employment relationship, as assessable income. Payments that have the character of income are assessable income. These ex-gratia payments arise out of an employment relationship with the Australian Defence Force and may be assessable unless a specific provision exempts the payments from income tax.

1.11 Including these ex-gratia payments in sections 11-15 and 51-5 of the ITAA 1997 (which list ordinary and statutory income that is exempt from income tax) exempts these payments from tax.

Application and transitional provisions

1.12 These amendments are to apply to the 2005-06 year of income and later years of income.

Chapter 2 Deductible gift recipients

Outline of chapter

2.1 Schedule 2 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to update the lists of deductible gift recipients (DGRs).

Context of amendments

2.2 The income tax law allows taxpayers to claim income tax deductions for gifts of $2 or more to DGRs. To be a DGR, an organisation must fall within a category of organisations set out in Division 30 of the ITAA 1997, or be listed under that Division.

2.3 These amendments in Schedule 2 will assist relevant funds and organisations to attract public support for their activities.

Summary of new law

2.4 These amendments add certain organisations to the list of specifically listed DGRs.

Detailed explanation of new law

2.5 Schedule 2 lists the organisations in Table 2.1 as DGRs. [Schedule 2, items 1 to 4]

Table 2.1

2.6 Playgroup Victoria Inc. offers valuable support to parents. Playgroups facilitate positive learning and social experiences for children, families and carers. [Schedule 2, items 1 and 3]

2.7 The St Michael's Church Restoration Fund assists St Michael's Uniting Church in Melbourne to raise money for urgent restoration and critical repair work required to preserve the Church building. [Schedule 2, items 2 and 4]

Application and transitional provisions

2.8 The amendments to list the organisations in Table 2.1 apply from the dates of effect shown in that table. [Schedule 2, items 1 to 4]

Chapter 3 Capital gains tax treatment of options

Outline of chapter

3.1 Schedule 3 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to correct unintended consequences in the rewrite of the capital gains tax (CGT) provisions completed as part of the Tax Law Improvement Project. This measure broadly reinstates the position in the Income Tax Assessment Act 1936 (ITAA 1936) in relation to options exercised on or after 27 May 2005 (the date of announcement of these amendments).

Context of amendments

3.2 Division 134 of the ITAA 1997 has rules for modifying the cost base and reduced cost base of an asset where an option that relates to the asset is exercised. These provisions apply if an option is granted to acquire or dispose of a CGT asset and include the consideration paid for and the exercise price of the option in determining the cost base of the asset.

3.3 Section 116-65 modifies the capital proceeds rules where the exercise of an option requires the grantor to dispose of a CGT asset. The capital proceeds for the disposal include any payment received by the grantor for granting the option. The capital proceeds rules also provide that an option the grantor grants requiring the grantor both to acquire and dispose of a CGT asset is treated as two separate options and half of the capital proceeds from the grant is attributable to each option (section 116-70).

3.4 In the ITAA 1936, the grant of a lease was treated as a disposal of the lease from the lessor to the lessee. Similar treatment applied to other cases where one person created an asset in favour of another. This allowed the option provisions in section 160ZZC to apply as if the person creating an asset in another's favour had disposed of the asset to that person.

3.5 The rewrite of the CGT legislation for the ITAA 1997 did not preserve the effect of the 'deemed disposal' provisions, other than in relation to issuing shares. As a result, the grant of a lease from the lessor to a lessee is not treated as a disposal and the provisions of Division 134 as they relate to disposals do not apply.

3.6 Section 134-1 of the Income Tax (Transitional Provisions) Act 1997 is a special rule for options granted before 20 September 1985 binding the grantor to dispose of a CGT asset. It provides that the cost base and reduced cost base of the asset includes the market value of the option when it is exercised.

3.7 Similarly, this provision does not reflect the position in the ITAA 1936 as a result of the rewrite of the CGT provisions as part of the Tax Law Improvement Project.

3.8 These amendments therefore ensure that the law operates as intended and essentially as it previously applied under the ITAA 1936.

Summary of new law

3.9 These amendments fall into two broad categories:

•

First, the option provisions in Division 134 of the ITAA 1997 and their related capital proceeds provisions apply to options for the creating, granting or issuing of assets in the same way as they apply to options for the disposal of assets and to options for the issuing of shares. Also these provisions apply to the renewing or extending of options in the same way as they apply to the granting of options.

•

Second, section 134-1 of the Income Tax (Transitional Provisions) Act 1997, which applies to options granted before 20 September 1985 binding the grantor to dispose of a CGT asset, will also apply to options to create, grant or issue an asset. It will not apply to options last renewed or extended on or after 20 September 1985.

3.10 Examples of the kinds of option to which the amended provisions apply are options for the granting of a lease or easement or for issuing units in a unit trust.

Comparison of key features of new law and current law

Detailed explanation of new law

Subsection 134-1(1) of the ITAA 1997 - exercise of options

3.11 Subsection 134-1(1) of the ITAA 1997 is repealed and a new subsection is substituted that sets out the effects of the exercise of an option (including an option that has been renewed or extended) on the cost bases and reduced cost bases of the grantor and the entity that exercises the option (the grantee). These amendments ensure that the option rules apply to the creation of assets in the same way as they apply to the disposal of assets.

3.12 This approach also applies to the issue of units in a unit trust, something that the ITAA 1936 technically did not do. These amendments bring the treatment of units issued in a unit trust on the exercise of a call option into the same position as that for options to acquire shares in a company. Where a grantee exercises an option that binds the grantor to grant a lease, the amendment allows for the inclusion in the CGT cost base of the lease, the amount paid for the option plus any amount paid to exercise it.

3.13 These amendments also update notes 1 and 2 of subsection 134-1(1) to better reflect the various changes made. [Schedule 3, item 3, subsection 134-1(1 )]

Capital proceeds rules

3.14 Section 116-65 is repealed and a new section is substituted that applies if there is a grant, renewal or extension of an option in relation to a CGT asset and another entity exercises the option and because of the exercise of the option, the grantor creates (including grants or issues) or disposes of the CGT asset. [Schedule 3, item 1, subsection 116-65(1 )]

3.15 The capital proceeds from the creation (including grant or issue) or disposal include any payment received for granting, renewing or extending the option. [Schedule 3, item 1, subsection 116-65(2 )]

3.16 Section 116-70 is repealed and a new section is substituted that applies if an option is granted, renewed or extended which requires the taxpayer to acquire a CGT asset and create (including grant or issue) or dispose of the CGT asset. The CGT asset being acquired and disposed of must be the same CGT asset. The provision applies regardless of the order in which the CGT asset is dealt with under the option; that is, it could require the grantor to create/dispose of the asset (eg, a share) and then to acquire it. [Schedule 3, item 2, subsection 116-70(1 )]

3.17 The option is treated as two separate options and half of the capital proceeds from the grant, renewal or extension is attributed to each option. [Schedule 3, item 2, subsection 116-70(2 )]

Subsection 134-1(1) of the Income Tax (Transitional Provisions) Act 1997 - exercise of options

3.18 Section 134-1 of the Income Tax (Transitional Provisions) Act 1997 is amended to apply to an option granted before 20 September 1985 that binds the grantor to create (including grant or issue) or dispose of a CGT asset. [Schedule 3, items 4 and 5, subsection 134-1(1) of the Income Tax (Transitional Provisions) Act 1997]

3.19 The provision, however, does not apply to an option last renewed or extended on or after 20 September 1985. This amendment ensures that the current law reflects the position in the ITAA 1936. [Schedule 3, item 6, subsection 134-1(1) of the Income Tax (Transitional Provisions) Act 1997]

Application provision

3.20 These amendments apply in relation to options exercised on or after 27 May 2005 (the date of announcement of these amendments). [Schedule 3, item 7]

Chapter 4 Compulsory acquisition

Outline of chapter

4.1 Schedule 4 to this Bill amends Subdivision 124-B of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the circumstances in which a taxpayer may choose to obtain a capital gains tax (CGT) roll-over when an asset is compulsorily acquired.

4.2 This Schedule also includes similar amendments to extend the circumstances in which a taxpayer may choose to obtain a balancing adjustment offset under the uniform capital allowances (UCA) provisions when a depreciating asset is compulsorily acquired.

Context of amendments

CGT context

4.3 The CGT provisions allow a roll-over, at the choice of the taxpayer, when an asset is compulsorily acquired. The effect of the CGT roll-over is that a capital gain that would otherwise be recognised when the transfer of the asset occurs is disregarded, with the recognition of the accrued capital gain being in effect deferred until there is a later disposal of (or other CGT event happens to) the asset.

4.4 The compulsory acquisitions roll-over also preserves the pre-CGT exempt status of replacement assets if the original asset had that status.

4.5 Currently, Subdivision 124-B of the ITAA 1997 provides a CGT roll-over if the asset:

•

is compulsorily acquired by an Australian government agency (ie, by the Commonwealth, a State or a Territory or by an authority of the Commonwealth, a State or a Territory);

•

is sold in the shadow of compulsory acquisition by such an agency;

•

is wholly or partly lost or destroyed; or

•

is an expired lease that is not renewed.

UCA context

4.6 The UCA provisions in Division 40 allow taxpayers a deduction equal to the decline in value of a depreciating asset they hold during an income year. The decline in value is worked out by reference to the effective life of the asset. The effective life of an asset is the length of time over which any entity can use the particular asset for taxable purposes (broadly, producing assessable income) or for the purposes of producing exempt income.

4.7 When a depreciating asset is disposed of, a balancing adjustment event is triggered. This adjustment brings to account any difference between the adjustable value of the asset and the amount received on disposal (termination value). If the termination value exceeds the adjustable value, the difference is included in assessable income.

4.8 Currently the law provides a choice to exclude some or all of the amount that has been included in a taxpayer's assessable income for a depreciating asset as a result of a balancing adjustment in specified cases. Those cases where the asset is lost or destroyed, or where an Australian government agency acquires it compulsorily or by negotiation in the shadow of compulsion.

4.9 When this choice is made, the amount calculated under the balancing adjustment event is not included in assessable income. Instead it is applied to reduce the cost of the replacement depreciating asset. The effect of reducing the cost of the replacement depreciating asset is that future deductions for decline in value are reduced. This adjustment to reduce the cost of the asset, instead of including the balancing adjustment amount in the taxpayer's taxable income, is referred to as a balancing adjustment offset.

Summary of new law

4.10 The new law extends the scope of what counts as a compulsory acquisition for the purposes of the CGT roll-over and the UCA balancing adjustment offset.

4.11 This measure will cover cases where a private acquirer compulsorily acquires an asset through recourse to a statutory power other than a compulsory acquisition of minority interests under company law.

4.12 It will also extend the compulsory acquisition provisions to include cases where a landowner whose land is compulsorily subject to a mining lease (or is subject to a mining lease in the shadow of compulsion) sells the land to the lessee and acquires a replacement asset where the lease would significantly affect the landowner's use of the land.

Comparison of key features of new law and current law

Detailed explanation of new law

Private acquirers generally

4.13 These amendments will provide for the additional circumstance of where the asset is acquired by an entity (other than an Australian government agency or a foreign government agency) under a power of compulsory acquisition under an Australian or foreign law apart from a law for the compulsory acquisition of minority interests under company law. [Schedule 4, items 10, 15, 20 and 35, paragraph 40-365(2)(c ), subsection 40-365(2A ), paragraph 124-70(1)(aa) and subsection 124-70(1A )]

4.14 These amendments will also apply where the asset is disposed of to an entity (other than a foreign government agency) after a notice was served by or on behalf of the entity inviting negotiations with a view to the entity acquiring the asset by agreement.

4.15 The notice needs to inform the recipient that if the negotiations are unsuccessful, the asset would be compulsorily acquired by the entity. It is also a requirement that the compulsory acquisition would have been under a power of compulsory acquisition conferred by an Australian or foreign law other than a law for the compulsory acquisition of minority interests under company law. [Schedule 4, items 10, 15 and 35, paragraph 40-365(2)(d ), subsection 40-365(2A ), paragraph 124-70(1)(c) and subsection 124-70(1A )]

Land subject to a mining lease

4.16 These amendments will also extend the CGT roll-over and the UCA balancing adjustment offset to cases where land and any depreciating asset fixed to the land is disposed of to an entity, other than a foreign government agency, where a mining lease was compulsorily granted over the land and the lease significantly affected the taxpayer's use of the land.

4.17 The lease needs to have been in force just before the disposal. Further, the transferee entity needs to have been the lessee.

4.18 A taxpayer's use of the land includes its intended use. This measure does not extend to initial exploration licences or retention licences. [Schedule 4, items 10 and 30, paragraphs 40-365(2)(e) and 124-70(1)(ca )]

4.19 These amendments also apply where land (including land to which a depreciating asset is fixed) is disposed of to an entity, other than a foreign government agency, where the taxpayer disposes of the land where a mining lease would have been compulsorily granted if the taxpayer had not disposed of it and the lease would have significantly affected the taxpayer's use of the land. The transferee entity would need to have been the lessee. [Schedule 4, items 10 and 30, paragraphs 40-365(2)(f) and 124-70(1)(cb )]

Application, transitional and power of amendment provisions

4.20 These amendments apply to CGT events that happen after 1.00 pm (by legal time in the Australian Capital Territory) on 11 November 1999.

4.21 These amendments apply to UCA balancing adjustment events that occur after 30 June 2001.

4.22 For UCA balancing adjustment events that occurred during the period starting just after 1.00 pm on 11 November 1999 and ending on 30 June 2001, the amendments made by this Schedule to section 40-365 also apply in relation to former section 42-293.

4.23 These amendments favour the taxpayer in all cases. [Schedule 4, item 40]

4.24 This Bill includes a provision that allows more time for taxpayers to obtain an amended assessment to benefit from the amendments.

Chapter 5 Franking deficit tax

Outline of chapter

5.1 Schedule 5 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to limit the circumstances in which the franking deficit tax offset is reduced.

Context of amendments

5.2 A corporate tax entity is liable to pay franking deficit tax if its franking account is in deficit at the end of an income year. The entity's franking account will be in deficit at the end of an income year if its franking debits in the income year exceed its franking credits in that year. The amount of franking deficit tax is equal to the amount of the entity's franking deficit at the end of the income year.

5.3 A corporate tax entity that is liable to pay franking deficit tax is entitled to a tax offset. The amount of the tax offset is worked out by applying the method statement in subsection 205-70(2) of the ITAA 1997. Steps 1 and 2 of the method statement reduce the amount of the offset by 30 per cent if the total amount of franking deficit tax exceeds 10 per cent of the total amount of franking credits that arose in the entity's franking account in the relevant year.

5.4 The purpose of the 30 per cent franking deficit tax offset reduction is to deter companies from passing excessive franking credits to shareholders. Therefore, the reduction should only be triggered in income years where a company has made, directly or indirectly, a franked distribution. In addition, the reduction should not apply if the franking debit that caused the franking account to go into deficit arose because of the imposition of a penalty or because the franking deficit arose due to circumstances beyond the company's control.

Summary of new law

5.5 Only franking deficit tax attributable to item 1, 3, 5 or 6 in the table in section 205-30 will be taken into account to determine whether the 30 per cent franking deficit tax offset reduction applies and in working out the amount of that reduction. Franking deficit tax attributable to item 2 in the table in section 205-30 will also be taken into account in some circumstances.

5.6 In addition, the Commissioner of Taxation (Commissioner) will have a discretion to disregard the 30 per cent franking deficit tax offset reduction if, in the Commissioner's opinion, the deficit in the franking account of a corporate tax entity arose because of events outside of the entity's control.

Comparison of key features of new law and current law

Detailed explanation of new law

Certain franking debits taken into account to determine whether the 30 per cent franking deficit tax offset reduction applies

5.7 A corporate tax entity that is liable to pay franking deficit tax is entitled to a tax offset under section 205-70 of the ITAA 1997. The amount of the tax offset is worked out by applying the method statement in subsection 205-70(2).

5.8 These amendments modify steps 1 and 2 of the method statement in subsection 205-70(2) so that only franking deficit tax attributable to item 1, 3, 5 or 6 in the table in section 205-30 is taken into account to determine whether the 30 per cent franking deficit tax offset reduction applies and in working out the amount of that reduction. Franking deficit tax attributable to item 2 in the table in section 205-30 is also taken into account in some circumstances. [Schedule 5, item 1, steps 1 and 2 of the method statement in subsection 205-70(2 )]

5.9 The table in section 205-30 sets out when a debit arises in the franking account of an entity. The franking debits that are taken into account to determine whether the 30 per cent franking deficit tax offset reduction applies and in working out the amount of that reduction are:

•

item 1 in the table in section 205-30 - that is, all franking debits that arise when an entity franks a distribution;

•

item 3 in the table in section 205-30 - that is, all franking debits that arise when an entity franks a distribution in contravention of the benchmark rule;

•

item 5 in the table in section 205-30 - that is, all franking debits that arise when a distribution by one entity is substituted for a distribution by another entity; and

•

item 6 in the table in section 205-30 - that is, all franking debits that arise when a tax-exempt bonus share is issued in substitution for a franked distribution.

[Schedule 5, item 2, paragraph 205-70(8)(a )]

5.10 If an entity has franking debits that arise under one or more of item 1, 3, 5 or 6 in the table in section 205-30, all franking debits that arise under item 2 in that table will also be taken into account to determine whether the 30 per cent franking deficit tax offset reduction applies. Franking debits arise under item 2 in the table in section 205-30 when, broadly, an entity receives a refund of tax. [Schedule 5, item 2, paragraph 205-70(8)(b )] Example 5.1

A company has a credit in its franking account of $5,000 at the start of an income year. At the end of the income year, the company has a deficit of $80,000 in its franking and is liable to franking deficit tax. The only franking credits to its franking account during the year were pay as you go (PAYG) instalments of $495,000 that were paid by the company. The company made the following franking debits to its franking account:

•

$510,000 of franking credits on distributions (item 1 franking debits);

•

$50,000 as a consequence of a refund of tax (item 2 franking debits); and

•

$20,000 as a consequence of the Commissioner making a determination under the streaming provisions (item 7 franking debits).

Only franking deficit tax attributable to items 1 and 2 is taken into account to determine whether the 30 per cent franking deficit tax offset reduction applies and in working out the amount of that reduction.

The franking deficit tax attributable to items 1 and 2 is $60,000 - that is, the total franking deficit tax ($80,000) less the franking deficit tax attributable to item 7($20,000). That amount exceeds 10 per cent of the franking credits that arose in the company's franking account for the income year - $49,500 (ie, $495,000 × 10%). Therefore, the 30 per cent franking deficit tax offset reduction will apply.

Consequently, the company's franking deficit tax offset will be $62,000, (ie, $80,000 - ($60,000 × 30%)).

Example 5.2

A company has a credit in its franking account of $5,000 at the start of an income year. At the end of the income year, the company has a deficit of $60,000 in its franking account and is liable to franking deficit tax. The only franking credits to its franking account during the year were PAYG instalments of $495,000 that were paid by the company. The company made the following franking debits to its franking account:

•

$510,000 of franking credits on distributions (item 1 franking debits); and

•

$50,000 as a consequence of the Commissioner making a determination under the streaming provisions (item 7 franking debits).

Only franking deficit tax attributable to item 1 is taken into account to determine whether the 30 per cent franking deficit tax offset reduction applies and in working out the amount of that reduction.

The franking deficit tax attributable to item 1 is $10,000 - that is, the total franking deficit tax ($60,000) less the franking deficit tax attributable to item 7 ($50,000). That amount does not exceed 10 per cent of the franking credits that arose in the company's franking account for the income year - $49,500, (ie, $495,000 × 10%). Therefore, the 30 per cent franking deficit tax offset reduction will not apply.

Consequently, the company's franking deficit tax offset will be $60,000.

5.11 As the method statement in section 205-70 of the ITAA 1997 has been modified since it was introduced, the Income Tax (Transitional Provisions) Act 1997 is amended to ensure that these modifications to the method statement apply effectively between 1 July 2002 and the start of the 2004-05 income year. [Schedule 5, item 5, subsection 205-71(2) of the Income Tax (Transitional Provisions) Act 1997]

5.12 Section 205-70 of the Income Tax (Transitional Provisions) Act 1997 modifies the method statement in section 205-70 of the ITAA 1997 for late balancing entities. The amendments modify the special method statements for late balancing entities to ensure a consistent outcome. [Schedule 5, item 4, subsection 205-70(6) of the Income Tax (Transitional Provisions) Act 1997]

Commissioner's discretion not to apply the 30 per cent franking deficit tax offset reduction

5.13 In some circumstances a corporate tax entity may have a franking deficit in its franking account at the end of the income year, and therefore incur franking deficit tax, due to events that were outside of its control. It would be inequitable to apply the 30 per cent franking deficit tax offset reduction in these circumstances.

5.14 Therefore, the Commissioner will have the discretion to disregard the 30 per cent franking deficit tax offset reduction if, following an application by the entity in the approved form, the Commissioner determines, in writing, that the franking debits that caused the franking deficit arose due to events that were outside the entity's control. [Schedule 5, item 2, subsection 205-70(6 )]

5.15 An event might be outside of an entity's control if, for example, the entity pays a fully franked dividend part way through an income year (with a resulting debit to its franking account) in the reasonable expectation that its future quarterly PAYG instalment payments in the income year would be sufficient to ensure that it would not have a deficit in its franking account at the end of the income year. An unexpected downturn in business results in the company's future quarterly PAYG instalment payments being less than expected. In these circumstances it would be expected that the Commissioner would make a determination so that the 30 per cent franking deficit tax offset reduction would be disregarded.

5.16 As the method statement in section 205-70 of the ITAA 1997 has been modified since it was introduced, the Income Tax (Transitional Provisions) Act 1997 is amended to ensure that the Commissioner's discretion applies appropriately between 1 July 2002 and the start of the 2004-05 income year. [Schedule 5, item 5, subsection 205-71(3) of the Income Tax (Transitional Provisions) Act 1997]

5.17 Section 205-70 of the Income Tax (Transitional Provisions) Act 1997 modifies the method statement in section 205-70 of the ITAA 1997 for late balancing entities. The amendments also ensure that the Commissioner's discretion applies appropriately to late balancing entities. [Schedule 5, item 4, subsection 205-70(7) of the Income Tax (Transitional Provisions) Act 1997]

5.18 Determinations made under subsection 205-70(6) of the ITAA 1997 and subsections 205-70(7) and 205-71(3) of the Income Tax (Transitional Provisions) Act 1997 are not legislative instruments within the meaning of section 5 of the Legislative Instruments Act 2003. [Schedule 5, items 2, 4 and 5, subsection 205-70(7) of the ITAA 1997 and subsections 205-70(8) and 205-71(4) of the Income Tax (Transitional Provisions) Act 1997]

Application and transitional provisions

5.19 The amendments to the ITAA 1997 apply to assessments for the 2004-05 income year and later income years. [Schedule 5, item 3]

5.20 As the amendments are beneficial to taxpayers, the amendments to the Income Tax (Transitional Provisions) Act 1997 apply to events that occur after 1 July 2002 (ie, from the commencement of the simplified imputation system). [Schedule 5, item 5, subsection 205-71(1) of the Income Tax (Transitional Provisions) Act 1997]

Chapter 6 Choice of superannuation fund

Outline of chapter

6.1 Schedule 6 to this Bill amends the Superannuation Guarantee (Administration) Act 1992 to facilitate the extension of the right to choose a fund, to employees whose superannuation arrangements are determined by state laws.

Context of amendments

6.2 Employers making superannuation contributions for employees under or in accordance with Commonwealth, state or territory law prescribed under regulations made for the purpose of subsection 32C(9) of the Superannuation Guarantee (Administration) Act 1992 comply with the choice of fund requirements. However, it was never the intention that private sector employers could take advantage of this provision.

6.3 Currently, employers making superannuation contributions under or in accordance with the New South Wales Coal and Oil Shale Mine Workers (Superannuation) Act 1941, the Queensland Coal and Oil Shale Mine Workers' Superannuation Act 1989 and the Western Australian Coal Industry Superannuation Act 1989, are prescribed for the purpose of subsection 32C(9). However, from 1 July 2006 these employers will be required to offer their employees a choice of superannuation fund.

6.4 The amendments to the Superannuation Guarantee (Administration) Act 1992 ensure that these employers are not required to make superannuation guarantee contributions to a fund specified in the state law as well as an employee's chosen fund.

Summary of new law

6.5 The amendments to the Superannuation Guarantee (Administration) Act 1992 ensure that employers that are constitutional corporations who make superannuation guarantee contributions to a fund nominated in a state law do not have to make these contributions to that fund, if an employee chooses an alternative fund.

Comparison of key features of new law and current law

Detailed explanation of new law

6.6 For employers that are constitutional corporations and are making superannuation guarantee contributions to a fund nominated in a state law, the Superannuation Guarantee (Administration) Act 1992 overrides the requirement in the state law to make these contributions to that fund, if an employee chooses a fund. This avoids the potential for the employer facing penalties for breaching either the choice of fund legislation or the relevant state law. [Schedule 6, item 1]

Application and transitional provisions

6.7 These amendments apply on or after 1 July 2006.

Chapter 7 Technical corrections and amendments

Outline of chapter

7.1 Schedule 7 to this Bill makes various technical corrections and amendments to the taxation laws and also makes some general improvements to the law of a minor nature.

Context of amendments

7.2 These minor corrections and amendments to the taxation laws are part of the Government's ongoing commitment to improve the quality of the taxation laws. They fix technical errors such as duplications of definitions, missing asterisks from defined terms, incorrect numbering and referencing and outdated guide material that detract from the readability of the taxation laws and sometimes confuse or mislead readers.

Summary of new law

7.3 Schedule 7 makes minor technical corrections and amendments and also some general improvements to the taxation laws. Amendments encompass: repealing duplicate definitions; correcting misdescribed amendments; ensuring that defined terms are properly asterisked; and fixing incorrect, incomplete or inconsistent referencing, numbering and wording. More substantive amendments involve:

•

updating and correcting non-operative guides, notes, headings and examples;

•

merging two or three definitions of one term or similar terms into single definitions;

•

deleting unnecessary definitions;

•

relocating a Division;

•

updating terminology, figures and definitions; and

•

rewriting the tax offset priority rules (ie, the order in which they are applied).

7.4 The technical amendments will generally commence on Royal Assent. However, some amendments will apply retrospectively for the reasons set out in paragraphs 7.85 to 7.103.

Detailed explanation of new law

7.5 Amendments made by this Schedule fall into two main categories: technical corrections and amendments; and general improvements to the usability of the tax laws.

Technical amendments and corrections

Fixing incorrect terminology

7.6 Sometimes the tax laws use incorrect terminology. For example, the correct terminology to describe a taxation income year in the Income Tax Assessment Act 1936 (ITAA 1936) is 'year of income' whereas in the Income Tax Assessment Act 1997 (ITAA 1997) the correct terminology is 'income year'. There are instances in the ITAA 1936 where 'income year' is used instead of 'year of income'. Amendments replace references to 'income year' with 'year of income' throughout the ITAA 1936. [Schedule 7, items 39 to 41, 46 and 48, subparagraph 46AC(1)(b)(i ), paragraph 82AM(3)(c ), subsection 92(2A ), subsection 160AF(8) definition of 'relevant debt deduction' and subsection 177EA(19) of the ITAA 1936]

7.7 Further examples of incorrect terminology are in subsections 70-105(2) and (6) of the ITAA 1997 that refer to 'the person on whom...' It is not appropriate to use 'person' in the ITAA 1997, which instead uses the concept of 'entity'. These amendments correct this incorrect terminology and other similar instances of incorrect terminology. [Schedule 7, items 70 and 189, subsections 70-105(2) and (6) and paragraphs 51-35(c) and (d) of the ITAA 1997]

7.8 Division 18 of the Taxation Administration Act 1953 (TAA 1953) deals with recipients' entitlements and obligations in relation to withheld amounts. Several provisions in Division 18, in dealing with entitlements and obligations, make reference to 'person'. It is not appropriate to use 'person' in Schedule 1 to the TAA 1953, which instead uses the concept of 'entity' consistent with the ITAA 1997. Therefore, these amendments replace references to 'person' with 'entity' in this instance and make appropriate corrections in other such occurrences. [Schedule 7, items 140 to 151, 153 and 155 to 156, 158 to 161, 163 and 169, section 18-5, subsections 18-15(1 ), 18-20(1) and 18-25(1 ), section 18-27, subsection 18-30(1 ), paragraphs 18-30(1)(a) and (b ), subsections 18-35(1 ), 18-40(1 ), 18-42(1) and (2 ), paragraphs 18-45(1)(a) and (b ), 18-45(2)(a) and (b ), subparagraph 18-75(1)(a)(ii) and subsection 340-5(3) in Schedule 1 to the TAA 1953]

Fixing incorrect labels

7.9 There are instances in the tax law where the defined term does not naturally reflect its defined meaning. For example, subsection 177-1(5) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) defines 'Commonwealth entity' to mean certain agencies and Commonwealth authorities that cannot be made liable to taxation by a Commonwealth law. As the intention of the definition is to identify those Commonwealth entities that cannot be taxed, a more appropriate label would be 'untaxable Commonwealth entity'. These amendments correct the term in the GST Act and other Acts including the A New Tax System (Luxury Car Tax) Act 1999 and the A New Tax System (Wine Equalisation Tax) Act 1999. [Schedule 7, items 1, 6 to 13, 15 to 29 and 172, subsection 5(6) definition of 'Commonwealth entity' of the A New Tax System (Commonwealth-State Financial Arrangements) Act 1999, subsections 177-1(1 ), ( 2 ), ( 4) and (5 ), paragraph 177-3(a ), section 195-1 definitions of the 'Commonwealth entity' of the GST Act and subsections 13(4A) and 14(5) of A New Tax System (Goods and Services Tax Transition) Act 1999 and subsections 21-1(1 ), ( 2) and (4) and section 27-1 definition of 'Commonwealth entity' of the A New Tax System (Luxury Car Tax) Act 1999 and subsections 27-20(1 ), ( 2) and (4) and section 33-1 definition of 'Commonwealth entity' of the A New Tax System (Wine Equalisation Tax) Act 1999 and section 110-5 of the Fuel Tax Bill 2006]

7.10 Other amendments also fix other inaccurate labels and improve their readability. [Schedule 7, items 36, 42 and 113, subsection 6(1) definition of 'non-equity share', section 102AAB definition of 'listed country trust estate' of the ITAA 1936 and subsection 995-1(1) definition of 'non-equity share' of the ITAA 1997]

Deleting an unnecessary heading

7.11 Sometimes all the provisions are repealed from a higher grouping of provisions but the heading to that higher grouping is left behind. For example, section 165-80 of the GST Act was repealed by the Indirect Tax Legislation Amendment Act 2000, however the heading to that section 'Subdivision 165-C - Penalties for getting GST benefits from schemes' was left behind. There are no remaining sections under that heading. Therefore, these amendments remove the heading. [Schedule 7, item 5, heading to Subdivision 165-C of the GST Act]

Corrections due to failed amendments

7.12 Amendments are often proposed to provisions which are contingent on other provisions being enacted. If that later Bill is not enacted, the amendments fail and need correcting. An example of this is in items 14 to 17 of Schedule 6 to the Taxation Laws Amendment Act (No. 2) 2000. These items proposed to amend sections 30-242 and 30-243 of the ITAA 1997. Those sections were to be inserted by the Taxation Laws Amendment (Political Donations) Bill 1999 but that Bill was never enacted. These amendments undo those failed amendments. [Schedule 7, item 170]

7.13 Item 4 of Schedule 8 to the Tax Laws Amendment (2004 Measures No. 2) Act 2004 attempted to insert 'public ambulance services' after 'certain hospitals'. This amendment relied on an amendment in item 24 of Schedule 10 to the Tax Laws Amendment (2004 Measures No. 1) Act 2004 (which inserted the words 'certain hospitals') taking effect first. This did not occur because section 2 (item 19) provided that item 4 of Schedule 8 to the Tax Laws Amendment (2004 Measures No. 2) Act 2004 commenced on 29 June 2004 at which time item 24 of Schedule 10 to the Tax Laws Amendment (2004 Measures No. 1) Act 2004 had not yet commenced. As a result item 4 of Schedule 8 to the Tax Laws Amendment (2004 Measures No. 2) Act 2004 failed. These amendments correct the failed amendment. [Schedule 7, item 212]

Unproclaimed legislation that will no longer ever be proclaimed

7.14 The Sales Tax Legislation Amendment Act (No. 1) 1999 amended the Sales Tax Assessment Act 1992 and received Royal Assent on 14 May 1999. However, subsection 2(2) provided that items 1 to 6, 9 and 10 of Schedule 2 of that Act commence on a day to be fixed by proclamation. That day was never proclaimed.

7.15 The unproclaimed items were to form an additional part of the rules to combat sales tax evasion in the computer industry. They were directed towards evasion that exploited the export exemption.

7.16 Delaying commencement to a day to be fixed by proclamation was to enable a prompt response when there was a need for the items to become operative. By deferring the commencement date until they were required, compliance costs could be minimised.

7.17 However, sales tax having ceased on 30 June 2000, there are now no plans to proceed with proclamation. These amendments remove the unproclaimed items from the amending Act. [Schedule 7, items 125 to 128]

Misdescribed amendments

7.18 Some amending Acts misdescribe amendments they seek to make to other Acts. Consequently, most of these misdescribed amendments fail.

7.19 An example is in item 20 of Schedule 10 to the A New Tax System (Family Assistance)(Consequential and Related Measures) Act (No. 2) 1999. Item 20 attempted to repeal and replace two occurrences of paragraph (aab) of the definition of 'separate net income' in subsection 159J(6) of the ITAA 1936 (about dependant rebates). Subsection 159J(6) does not contain two paragraphs (aab). The amendment was also misdescribed as it should have repealed and replaced paragraph (aad) (of which there is only one). These amendments correct the amending Act so the intended amendments can be reflected in the primary Act with the intended commencement and application. [Schedule 7, item 171]

Fixing a minor punctuation error

7.20 Paragraph 284-225(3)(a) of the TAA 1953 reduces the base penalty amount for the shortfall amount by 80 per cent if the shortfall amount is $1,000 or more. A minor punctuation error exists. It currently reads: 'reduced by 80% if the shortfall amount, or the part of, it is $1,000 or more; or' however, it should read: 'reduced by 80% if the shortfall amount, or the part of it, is $1,000 or more; or'. These amendments correct the punctuation error. [Schedule 7, item 167, paragraph 284-225(3)(a) in Schedule 1 to the TAA 1953]

Deleting duplicate definitions

7.21 Subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBT Act) contains two different definitions of 'entity'. The first definition reads: ' entity has the meaning given by section 960-100 of the Income Tax Assessment Act 1997.' whilst the second definition reads: ' entity has the same meaning as in the Income Tax Assessment Act 1997.'. Both definitions effectively pick up the definition in section 960-100 of the ITAA 1997, therefore, these amendments remove the less descriptive definition. [Schedule 7, items 32 and 33, subsection 136(1) definitions of 'entertainment facility leasing expenses' and 'entity' of the FBT Act]

7.22 Duplicate definitions of a 'foreign superannuation fund' also exist in subsection 995-1(1) of the ITAA 1997. Both definitions broadly have the same meaning. The major difference is that one definition refers to an inoperative provision which will be repealed in due course. These amendments will therefore, remove the definition which refers to the inoperative provision. [Schedule 7, item 111, subsection 995-1(1) definition of 'foreign superannuation fund' of the ITAA 1997]

Fixing anomalies

7.23 Sometimes there are anomalies in the taxation laws which need to be addressed. For example, section 14ZW of the TAA 1953 specifies the time limits within which a taxation objection must be lodged with the Commissioner of Taxation (Commissioner). Most objections must be lodged within two or four years of service of notice of the taxation decision to which it relates. However, the time period drops to 60 days where a time limit is not specifically provided. This outcome produces anomalies when penalties are imposed that relate to assessments. The assessment has a much longer period in which to object to it than the related penalty notice. This is not consistent with the intended policy so these amendments align the objection periods. [Schedule 7, item 132]

7.24 Another example of an anomaly is in sections 16-30, 16-35, 16-40 and 16-43 of Schedule 1 to the TAA 1953 which provide administrative penalties for entities failing to withhold under the 'pay as you go' withholding rules. These penalty provisions are not subject to the general machinery provisions for administrative penalties. Division 16, however, has two specialised machinery provisions in sections 16-45 and 16-50 (about remission and application of the general interest charge). The general machinery provisions for administrative penalties in Division 298 in Schedule 1 to the TAA 1953 provide for objection and appeal rights against the Commissioner's decision not to remit a penalty but the specialised machinery provisions do not provide those same objection and appeal rights, despite the existence of a contrary note under section 16-45. This Bill corrects this deficiency. [Schedule 7, items 131, 135 to 137, 152, 154, 157, 162 and 168, item 17A in the table in subsection 8AAB(5) of the TAA 1953, sections 16-30, 16-40, 16-43, 16-45 and 16-50 and paragraphs 18-35(1)(b) and(2)(b ), subsections 18-42(3) and 18-45(3) in Schedule 1 to the TAA 1953]

Removing redundant references

7.25 Sometimes there are redundant references in the tax law which need to be corrected. Under subsection 34-55(3) of the ITAA 1997, the Treasurer must make arrangements for any approved occupational clothing guidelines he/she makes to be published in the Gazette and also to be made available (without charge) to any interested entity. The approved occupational clothing guidelines are a legislative instrument and on the Federal Register of Legislative Instruments. Therefore, the guidelines will be publicly available without charge and without the need for gazettal. Therefore, subsection 34-55(3) is now redundant. These amendments remove this redundant reference. [Schedule 7, items 257 and 258, subsections 34-55(1) and (3) of the ITAA 1997]

7.26 Another example of a redundant reference is in section 18-355 of the ITAA 1997 which refers to 'segregated exempt superannuation asset (as defined in Part IX of the Income Tax Assessment Act 1936)'. Section 267 of the ITAA 1936 defines terms for Part IX. It includes no definition of 'superannuation asset', 'exempt superannuation asset' or 'segregated superannuation asset'. There was a proposed definition of 'segregated exempt superannuation asset' in the amending Bill (the New Business Tax System (Miscellaneous) Bill (No. 2) 2000 as introduced into and passed by the House of Representatives) but was not part of the final amending Act. Therefore, these amendments remove the references to 'segregated exempt superannuation asset' which are not required for the purposes of the Act. [Schedule 7, items 173, 175 and 190, paragraphs 70(B)(2A)(b) and (c) and paragraphs 92(2A)(b) and (c) of the ITAA 1936 and section 118-355 of the ITAA 1997]

7.27 A further example of a redundant reference is in subsection 372(2) of the ITAA 1936 which deals with the attribution debit of a controlled foreign company. It refers to subsection 372(3) which is no longer appropriate as subsection 372(3) was repealed by the New International Tax Arrangements (Participation Exemption and Other Measures) Act 2004. As subsection 372(3) was repealed, this Bill removes the reference from subsection 372(2). [Schedule 7, item 49, subsection 372(2) of the ITAA 1936]

7.28 Other redundant references are also being removed. [Schedule 7, items 14 and 134, section 195-1 definition of 'reduced credit land transport' of the GST Act and section 18 of the TAA 1953]

Fixing confusing or misleading provisions

7.29 Sometimes a provision can be interpreted in two or more ways, which may mislead or confuse the reader. An example of this is in subsection 6-10(2) of the ITAA 1997 which gives the meaning of 'statutory income'. There has been some confusion as to the exact meaning of statutory income given that subsection 6-10(2) read in isolation may give the reader an impression inconsistent with the understanding they would derive from reading Division 6 in its entirety. The misunderstanding is that the concept of statutory income not only includes amounts actually included in assessable income but also includes amounts which are briefly included in assessable income by one provision before another provision makes that amount non-assessable non-exempt income or exempt income. A note is added to remove the ambiguity in the provisions. [Schedule 7, item 56, note to subsection 6-10(2 )]

Moving a definition

7.30 In addition to the Dictionary in section 6 of the ITAA 1936, a term is sometimes defined in other sections of that Act for the purposes of that section or its Division. However, other sections may incorrectly refer to that defined term (assuming it has been defined for the purposes of the entire Act). In which case, the ordinary meaning of the term would instead apply. This may confuse the reader and produce an unintended outcome. For example, section 160AF of the ITAA 1936 uses the term 'international tax sharing treaty'. That term is defined in section 136AA but only for the purposes of Division 13. Because 'international tax sharing treaty' is only defined for the purposes of Division 13 and section 160AF is not part of Division 13, the definition will not apply. Therefore, the ordinary meaning of the term would apply for the purposes of section 160AF. Subsection 170(14) also contains a definition of 'international tax sharing treaty' which provides that 'international tax sharing treaty' has the meaning given by subsection 136AA(1). Amendments will be made to move the definition of 'international tax sharing treaty' in subsection 136AA(1) into subsection 6(1) of the ITAA 1936 so that it applies to the entire ITAA 1936 as intended. These amendments will delete the definition in subsection 136AA(1) and subsection 170(14). [Schedule 7, items 35, 45 and 47, subsection 6(1 ), subsection 136AA(1) definition of 'international tax sharing treaty' and subsection 170(14) definition of 'international tax sharing treaty' of the ITAA 1936]

Correcting Dictionary definitions

7.31 When provisions of the ITAA 1936 were rewritten in the ITAA 1997 they adopted the plain English approach. Using the plain English approach also means that certain rules were established:

•

firstly, once defined one term would only have one meaning; and

•

secondly, an ordinary term should not be defined in extraordinary ways.

The present definition of 'agent' in subsection 995-1(1) of the ITAA 1997 breaks both these rules. These amendments will ensure that the plain English rules are followed whilst maintaining the current effect of the law. [Schedule 7, items 71, 104, 108 and 124, subsection 995-1(1 ), definition of 'agent' of the ITAA 1997]

7.32 A further instance where a Dictionary definition has broken the plain English rules is in the definition of 'market value' in subsection 995-1(1) of the ITAA 1997. There are instances where the ordinary meaning of the term 'market value' should apply, however, because the term is defined in the current way in the Dictionary, all instances where the term 'market value' appears, the defined meaning of the term applies. These amendments insert a new Subdivision into Division 960 to ensure that the modifications to the ordinary meaning of market value only apply to determining the market value of assets or of non-cash benefits. That way it is clear that if we value something at the market rate that is not an asset or a non-cash benefit the ordinary meaning applies. [Schedule 7, items 105 and 112, Subdivision 960-S and subsection 995-1(1) definition of 'market value' of the ITAA 1997]

Fixing technical drafting errors

7.33 There are sometimes technical drafting errors in the tax law which are not intended and need to be corrected. An example is in section 31 of the Superannuation Guarantee (Administration) Act 1992 which provides for the calculation of a nominal interest component. The section requires that interest be calculated 'from the beginning of the quarter in question until the date on which superannuation guarantee charge in relation to the total would be payable under section 46'. However, section 46 is not the only section under which the charge may become payable. It may also become payable under section 36. These amendments extend section 31 to the entire Act instead of incorrectly limiting it to section 46. [Schedule 7, items 129 and 130, subsection 31(1) of the Superannuation Guarantee (Administration) Act 1992]

7.34 Another instance of a technical drafting error is in subsection 701-10(6) of the ITAA 1997. Section 701-10 deals with setting the tax cost of assets that an entity brings into a consolidated group. Subsection 701-10(6) uses the expression 'tax cost is set by this subsection'. However, it is not only subsection 701-10(6) which sets out the tax cost of the asset but all of section 701-10. These amendments correct subsection 701-10(6) so that it refers to the entire section instead of incorrectly limiting it to the subsection. [Schedule 7, item 191, subsection 701-10(6) of the ITAA 1997]

7.35 A technical error also exists in subsection 214-25(2) of the ITAA 1997 which specifies a condition that the return must be 'in writing'. Such a condition is not specified anywhere else in the legislation. Furthermore, there is no special need for this return to be in writing as the generic approved form rules (contained in Schedule 1 to the TAA 1953) govern which returns are acceptable to the Commissioner and they do not necessarily have to be in writing. These amendments remove the 'in writing' requirement. [Schedule 7, item 93, subsection 214-25(2) of the ITAA 1997]

Fixing incorrect and outdated references to provisions and Acts

7.36 Some provisions in the tax law refer to other provisions within the tax law but use the wrong cross-references. For example, subsection 995-1(1) of the ITAA 1997 defines 'small withholder' by referring to 'section 16-105'. Section 16-105 does not exist in the ITAA 1997. The definition of 'small withholder' should instead refer to section 16-105 in Schedule 1 to the TAA 1953. These amendments fix the incorrect referencing by referring to the correct Act and make appropriate corrections in other such occurrences. [Schedule 7, item 193, subsection 995-1(1) definition of 'small withholder' of the ITAA 1997]

7.37 Another instance of incorrect referencing is in subsection 23AK(3) definition of 'trust' of the ITAA 1936. The definition of 'trust' in this subsection makes a reference to subsection 605(9) to give certain trusts the section 23AK exemption via this definition. However, subsection 605(9) does not specify any kind of trusts. Instead, subsection 605(11) specifies the trusts for which the exemption was intended. These amendments will correct the incorrect referencing in this instance. [Schedule 7, item 37, subsection 23AK(3) definition of 'trust' of the ITAA 1936]

7.38 There is a further instance of incorrect referencing in subsection 701-55(5) of the ITAA 1997 which refers to 'Part 3.1 or Part 3.3'. Subsection 701-55(5) should instead refer to 'Part 3-1 or Part 3-3'. These amendments will correct the incorrect referencing. [Schedule 7, item 95, subsection 701-55(5) of the ITAA 1997]

7.39 In addition to incorrect references to provisions, sometimes references to incorrect Acts are also made. An example of this is in paragraph 900-30(7)(b) where it refers to section 74A of the ITAA 1997. The correct reference should be to section 74A of the ITAA 1936. These amendments correct the referencing in this instance and make appropriate corrections in other such occurrences. [Schedule 7, items 72, 73, 77 and 103, item 4A in the table in section 109-60, item 5A in the table in section 112-97, subsection 124-520(2) and paragraph 900-30(7)(b) of the ITAA 1997]

7.40 There is an instance of an outdated reference in section 162B of the FBT Act. In section 162B a reference is made to the ITAA 1936, however this is outdated and the correct reference should now be made to the ITAA 1997. The reason for this outdated referencing is due to the rewrite of provisions from the ITAA 1936 into the ITAA 1997. These amendments correct the outdated referencing. [Schedule 7, item 34, section 162B of the FBT Act]

7.41 Further instances of outdated references are in the subsection 995-1(1) definitions of 'firearms surrender arrangements' and 'adopted child' of the ITAA 1997. Paragraph (a) of the definition of 'firearms surrender arrangement' is identical to the definition of 'Australian law' which is also defined in subsection 995-1(1) of the ITAA 1997. Therefore, paragraph (a) should use the existing definition. These amendments correct the outdated referencing in this instance and other such instances. [Schedule 7, items 106, 107, 109 and 110, subsection 995-1(1) definitions of 'adopted child', 'dividend' and 'firearms surrender arrangement' of the ITAA 1997]

Inserting missing asterisks before defined terms

7.42 Most defined terms in more recent tax laws are identified by an asterisk appearing at the start of the term (eg, '*business'). A footnote on each page of the Act refers readers to the Dictionary for definitions which are marked with an asterisk. Some defined terms have not been properly identified by an asterisk. In such cases, these amendments will insert those missing asterisks. For example, in section 50-25 of the ITAA 1997, an asterisk has been inserted before the term 'local governing body'. [Schedule 7, items 216 and 218]

7.43 Other asterisks are required for the terms: scheme, residency requirement, superannuation fund, derived, film and market value. These amendments will insert those missing asterisks. [Schedule 7, items 214 to 216]

Deleting asterisks from terms which do not require an asterisk

7.44 Some defined terms have been incorrectly marked with an asterisk. For example the term 'partnership' has been incorrectly marked with an asterisk throughout the ITAA 1997. Although, 'partnership' is a defined term, it is on the list of terms that occur too frequently to need an asterisk (see subsection 2-15(3) of the ITAA 1997). These amendments remove the asterisks in these cases. [Schedule 7, item 213]

7.45 A further example of provisions being incorrectly marked with an asterisk is in paragraph 388-50(1)(d) in Schedule 1 to the TAA 1953 where 'electronically' has been incorrectly asterisked (electronically is not a defined term). These amendments remove the asterisks in this case and other such occurrences. [Schedule 7, items 217 and 219]

Fixing typographical errors

7.46 Subsection 73BAG(1) of the ITAA 1936 deals with adjustments for research and development assets held by a head company of a consolidated group. Subsection 73BAG(1) refers to 'subsections 73(23) and (24B)'. Subsections 73(23) and (24B) do not exist in the legislation. There was a typographical error at the time the provision was inserted and the correct reference should have been to subsections 73B(23) and (24B). These amendments correct the reference. [Schedule 7, item 174, subsection 73BAG(1) of the ITAA 1936]

7.47 A further typographical error is in section 94F of the ITAA 1936 which refers to paragraph 94D(d). Paragraph 94D(d) does not exist in the legislation. There was a typographical error at the time the provision was inserted and the correct reference should have been to paragraph 94D(1)(d). These amendments correct the reference. [Schedule 7, item 177, section 94F of the ITAA 1936]

7.48 In section 124-870 of the ITAA 1997, the note to subsection (4) has misspelled 'but' as 'ut'. These amendments correct the spelling error. [Schedule 7, item 79, note to subsection 124-870(4) of the ITAA 1997]

Updating references to repealed law

7.49 Amending Acts often repeal provisions of the law, however, some consequential amendments which are required to other affected provisions are sometimes overlooked. For example, subsection 126-10(3) of the GST Act makes a reference to Subdivision 38-H. Subdivision 38-H was repealed and the reference should have been changed to section 38-270. These amendments correct the cross-reference. [Schedule 7, item 3, subsection 126-10(3) of the GST Act]

Fixing incorrect numbering of provisions and Divisions

7.50 Some provisions are not in the correct numerical sequence. This typically occurs when two Bills are introduced into Parliament around the same time or are enacted in an unanticipated order. For example, item 2 of Schedule 2 to the Tax Law Improvement Act (No. 1) 1998 correctly inserted new Parts 3-1, 3-3 and 3-5 before Part 3-45. This amendment commenced on 22 June 1998. A misnumbering occurred when item 87 of Schedule 2 to the New Business Tax System (Miscellaneous) Act (No. 2) 2000 inserted Part 3-35 after Part 3-3 but before Part 3-5. This Bill corrects the numbering and order of provisions. [Schedule 7, item 123]

7.51 A further example of this is in section 40-95 of the Income Tax (Transitional Provisions) Act 1997. Section 40-95 was inserted into the Act by the Taxation Laws Amendment Act (No. 4) 2003 'at the end of Subdivision B'. Unfortunately, by the time it was inserted, Taxation Laws Amendment Act (No. 5) 2002 had already inserted section 40-100 at the end of that Subdivision, putting 40-95 out of order. These amendments correct the order in which the provisions appear. [Schedule 7, items 120 and 122, section 40-95 of the Income Tax (Transitional Provisions) Act 1997]

7.52 Sometimes two or more Bills are introduced into Parliament amending the same provision or inserting a new provision which has the same section number. An example of this is in subsection 30-315(2) of the ITAA 1997 where there are two occurrences of item '28A' in the table. This Bill renumbers the items to restore correct order. [Schedule 7, item 61, item 28A in the table in subsection 30-315(2) of the ITAA 1997]

7.53 A further instance of two Subdivisions with the same number appears in Subdivision 126-D. This Bill renumbers the Subdivisions and fixes other affected provisions. [Schedule 7, items 44, 74, 75, 78 and 80 to 82, note 6 to section 121AS of the ITAA 1936, item 7 in the table in section 112-150, section 112-150, note 3 to subsection 124-780(1 ), Subdivision 126-D, Subdivision 126-E (as relettered) of the ITAA 1997]

7.54 Subsection 94D(4) of the ITAA 1936 occurs twice in the legislation with the substance of the provisions being different. The first occurrence of subsection 94D(4), which deals with the place of residence of a venture capital management partnership, was inserted by Tax Laws Amendment (2004 Measures No. 3) Act 2004; and the second occurrence which deals with foreign hybrid limited partnerships, was inserted by Taxation Laws Amendment Act (No. 1) 2004. Both Acts were assented to on 30 June 2004 with the first occurrence commencing on 1 July 2002 and the second occurrence commencing on 30 June 2004. These amendments renumber the subsections in the appropriate order and also make a consequential amendment. [Schedule 7, items 176, 178 and 192, section 94D, paragraph 485AA(1)(a) of the ITAA 1936 and paragraph 830-10(1)(d) of the ITAA 1997]

7.55 Amending Acts often repeal paragraphs in a section, however, the renumbering of the remaining paragraphs does not occur thus putting the paragraphs in a non-sequential order. An instance of this is in subsection 715-270(5) of the ITAA 1997 where paragraphs (a) and (b) were repealed however (c), (d) and (e) remained without being renumbered. These amendments renumber the paragraphs in this instance and other such instances. [Schedule 7, items 98, 99, 101, 102 and 121, paragraphs 715-270(5)(c ), ( d) and (e ), subsection 723-110(3 ), items 3 and 4 in the table in subsection 820-120(4 ), items 3 and 4 in the table in subsection 820-225(3) and paragraphs 40-75(1)(b) and (c) of the ITAA 1997]

Changing an inappropriate heading and blind cross-references

7.56 Some headings in the taxation laws do not clearly describe the content of a provision under that heading. This may affect the interpretation and readability of the provisions. For example, the heading to section 204-45 in the ITAA 1997 does not accurately reflect the content of the section. The heading of section 204-45 reads 'Effect of a determination under paragraph 204-30(3)(b)'. This is misleading because item 1 of Schedule 13 to the New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002 changed paragraph 204-30(3)(b) to paragraph 204-30(3)(c). However, the consequential amendment to fix the heading in section 204-45 was overlooked. The heading also contains a blind cross-reference where it refers to another provision without describing what that other provision does. These amendments fix the heading and also remedy the blind cross-reference. [Schedule 7, items 86 and 87, section 204-45 of the ITAA 1997]

Fixing grammatical errors

7.57 There are minor grammatical errors in subparagraphs 701-70(3)(a)(i) and (ii) and 701-75(3)(a)(i) of the ITAA 1997. These subparagraphs end with 'or', however, the word 'or' is not necessary at the end of these subparagraphs because the subparagraphs are clearly intended to be mutually exclusive. These amendments fix these grammatical errors and other similar errors made where an 'or' or 'and' has been left out. [Schedule 7, items 2, 50, 96, 97, 100, 194, 196 and 199, paragraph 75-11(2A)(e) of the GST Act, paragraph 544(1)(b) of the ITAA 1936, subparagraphs 701-70(3)(a)(i) and (ii ), 701-75(3)(a)(i) and 727-465(b)(ii) of the ITAA 1997, subsection 3(1) definition of 'decision to which this Act applies' of the Taxation (Interest on Overpayments and Early Payments) Act 1983]

Minor consequential amendments

7.58 Sometimes amendments are made to provisions and some consequential amendments are overlooked. An example is in paragraph 2(b) of Part I of Schedule 10 to the ITAA 1936. This provision refers to 'column 1' of the table. The table structure referred to in paragraph 2(b) was amended but the reference was not updated. It should now refer to 'item 1' in the restructured table. These amendments correct the cross-reference in this instance and other such occurrences. [Schedule 7, items 43 and 116 to 118, paragraph 102AAM(10)(b) of the ITAA 1936 and paragraph 1(b) of Part I of Schedule 7, paragraph 1(b) of Part II of Schedule 7, paragraph 2(b) of Part I of Schedule 10 to the Income Tax Rates Act 1986]

7.59 Another example is in section 11-15 of the ITAA 1997. Section 11-15 is a checklist of amounts of ordinary or statutory income derived by certain entities that are exempt income. Paragraphs 23(c)(i) and (ii) of the ITAA 1936 have been repealed, so references to them in the table checklist should be removed from section 11-15. These amendments remove the references to repealed provisions in the checklist. [Schedule 7, items 57 and 58, item in the table headed 'foreign aspects of income taxation' in section 11-15 of the ITAA 1997]

7.60 Other minor consequential amendments that were previously overlooked are also being corrected. [Schedule 7, items 114, 164 and 166, paragraph 14(2)(c) of the Income Tax Rates Act 1986 and items 5 and 100 in the table in subsection 250-10(2) in Schedule 1 to the TAA 1953]

Other consequential amendments - deductions for gifts

7.61 Division 30 of the ITAA 1997 allows deductions for gifts made to certain bodies. Division 30 was amended by Schedule 7 to the Tax Laws Amendment (2004 Measures No. 1) Act 2004 to allow deductions for contributions to eligible fundraising events where a minor benefit is received. Provided certain criteria are met a deduction is allowed for the difference between the contribution made and the market value of the benefit received (eg, $500-a-plate fundraising event where the value of the dinner is $40). The main change to Division 30 to allow for the deductions (where a minor benefit is received) was through the insertion of items 7 and 8 into the table in section 30-15. A number of consequential changes were also required to the numerous conditions scattered throughout Division 30 to allow deductible gift recipients to receive these contributions (in some places labelled 'deductible contributions'). However, some consequential amendments were overlooked, preventing the measure from operating as intended. These consequential amendments are made by this Bill. [Schedule 7, items 179 to 188, subparagraphs 30-125(1)(c)(i ), 30-125(1)(c)(ii ), 30-125(1)(d)(i) and 30-125(1)(d)(ii ), subsections 30-125(4 ), ( 4A ), ( 5) and (6 ), section 30-130, subsections 30-265(2) and (3 ), subsections 30-289(2) and (3) and subsections 30-300(3) and (4) of the ITAA 1997]

Updating non-operative guide material, notes and examples

7.62 Some non-operative parts of the ITAA 1997, such as guide material, notes and examples, no longer accurately reflect the content of operative provisions. While this material is non-operative, it may be used for limited purposes in interpreting operative provisions. For example, the guide material in section 2-5 of the ITAA 1997 no longer accurately describes how the Act is organised. 'Collection of tax' is no longer in the ITAA 1997, the TAA 1953 covers administration, collection and recovery of most taxes administered by the Commissioner. These amendments update this guide material and other outdated guides, notes and examples. [Schedule 7, items 51 and 52, section 2-5 of the ITAA 1997]

7.63 The note to subsection 26-5(2) of the ITAA 1997 refers to paragraph 25-5(1)(c) to work out the deductibility of penalties under Subdivision 162-D of the GST Act. The reference to paragraph 25-5(1)(c) is incorrect and the note should refer to paragraph 25-5(1)(ca). These amendments update this note. [Schedule 7, item 60, subsection 26-5(2) of the ITAA 1997]

7.64 Paragraph (b) of the note to subsection 115-45(2) refers to section 115-60, which was repealed by item 2 of Schedule 3 to the Taxation Laws Amendment Act (No. 5) 2001. These amendments correct the reference. [Schedule 7, item 76, note to subsection 115-45(2) of the ITAA 1997]

7.65 Sometimes typographical errors are made. An example is in section 13-1 of the ITAA 1997. Section 13-1 is a non-operative list of tax offsets in the income tax law. The entry for 'research and development', which was added by the Taxation Laws Amendment (Research and Development) Act 2001, suggests that such an offset is provided by section 731 of the ITAA 1936. This is a typographical error as there is no section 731 in the Act. The correct reference should be to 73I. Amendments correct this error. [Schedule 7, item 59, section 13-1 of the ITAA 1997]

7.66 Section 152-200 of the ITAA 1997 does not reflect the insertion of section 152-220 by item 11 of Schedule 3 to the Taxation Laws Amendment Act (No. 7) 2000, which allows taxpayers to bypass the 50 per cent small business capital gains tax (CGT) reduction and go straight to either the retirement exemption or the roll-over. This amendment corrects this defect. [Schedule 7, item 83, section 152-200 of the ITAA 1997]

7.67 Sections 152-300 and 152-400 also do not reflect the changes made by item 11 of Schedule 3 to the Taxation Laws Amendment Act (No. 7) 2000. The changes allow taxpayers to bypass the 50 per cent small business CGT reduction and go straight to either the retirement exemption or the roll-over. At present section 152-300 and 152-400 contain the sentence: 'The concession in section 152-205 (small business 50 per cent reduction) applies before this one.' These amendments correct the sentence to reflect the changes. [Schedule 7, items 84 and 85, sections 152-300 and 152-400 of the ITAA 1997]

Repealing link notes

7.68 Link notes are included at the end of one group of provisions to indicate the number of the next provision where there is a gap in the numerical sequence. They are also used to indicate the end of a guide. Link notes were introduced to assist users with the new numbering system in the taxation Acts. As the new numbering system and the use of guides has been in place for some time and users are now familiar with them, link notes are no longer necessary. Maintaining the link notes has proved to be a burden for drafters and the source of some mistakes.

7.69 The link notes in the ITAA 1936, the ITAA 1997, the Income Tax (Transitional Provisions) Act 1997, the TAA 1953 and the Venture Capital Act 2002 are no longer necessary and have been removed with the exception of a few. The ones remaining have been removed by these amendments. [Schedule 7, items 210 to 212]

Updates to the Commonwealth Places (Mirror Taxes) Act 1998

7.70 The Commonwealth Places (Mirror Taxes) Act 1998 provides a framework for the imposition of taxes to 'mirror' certain state taxes in Commonwealth places (eg, airports). The revenue is collected by the relevant state revenue authorities and appropriated to the States. The Act was in response to a High Court decision (Allders International Pty Ltd v Commissioner of State Revenue (Victoria) (1996)
186 CLR 630), which held that the imposition of stamp duty on a lease covering part of a Commonwealth place was invalid because the Commonwealth has the exclusive power to make laws with respect to Commonwealth places (paragraph 52(i) of the Constitution).

7.71 The relevant state taxes are listed in Schedule 1 to the Act or are prescribed in the regulations. Schedule 1, in addition to the regulations, requires updating to reflect statute changes in the states. These amendments update the references to repeal the redundant references to Acts for the States of Western Australia and Tasmania. [Schedule 7, items 30 and 31, clauses 4 and 6 of Schedule 1 to the

Commonwealth Places (Mirror Taxes) Act 1998]

7.72 The amendments have been made at the request of the relevant states. Newer Acts' references have been added by regulation.

Technical amendments arising out of the enactment of the Legislative Instruments Act 2003

7.73 The Legislative Instruments Act 2003 has been enacted and has applied since 1 January 2005. Some consequential amendments are required due to its enactment. These amendments:

•

standardise labelling for all legislative instruments so that references to 'statutory rules' change to 'legislative instruments'; and

•

delete specific requirements for making legislative instruments that are now covered in the Legislative Instruments Act 2003.

7.74 None of the proposed amendments change the substantive effect of the provisions. The changes merely make changes consequential upon the enactment of the Legislative Instruments Act 2003. [Schedule 7, items 220 to 256 and 259 to 270]

General improvements to the usability of the tax laws

Tax offsets priority rules

7.75 Often the tax laws contain provisions which deal with a similar issue but are contained in many different provisions thus making it unnecessarily complicated. An example is in our current tax offsets rules. The current rules for working out the excess (unused amount) of a carry-forward tax offset (Division 65), a refundable tax offset (Division 67) or a 'transferable tax offset' are complex and counter-intuitive. The current rules for working out the excess are also referred to as the priority rules.

7.76 The law generally applies offsets in the order that gives the greatest benefit to the taxpayer. So, ordinary offsets are used up before transferable offsets (where any unused bit can be transferred to someone else); transferable offsets are used up before carry-forward offsets (where any unused bit can be carried over to later years); and carry-forward offsets are used up before refundable offsets (where any unused bit produces a refund).

7.77 In order to simplify the unnecessary complications the priority rules for tax offsets are included in a new single Division. [Schedule 7, item 64, Division 63 of the ITAA 1997]

7.78 With the insertion of the new Division, sections 65-20, 65-25, 67-30 and 67-35 are being repealed. These provisions contain the current priority rules. [Schedule 7, items 65 and 68, sections 65-20, 65-25, 67-30 and 67-35 of the ITAA 1997]

7.79 Furthermore, consequential amendments are being made to section 65-30 so that the provision refers to the new Division for working out the excess of the tax offsets being carried forward. [Schedule 7, item 66, section 65-30 of the ITAA 1997]

7.80 A further consequential amendment is being made to subsection 65-35(2) to reflect the insertion of the new Division which would govern how the tax offsets are to be prioritised. [Schedule 7, item 67, subsection 65-35(2) of the ITAA 1997]

7.81 A note is added at the end of subsection 4-10(3) to refer users to the new Division in the place of subsection 4-10(3A) which deals with the current priority rules. [Schedule 7, items 53 and 54, subsection 4-10(3A) of the ITAA 1997]

7.82 Other consequential amendments are also being made to reflect the changes due to the insertion of the new Division. [Schedule 7, items 62 and 63, 88 to 91 and 94, section 61-496, subsection 61-497(1), paragraph 205-70(1)(c), step 4 of the method statement in subsection 205-70(2), subsection 205-70(3) and the note to subsection 320-134(3) of the ITAA 1997]

7.83 There will be no change to the order in which tax offsets are applied, or to any other matters of substance, so these amendments will not adversely affect any taxpayer. The new rules apply to the 2006-07 income year and to later income years. [Schedule 7, items 55, 69 and 92]

Definition of 'relevant tax' in the Taxation (Interest on Overpayments and Early Payments) Act 1983

7.84 There is currently confusion in the Taxation (Interest on Overpayments and Early Payments) Act 1983 as to the meaning of 'relevant tax'. The current definition of 'relevant tax' is difficult to follow as it has grown in an ad-hoc manner. Amendments remove the current definition of 'relevant tax' and replace it with a restructured definition expressed instead in a tabular format. This restructured definition refers the reader to a table which specifies what is a relevant tax. With the insertion of this new table and the new definition some amendments are made to other provisions to update cross-references. [Schedule 7, items 195, 197, 198 and 200 to 209]

Application and transitional provisions

7.85 Generally, the technical amendments contained in Schedule 7 will commence and apply from Royal Assent. Exceptions to this are explained below.

Fixing incorrect terminology

7.86 The amendment discussed in paragraph 7.8 replaces references to 'person' with 'entity'. It will commence just after the commencement of Schedule 5 to the Taxation Laws Amendment Act (No. 6) 1999 (5 July 1999). Section 51-35 of the ITAA 1997 is the rewritten version of paragraph 23(z) of the ITAA 1936. However, references to 'person' in the ITAA 1936 were not updated to 'entity' in the rewritten version which has caused an unintended change to the outcome. Trustees of trusts under the ITAA 1936 were persons for the purposes of that Act (as they were either individuals or companies) but, with the use of 'entity' in the ITAA 1997 (see section 960-100), different legal capacities of entities were separated and treated independently. Therefore, section 51-35 arguably no longer covers payments by trustees. The amendment applies retrospectively to ensure that trustees are at all times covered by the provision. It will not adversely affect taxpayers because the intention of the law was always clear. [Clause 2]

Fixing incorrect label

7.87 The amendment discussed in paragraph 7.9 omits 'to Commonwealth entity' in the definition of 'untaxable Commonwealth entity' in section 110-5 of the Fuel Tax Bill 2006. This amendment will commence just after the commencement of the Fuel Tax Bill 2006 (proposed date is 1 July 2006). The amendment is prospective because the Fuel Tax Bill 2006 has not yet commenced. The prospective amendment will not affect taxpayers in any way. [Clause 2]

Corrections due to failed amendments

7.88 The amendment discussed in paragraph 7.12 fixes the failed amendment proposed in item 4 of Schedule 8 to the Tax Laws Amendment (2004 Measures No. 2) Act 2004 which attempted to insert 'public ambulance services' after 'certain hospitals'. That amendment relied on an amendment in item 24 of Schedule 10 to the Tax Laws Amendment (2004 Measures No. 1) Act 2004 (which inserted the words 'certain hospitals') taking effect first. Therefore, the amendment should commence just after the commencement of that Act. The retrospective amendment will not have any adverse effect on taxpayers. [Clause 2]

Misdescribed amendments

7.89 The amendment discussed in paragraph 7.19 fixes the misdescribed amendment in the amending Act so that the amendment can be reflected in the primary Act. It will commence just after the commencement of item 20 of Schedule 10 to the A New Tax System (Family Assistance)(Consequential and Related Measures) Act (No. 2) 1999 (1 July 2000). The amendment is retrospective because if it was not for the misdescribed amendment that is when the amendment would have commenced. The retrospective nature of the amendment will not have any adverse effects on taxpayers as the intended outcome was always clear. [Clause 2]

Fixing anomalies

7.90 The amendment discussed in paragraph 7.23 which amends section 14ZW of the TAA 1953 is to commence on Royal Assent. The amendments apply to penalty assessments made after Royal Assent. [Schedule 7, item 133]

7.91 The amendment discussed in paragraph 7.24 which amends sections 16-30, 16-35, 16-40, 16-43, 16-45 and 16-50 of Schedule 1 and Division 298 of Schedule 1 to the TAA 1953 should commence on Royal Assent. The amendments should apply to penalties imposed after the day of Royal Assent. [Schedule 7, item 138]

7.92 The amendment discussed in paragraph 7.24 which amends section 16-45 of Schedule 1 to the TAA 1953 also inserts a transitional rule into the TAA 1953 to allow a taxpayer who is dissatisfied with the Commissioner's decision to refuse to remit an amount of penalty, under section 16-45, to object against that decision in the manner set out in Part IVC of the TAA 1953. The appeal rights will commence applying to any decision made by the Commissioner from the commencement of this provision. An objection that was made against a refusal before the assent day also has effect as if it had been made on the assent day. The objection is required to be made before the end of 60 days after the day on which this Act received Royal Assent. [Schedule 7, item 139]

Removing redundant references

7.93 The amendment discussed in paragraph 7.26 which amends section 118-355 of the ITAA 1997 and paragraphs 70B(2A)(c) and 92(2A)(c) of the ITAA 1936 should commence immediately after the commencement of item 82 of Schedule 2 to the New Business Tax System (Miscellaneous) Act (No. 2) 2000 (30 June 2000). The amendment is retrospective because that is when the amendment should have been made. The retrospectivity of the amendment will not adversely affect taxpayers as the amendments being made are to remove redundant references. As the references being removed are redundant the changes will not adversely affect anyone. [Clause 2]

Correcting Dictionary definitions

7.94 The amendment discussed in paragraph 7.31 which amends the definition of 'agent' also inserts a transitional rule into the Income Tax (Transitional Provisions) Act 1997. This provides an entity declared by the Commissioner (in writing) to be the principal's agent or sole agent for specified purposes of this Act, under the definition of 'agent' in subsection 995-1(1) of the ITAA 1997 that was in force at the time of Royal Assent, has effect as if it had been made under the replacement section. [Schedule 7, item 124]

Fixing technical drafting errors

7.95 The amendment discussed in paragraph 7.34 which amends subsection 701-10(6) of the ITAA 1997 will commence just after the commencement of the New Business Tax System (Consolidation) Act (No. 1) 2002 (24 October 2002). The amendment is retrospective because the amendment being made is a minor drafting error and the intention of the law remains the same. The retrospective amendment will not adversely affect any taxpayers. [Clause 2]

Fixing incorrect and outdated references to provisions and Acts

7.96 The amendment discussed in paragraph 7.36 which amends the definition of 'small withholder' should commence just after the commencement of the A New Tax System (Pay As You Go) Act 1999 (22 December 1999). The amendment is retrospective as clearly there was an incorrect reference and therefore it does not alter the interpretation of the law in any way. Therefore, the retrospective amendment will not adversely affect any taxpayers. [Clause 2]

7.97 The amendment discussed in paragraph 7.37 which amends the definition of 'trust' will commence on Royal Assent. The amendment will start to apply to assessments for the 2001-02 income year and later income years. The retrospective application will not adversely affect any taxpayers because the intended outcome was clear. [Clause 2; Schedule 7, item 38]

Fixing typographical errors

7.98 The amendment discussed in paragraph 7.46 which amends subsection 73BAG(1) of the ITAA 1936 should commence on 24 October 2002, when the provision was first inserted. The error is clearly a typographical error and therefore the amendment will not change the outcome of the law in any way. The retrospective amendment will not adversely affect any taxpayers. [Clause 2]

7.99 The amendment discussed in paragraph 7.47 which amends section 94F of the ITAA 1936 should commence on 24 December 2002, when the provision was first inserted. The error is clearly a typographical error and therefore the amendment will not change the outcome of the law. The retrospective amendment will not adversely affect any taxpayers. [Clause 2]

Updating references to repealed law

7.100 The amendment discussed in paragraph 7.49 which amends subsection 126-10(3) of the GST Act will commence on Royal Assent but will apply to supplies made on or after 14 December 2004. The amendment will apply from 14 December 2004 because that was the date of effect of the repeal of the heading to which subsection 126-10(3) refers. The retrospective application will have no adverse affect on taxpayers because the intended outcome was always clear. [Clause 2; Schedule 7, item 4]

Minor consequential amendments

7.101 The amendment discussed in paragraph 7.58 which amends Parts I and II of Schedule 7 and Part I of Schedule 10 of the Income Tax Rates Act 1986 should commence on Royal Assent. It will apply to assessments for the 2003-04 income year and later income years, consistent with the substantive amendments related to this missed consequential. The retrospective application will have no adverse affect on taxpayers because the intended outcome was always clear. [Schedule 7, item 119]

7.102 The amendment discussed in paragraph 7.60 which amends subsection 250-10(2) in Schedule 1 to the TAA 1953 should commence on Royal Assent. It applies to GST returns and net amounts, for tax periods ending on or after 22 February 2001. As this is guide material the change will not adversely affect any taxpayers. [Clause 2; Schedule 7, item 165]

7.103 The amendment discussed in paragraph 7.60 which amends paragraph 14(2)(c) of the Income Tax Rates Act 1986 will commence on Royal Assent. It applies to assessments for the 2005-06 income year and later income years. [Clause 2; Schedule 7, item 115]

Index

Clauses

Schedule 1: F-111 Deseal/Reseal Ex-gratia Lump Sum Payments

Schedule 2: Specific gift recipients

Schedule 3: CGT treatment of options

Schedule 4: Compulsory acquisition

Schedule 5: Franking deficit tax

Schedule 6: Choice of superannuation fund

Schedule 7: Technical corrections and improvements