House of Representatives

Explanatory Memorandum

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

Chapter 4 - Other changes to the tax law

Outline of chapter

4.1 Schedules 2 to 6 and 8 to this Bill amend a number of Acts to:

•

give effect to the 2006-07 Budget announcements detailed in Chapter 1;

•

allow small business entities access to the various small business concessions located in the different Acts; and

•

make consequential changes to give effect to the above amendments.

Context of amendments

Goods and services tax

4.2 The A New Tax System (Goods and Services Tax) Act 1999 (GST Act) contains the following three goods and services tax (GST) related small business concessions:

•

GST cash accounting;

•

annual apportionment of input tax credits for acquisitions and importations that are partly creditable; and

•

paying GST by quarterly instalments.

4.3 Currently, in order to be eligible to elect one of these concessions, an entity's annual turnover for GST purposes must not exceed either $2 million, in the case of GST instalments and annual apportionment, or $1 million in the case of cash accounting.

4.4 In the 2006-07 Budget, the Government announced that it would increase the GST cash accounting threshold to $2 million. The Government also announced that it would align simplified tax system (STS) and GST definitions of 'turnover for small business'. These proposals have been incorporated into the new small business framework.

4.5 Currently, the GST concessions are available to eligible entities that are carrying on an enterprise. The concept of carrying on an 'enterprise' is potentially broader than the concept of carrying on a 'business'. For example, an enterprise would include activities done by charitable institutions, trustees of complying superannuation funds, and some government bodies. Changes need to be made to the GST Act to ensure that entities that carry on enterprises, but do not carry on businesses, continue to have access to the GST concessions if they meet the eligibility criteria.

Simplified tax system

4.6 Currently, the STS is an optional system that provides for an alternative method of determining taxable income for entities carrying on small businesses with straightforward, uncomplicated tax affairs. Eligible entities that choose to use the STS have special depreciation and trading stock rules (the standard tax rules apply outside these areas). In addition, STS taxpayers can claim an immediate full deduction for certain prepaid expenses.

4.7 As part of the 2006-07 Budget the Government announced a number of changes to the STS, including:

•

increasing the STS average annual turnover threshold from $1 million to $2 million;

•

removing the $3 million depreciating assets test from the STS eligibility requirements; and

•

giving STS taxpayers access to the capital gains tax (CGT) small business concessions, fringe benefits tax (FBT) exemption for car parking benefits and the payment of quarterly pay as you go (PAYG) instalments on the basis of gross domestic product (GDP) adjusted notional tax.

4.8 These proposals have been incorporated into the new small business framework.

Capital gains tax

4.9 In the 2006-07 Budget the Government announced that the maximum net asset value for accessing the small business CGT concessions would be increased from $5 million to $6 million and that STS taxpayers would have access to the small business CGT concessions. The former has been given affect through this Bill and the latter has been incorporated into the new small business framework.

4.10 The alignment of grouping rules applying to small business CGT concessions and the new small business framework, announced by the Treasurer and the Minister for Small Business and Tourism in Press Release No. 123 of 13 November 2006, has also been incorporated in the new small business framework.

Fringe benefits tax

4.11 Giving STS taxpayers access to the FBT car parking exemption was announced in the 2006-07 Budget. This proposal has been incorporated into the new small business framework.

Pay as you go instalments

4.12 Giving STS taxpayers access to PAYG instalments based on GDP-adjusted notional tax was announced in the 2006-07 Budget. This proposal has been incorporated into the new small business framework.

Summary of new law

Goods and services tax

4.13 Under the new law, a small business entity will be eligible to adopt any of the GST-related small business concessions, providing they meet any additional specific criteria applying to the concessions.

4.14 The 'small business entity' criterion replaces the existing annual turnover criterion for entities that are carrying on a business. As a result, these entities will no longer need to work out their turnover one way for the purposes of the GST concessions and another way for the purposes of the income tax concessions.

4.15 The existing turnover test in the GST Act will continue to apply to entities that are carrying on an enterprise, but not a business.

Simplified tax system

4.16 The new law gives small business entities access to the concessions currently available to STS taxpayers, and gives them the choice to apply concessions without needing to lodge an election with the Australian Taxation Office. It is not compulsory for an entity to use any particular concessions as it was for some of the concessions available under the STS. The concessions that small business entities choose will be reflected in their tax returns and substantiated by their records.

4.17 The two-year amendment period applies to small business entities automatically.

Capital gains tax

4.18 Small business entities can access small business CGT concessions (provided they satisfy other relevant criteria). If the entity is not a small business entity, but the net value of its CGT assets is less than $6 million, it will also be able to access the CGT small business concessions. The same aggregation rules apply to the maximum net asset value test and the small business entity test (see Chapter 2).

Fringe benefits tax

4.19 Small business entities can access the FBT car parking exemption from 1 April 2007. The existing eligibility threshold for the FBT car parking exemption (ordinary income and statutory income of less than $10 million) will be retained as an alternative threshold for employers who are not small business entities.

Pay as you go instalments

4.20 Small business entities that are full self assessment taxpayers (typically companies and superannuation funds) will be eligible for the GDP-adjusted notional tax method for calculating instalment liabilities from the 2009-10 income year. From the 2007-08 income year full self assessment taxpayers can access the concession if they have base assessment instalment income (broadly, assessable instalment income in their latest income tax assessment) not exceeding $2 million.

Detailed explanation of new law

Changes to the GST concessions

4.21 Small business entities can access GST concessions subject to the entity meeting any additional criteria that apply to those concessions. [Schedule 2, items 8 to 11, 22 and 30, paragraphs 29-40(1)(a), 131-5(1)(a) and 162-5(1)(a), subsection 29-40(1) of the GST Act]

4.22 The GST concessions are:

•

accounting for GST on a cash basis;

•

annual apportionment of input tax credits for acquisitions and importations that are partly creditable; and

•

paying GST by quarterly instalments.

4.23 The Dictionary in the GST Act is updated to define a 'small business entity' by reference to section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997). [Schedule 2, item 59, section 195-1 of the GST Act]

4.24 An entity that is carrying on a business need not elect a concession for an income year as a whole. Rather, it can elect a concession at any time during an income year, subject to any due dates that currently exist - such as 28 October in the case of GST instalments. Existing provisions contained in the GST Act will dictate the date of effect of the election.

4.25 A choice or election made by a small business entity to adopt any of the small business concessions will cease to have effect if the entity is no longer a small business entity. Additionally, a choice or election made before 1 July 2007 by an entity that is carrying on a business on 1 July 2007 will cease to have effect if that entity is not a small business entity. The new rules governing the date of effect of a cessation are comparable to the existing rules. [Schedule 2, items 13, 14, 23 to 25, 29, 31 to 33 and 68 to 70, paragraphs 29-50(1)(a), 131-20(1)(c) and 162-30(1)(c), subsections 29-50(2), 131-20(5), 157-10(1) and 162-30(5) of the GST Act]

4.26 Entities that carry on an enterprise, but not a business, will continue to determine their eligibility for the concessions in the current manner. The rules governing the cessation of an election made by these entities remain the same. The threshold for accessing the GST cash accounting method is increased from $1 million to $2 million. [Schedule 2, items 9, 12 to 14, 22, 23, 26, 29 to 31, 34, 68 to 70, paragraphs 29-40(1)(a), 29-40(3)(a), 29-50(1)(a), 131-5(1)(a), 131-20(1)(c), 162-5(1)(a) and 162-30(1)(c), subsections 29-50(2), 131-20(6), 157-10(1) and 162-30(5) of the GST Act]

4.27 A note has been added to section 188-5 of the GST Act to specify that the turnover thresholds in the GST Act for cash accounting, annual apportionment and instalment only apply to entities that do not carry on a business. [Schedule 2, item 37, section 188-5 of the GST Act]

4.28 References to 'annual turnover' in the GST Act are replaced with 'GST turnover' to avoid confusion with the concept of 'annual turnover' used in the new small business framework. [Schedule 2, items 1 to 7, 16 to 21, 27, 28, 35, 36 and 38 to 58, paragraphs 23-5(b), 27-15(1)(a), 27-37(1)(a), 144-5(2)(a), 149-10(1)(b), 188-10(1)(a) and (b), 188-10(2)(a) and (b), subsections 23-10(1), 27-20(1), 27-22(1), 31-25(2), 33-10(2), 57-35(1), 83-25(1), 83-30(1), 84-5(2), 188-10(1) and (2), 188-15(1) to (3), 188-20(1) to (3), 188-24(1) and (2), and 188-40(1), sections 23-1, 188-1, 188-10, 188-15, 188-20, 188-22, 188-23, 188-25 and 195-1 of the GST Act; Schedule 2, items 61 to 65, paragraph 974-75(6)(b), subsections 974-75(7) and 995-1(1) of the ITAA 1997; Schedule 2, item 66, paragraphs 286-80(3)(c) and 286-80(4)(c) of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953 )]

4.29 A correction is made to the definition of 'turnover threshold' contained in section 195-1 of the GST Act. Previously this definition was incomplete, as it did not refer to the instalment and annual apportionment turnover thresholds. [Schedule 2, item 60, section 195-1 of the GST Act]

4.30 The rules regarding the Commissioner's obligation to revoke any permission for an entity to account for GST on a cash basis have been updated to reflect the new 'small business entity' concept. Under the new rules, the Commissioner must revoke any permission granted to a business entity allowing it to account for GST on a cash basis if the Commissioner is satisfied that the entity is not a small business entity and it is not appropriate to permit the entity to account on a cash basis. [Schedule 2, item 15, paragraph 29-50(3)(a) of the GST Act]

Giving small business entities access to the former STS concessions

4.31 The substance of the concessions currently available to STS taxpayers remain unchanged under the new small business framework.

4.32 However, minor amendments are required to:

•

allow small business entities to access the former STS concessions;

•

abolish the STS as a system, and relabel the STS concessions to make the terminology consistent with the new small business framework; and

•

provide that small business entities can choose to use only those concessions that suit their business needs.

[Schedule 3, items 1 to 78, 81 to 84, 87 to 96, 110 to 120, 149 to 159 and 162, subparagraphs 328-225(5)(a)(i) and (ii), paragraphs 104-235(4)(b), 328-170(b), 328-175(4)(a), 328-175(7)(a), 328-180(1)(a), 328-185(2)(a) and (b), 328-185(3)(a), 328-205(1)(a) and (c), 328-205(4)(b) and (c), 328-255(1)(a), 328-225(4)(a) and (b), 328-285(1)(a), 328-243(2)(b), 727-15(8)(a) and 727-470(2)(a), subsections 27-100(5), 40-25(1), 40-340(3), 40-425(7), 40-430(1), 70-5(3), 70-35(1), 70-40(1), 70-40(2 ), 70-45(2), 328-175(1), (3) and (4), 328-180(2), (3) and (5), 328-185(1) and (3) to (7), 328-190(1) to (4), 328-195(1) to (3), 328-205(1), (2) and (4), 328-210(1) and (3), 328-225(1) to (4), 328-235(1) and (2), 328-247(1) and (2), 328-250(3), 328-285(1), 328-295(1) and (2), 716-25(2), 727-470(2), 995-1(1), sections 13-1, 20-157, 328-5, 328-10, 328-170, 328-200, 328-220, 328-280, 328-285 and 727-100 of the ITAA 1997; Schedule 3, items 163 to 167, paragraphs 328-115(1)(a) and 328-115(2)(a), subsections 40-10(3) and 328-115(3) and (4) of the Income Tax (Transitional Provisions) Act 1997]

4.33 Certain provisions that are unnecessary as a result of one or more of the above changes are repealed. [Schedule 3, items 79 to 80, 85, 86 and 109, subsections 4-15(2), 328-285(1) and (2), section 328-290, Subdivisions 328-F and 328-G of the ITAA 1997]

What are the former STS concessions?

4.34 The former STS concessions available to small business entities under the new framework are:

•

the simplified depreciation regime that allows for depreciating assets costing less than $1,000 each to be written off immediately. Most other depreciating assets are pooled and enjoy an accelerated rate of depreciation;

•

the simplified trading stock regime that allows taxpayers not to account for changes in the value of trading stock or do stocktakes at the end of the income year; and

•

an immediate full deduction for certain pre-paid expenses, despite the prepayment rules that potentially apply where a taxpayer incurs expenditure for something to be done (in whole or in part) in a later income year. Where these rules apply, the deduction for the expenditure is spread over the period covered by those services, up to a maximum of 10 years.

4.35 As was the case with the STS, small business entities will generally have a two-year amendment period (instead of four years that applies to taxpayers with more complex tax affairs) during which the Commissioner can review and amend the entity's income tax assessment.

Changes to the CGT concessions

Small business entities can access small business CGT concessions

4.36 Small business entities can access the small business CGT concessions under Division 152 of the ITAA 1997, subject to satisfying the existing eligibility criteria for the concessions. If the entity does not satisfy the small business test, it may still access the small business CGT concessions if it satisfies the maximum net asset value test. [Schedule 4, items 1 to 3, paragraphs 152-5(a) and 152-10(1)(c), section 152-5 of the ITAA 1997]

4.37 Amendments are made to ensure that partners in partnerships that are small business entities can access small business CGT concessions subject to existing eligibility criteria. This change is needed because the small business entity test is intended to operate at the partnership level, whereas the CGT provisions are designed so that partners in partnerships access small business CGT concessions. In order for the CGT concessions to apply to the capital gain made on an asset, the asset must be an asset of the small business entity partnership. [Schedule 4, items 2 and 3, subparagraph 152-10(1)(c)(iii) and paragraph 152-5(a) of the ITAA 1997]

Increase in maximum net asset value test threshold

4.38 The threshold for the maximum net asset value test is raised from $5 million to $6 million. [Schedule 4, items 2, 4, and 22, 23 and 25, paragraphs 152-5(a) and 727-15(8)(b), subsections 165-115AA(1) and 165-115GC(4), section 152-15 of the ITAA 1997]

Applying the small business aggregation rules to the maximum net asset value test

4.39 The grouping rules that currently apply to the maximum net asset value test are repealed. The aggregation rules that apply to the small business entity test under this Bill will be used for entities seeking to determine whether they satisfy the maximum net asset value test. The definitions and labels that are currently used for the grouping rules for small business CGT concessions have been updated for the aggregation test.

4.40 The term 'small business CGT affiliate' is replaced with 'affiliate'. The term 'connected with' is retained, however the ITAA 1997 Dictionary is updated to link to the new definition in the aggregation rules under section 328-125. [Schedule 4, items 5 to 16 and 26, subparagraphs 152-20(2)(b)(i) and 152-40(1)(a)(ii), paragraphs 152-15(c), 152-20(2)(a) and (b), 152-20(3)(a), 152-20(2)(b) and 152-40(1)(b), subsections 152-20(4) and 995-1(1), sections 152-25 and 152-30 of the ITAA 1997]

4.41 The definitions of 'affiliate' and 'connected with' under the aggregation rules are also used for the active asset test for accessing small business CGT concessions. That is, an asset will be an active asset where it is owned by an entity, and used in the course of carrying on a business by one of the entity's affiliates, or an entity connected with the entity within the meaning of sections 328-130 and 328-125 respectively. Such an asset may be an intangible asset.

Spouses and children

4.42 The active asset test is an additional condition that must be satisfied in order for an entity to gain small business CGT concessions. The active asset test incorporated the concept of an 'affiliate'.

4.43 Under the current small business CGT concessions the definition of 'small business CGT affiliate' includes an entity's spouse or child under 18 years. The new definition of 'affiliate' will apply for the purposes of the active asset test, and does not provide for spouses and children under 18 years to be affiliates automatically.

4.44 To ensure that an asset does not lose active asset status as a result of the above amendments, an asset held by a spouse or child under 18 years is treated as an asset held by an affiliate for the purpose of the active asset test. [Schedule 4, items 19 and 20, subsections 152-40(1A) and (2) of the ITAA 1997]

Trusts with tax losses or no taxable income under the active asset test

4.45 Under the definition of 'connected with' in the current small business CGT concessions, an entity controls a discretionary trust where the trustee nominated the entity as a controller of the trust. In order for this rule to operate, a number of conditions needed to be satisfied:

•

the trust had a tax loss or no taxable income in the income year;

•

the trust made no distributions in that income year;

•

the beneficiary was one of not more than four beneficiaries so nominated; and

•

the nomination was in writing and signed by the trustee and beneficiaries.

4.46 The new definition of 'connected with' applying to the aggregation rules discussed in Chapter 2 does not allow a trustee to nominate a beneficiary in the way described above. As a consequence, without a special rule, the nomination would no longer be available for the purposes of the active asset test.

4.47 Amendments to the active asset test ensure that for the purposes of determining whether an entity is connected with another entity, in relation only to the active asset test, an entity is taken to control another entity where the entity is nominated as a controlling beneficiary. The other 'connected with' rules still apply. [Schedule 4, items 17, 18 and 21, subsection 152-40(1), section 152-42 of the ITAA 1997]

Changes to the FBT car parking exemption

4.48 Small business entities can access the FBT car parking exemption under section 58GA of the Fringe Benefits Tax Assessment Act 1986 . This test will operate as an alternative to the $10 million ordinary and statutory income test that currently applies to the exemption. [Schedule 5, items 1 to 4, paragraphs 58GA(1)(d) and 58GA(2)(c), subsection 58GA(2) of the Fringe Benefits Tax Assessment Act 1986]

4.49 Subsection 58GA(3) of the Fringe Benefits Tax Assessment Act 1986 is amended to include a definition of 'small business entities'. [Schedule 5, item 5, subsection 58GA(3) of the Fringe Benefits Tax Assessment Act 1986]

Changes to the PAYG instalment concessions

4.50 Full self assessment taxpayers with a base assessment instalment income not exceeding $2 million are able to have their liability for PAYG instalments calculated under the GDP-adjusted notional tax method. [Schedule 6, items 2 and 3, subparagraphs 45-130(1)(b)(ii) and 45-130(1)(c)(i) of Schedule 1 to the TAA 1953]

4.51 Also, from the 2009-10 income year, full self assessment taxpayers that are small business entities will be able to have their liability for PAYG instalments calculated under the GDP-adjusted notional tax method. [Schedule 7, items 1 and 4 to 8, subsections 45-125(7) and 45-130(1) to (3) of Schedule 1 to the TAA 1953]

Application and transitional provisions

Goods and services tax

4.52 The changes to the GST Act apply in relation to net amounts for tax periods starting on or after 1 July 2007. Most of the consequential amendments to the ITAA 1997 that change the GST labels apply to the 2007-08 income year and later income years. The consequential amendments to the ITAA 1997 and the TAA 1953 that change the 'current annual turnover' label apply in relation to the year starting on 1 July 2007 and later years. [Schedule 2, Part 3]

Simplified taxation system

4.53 The changes to the ITAA 1997 relating to the STS concessions apply to assessments for the 2007-08 income year and later income years. [Schedule 3, Part 3]

Winding up a business an entity formerly carried on

4.54 Currently, an entity can continue to be treated as an STS taxpayer in an income year where they are winding up a business they previously carried on, if they were an STS taxpayer for the income year they stopped carrying on business.

4.55 Transitional provisions apply so that an entity that was an STS taxpayer in an income year before 2007-08 and stopped carrying on a business would be able to use the current STS concessions (ie, depreciating assets, trading stock, pre-paid expenses and amendment periods) in 2007-08 or a later income year when winding up the business. [Schedule 3, item 165, section 328-111 of the Income Tax (Transitional Provisions) Act 1997]

Control of a discretionary trust

4.56 Under the current STS grouping rules, an entity controls a non-fixed trust if in any of the previous four income years, the trustee of that trust made a distribution to the entity or its affiliates between them of an amount exceeding $100,000.

4.57 The aggregation rules apply a 40 per cent distribution test rather than a $100,000 test (see Chapter 2).

4.58 Consequently, an entity that had received a distribution of less than $100,000 but greater than 40 per cent of the total amount distributed would, in the absence of a special rule, be taken to control a discretionary trust for the purpose of accessing the former STS concessions where it had not been previously.

4.59 To prevent that result, a transitional provision applies for the former STS concessions so that an entity will not be grouped with a discretionary trust if, in any of the previous four income years, there was a distribution of greater than 40 per cent but less than $100,000. This transitional provision will only apply for distributions made before the 2007-08 income year. The provision will cease to have effect from the 2011-12 income year. [Schedule 3, item 165, section 328-112 of the Income Tax (Transitional Provisions) Act 1997]

Simplified depreciation concession

4.60 Assets that are currently in an STS pool - a general STS pool or a long life STS pool - continue to be subject to the pooling rules. To ensure continuity in the treatment of depreciating assets, a general STS pool or long life STS pool is treated as allocated to a general small business pool or long life small business pool respectively. The closing pool balance (with any required adjustments) of an STS pool is carried forward to become the opening pool balance of a small business pool. [Schedule 3, item 173, sections 328-185 and 328-195 of the Income Tax (Transitional Provisions) Act 1997]

Five-year re-entry restriction

4.61 The current law contains a rule that if you choose to stop being an STS taxpayer you cannot again become an STS taxpayer until at least five years after the income year you left the STS (subsection 328-440(3) of the ITAA 1997).

4.62 This notion will be retained for the simplified depreciation concession only. The new rule is that if the entity chooses to stop using the simplified depreciation concession it cannot again choose to use that concession until at least five years after the income year in which it chose to stop using that concession. [Schedule 3, item 12, section 328-175 of the ITAA 1997; Schedule 3, item 174, section 328-440 of the Income Tax (Transitional Provisions) Act 1997]

Example 4.1

In the 2007-08 income year, Daryl was a small business entity and used the simplified depreciation concession. In the 2008-09 income year he decides to cease using the concession.

Daryl will not be able to use the simplified depreciation concession until 2014-15 income year. He will need to be a small business entity in that income year to access the concession.

STS accounting method

4.63 Before 1 July 2005 STS taxpayers were required to use the STS accounting method (generally referred to as a cash basis of accounting). This was removed from the STS from 1 July 2005 and STS taxpayers have since been able to calculate their taxable income using the most appropriate method for their circumstances. If an entity was an STS taxpayer for the most recent income year starting before 1 July 2005, it could continue to use the STS accounting method.

4.64 Existing provisions ensure that if a business decided to stop using the STS accounting method, or was no longer eligible for the STS, business income and expenses that have not previously been accounted for (because they had not been received or paid) would be accounted for in the year the business changed its accounting method (see Division 328 of the Income Tax (Transitional Provisions) Act 1997 ).

4.65 This transitional provision will be carried into the new small business framework to ensure that a taxpayer can continue using the STS accounting method if it:

•

was in the STS in the 2006-07 income year;

•

was using the STS accounting method continuously since before 1 July 2005; and

•

is a small business entity from the 2007-08 income year.

[Schedule 3, items 168, 170 and 172, subsections 328-115(3) and (4), section 328-120 of the Income Tax (Transitional Provisions) Act 1997]

4.66 A taxpayer can continue using the STS accounting method until it chooses not to, or is no longer a small business entity.

Capital gains tax

4.67 The amendments to the ITAA 1997 relating to the small business CGT concessions apply to CGT events happening in the 2007-08 income year and later years.

Indirect value shifting

4.68 Under the current law, an interest will not be considered to be an affected interest for the purposes of the indirect value shifting regime if the owner of the interest is an STS taxpayer immediately before the commencement of an indirect value shifting scheme.

4.69 A transitional provision ensures that an interest will continue to not be an affected interest if its owner would have been an STS taxpayer at the time of the commencement of an indirect value shifting scheme, and that time of commencement was before the start of the 2007-08 income year had the provisions regarding the STS not been repealed. [Schedule 3, item 175, section 727-470 of the Income Tax (Transitional Provisions) Act 1997]

Fringe benefits tax

4.70 The amendments to the Fringe Benefits Tax Assessment Act 1986 apply to the FBT year starting on 1 April 2007 and later FBT years.

4.71 Transitional rules apply so that the FBT car parking exemption can apply to an employer that would have been a small business entity in an earlier income year (2005-06 or 2006-07), if the small business entity rules had applied in that year. This overcomes a potential technical problem arising from the small business entity rules applying from the 2007-08 income year. [Schedule 5, item 7]

PAYG instalments

4.72 The increase from $1 million to $2 million in the base assessment instalment income threshold for full self assessment taxpayers accessing PAYG instalments based on GDP-adjusted notional tax will apply to the 2007-08 income year and later income years. Full self assessment taxpayers who are small business entities will be able to access the PAYG instalments based on GDP-adjusted notional tax from the 2009-10 income year and later income years. [Schedule 6, items 1 and 4 to 8, subsections 45-125(7) and 45-130(1) to (3) of Schedule 1 of the TAA 1953]

Wine equalisation tax

4.73 The consequential amendments to the A New Tax System (Wine Equalisation Tax) Act 1999 apply in relation to producer rebates for the 2007-08 financial year and later financial years.

Consequential amendments

4.74 There is a definition of 'small business taxpayer' (and associated definitions) in the ITAA 1997 which only applies to some transitional rules. These definitions have been removed to avoid confusion with the new definition of 'small business entity'. To the extent necessary the definitions are retained in the Income Tax (Transitional Provisions) Act 1997 . [Schedule 8, items 1 to 8, subsection 82KZL(1) of the Income Tax Assessment Act 1936 (ITAA 1936), Subdivision 960-Q and subsection 995-1(1) of the ITAA 1997 and section 40-340 of the Income Tax (Transitional Provisions) Act 1997]

Simplified tax system

4.75 The definition and references to STS taxpayer and associated concepts for the prepayment concession and two-year amendment period in the ITAA 1936 are repealed and amended so that small business entities can choose to access the prepayment concession and have two-year amendment periods. [Schedule 3, items 97 to 108, subsections 6(1), 82KZL(1), 170(1) and (14), section 82KZMD, paragraphs 73BA(4)(a) and 82KZMA(2)(b), subparagraph 82KZM(1)(aa)(i) of the ITAA 1936]

4.76 The entrepreneur's tax offset uses turnover definitions based on the STS definitions, which are repealed and replaced with the corresponding turnover concepts discussed in Chapter 2. References to the STS are repealed and amended so that small business entities may be eligible for the entrepreneur's tax offset. [Schedule 3, items 121 to 148, 160 and 161, sections 61-500 and 61-525, subsections 61-505(2), 61-510(2), 61-515(2) and 61-520(2), paragraphs 61-505(1)(b) to (d), 61-510(1)(b), (c) to (e), 61-515(1)(b) to (e) and 61-520(1)(b), (c) to (e) and subsection 995-1(1) of the ITAA 1997]

Capital gains tax

4.77 Consequential amendments are made to an example in the ITAA 1997 to link it to the new definition of 'connected with' under section 328-125 that applies for CGT events. [Schedule 4, items 29 and 30, subsections 104-197(2) and 152-305(3) of the ITAA 1997]

4.78 Entities of the type listed in subsection 328-125(8) cannot disregard a capital gain under the small business retirement exemption. The entities referred to are discussed in Chapter 2. [Schedule 4, item 30, subsection 152-305(3) of the ITAA 1997]

Wine equalisation tax

4.79 The wine producers' rebate provides wine producers with a rebate of up to $500,000 per wine producer or wine producer group. A wine producer group comprises a wine producer and any associated producers.

4.80 A producer is considered to be an associated producer if they are 'connected with' the other producer within the meaning of the current CGT grouping rules. As the definition of 'connected with' is moving from Division 152 to Division 328 of the ITAA 1997, the provisions in the A New Tax System (Wine Equalisation Tax) Act 1999 need to be updated to reflect the changed location of the definition. [Schedule 4, item 28, section 33-1 of the A New Tax System (Wine Equalisation Tax) Act 1999]

4.81 Also, the existing A New Tax System (Wine Equalisation Tax) Act 1999 provisions exclude the operation of the public entity exception to the indirect control of entities rule currently under subsection 152-30(8). This exclusion will continue under the new law. [Schedule 4, item 27, paragraph 19-20(1)(a) of the A New Tax System (Wine Equalisation Tax) Act 1999]