House of Representatives

Explanatory Memorandum

Circulated by the authority of the Treasurer, the Hon Wayne Swan MP

General outline and financial impact

Demutualisation of private health insurers

Schedule 1 to this Bill amends the Income Tax Assessment Act 1997 to provide relief from capital gains tax (CGT) to private health insurance policy holders when their insurer converts, by demutualising, from being a not for profit to a for profit insurer. A key requirement for this relief will, in general, be the Private Health Insurance Administration Council's approval of the insurer's conversion under the Private Health Insurance Act 2007 .

Date of effect : These amendments apply to demutualisations that occur on or after 1 July 2007. This will ensure that private health insurers that demutualise prior to these amendments receiving Royal Assent may qualify for the relief.

Proposal announced : The Assistant Treasurer and Minister for Competition Policy and Consumer Affairs' announced in Press Release No. 013 of 26 February 2008 that the Government would provide CGT relief when private health insurers demutualise.

Financial impact : This measure will have these revenue implications:

Compliance cost impact : These amendments are expected to have a low impact for both implementation and ongoing compliance costs.

Family trusts

Schedule 2 to this Bill amends Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936) (the trust loss measures) to change the definition of 'family' to limit lineal descendants to children or grandchildren of the test individual or of the test individual's spouse. These amendments also remove the ability for family trusts to make a one-off variation to the test individual specified in a family trust election (other than specifically in relation to the 2007-08 income year or a marriage breakdown).

Date of effect : The amendments to limit lineal descendants to children or grandchildren of the test individual or of the test individual's spouse apply to the 2008-09 income year, and later income years.

The amendments to remove the ability of family trusts to make a one-off variation to the test individual specified in a family trust election (other than specifically in relation to the 2007-08 income year or a marriage breakdown) apply to the 2007-08 income year, and later income years.

Proposal announced : This measure was announced in the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs' Press Release No. 034 of 13 May 2008.

Financial impact : This measure has these revenue implications:

Compliance cost impact : These amendments are expected to have a small impact on compliance costs.

Minor amendments

Schedule 3 to this Bill makes technical corrections and other minor amendments to the taxation laws. These amendments are part of the Government's commitment to the care and maintenance of the tax system.

Date of effect : These corrections, amendments and improvements generally commence from Royal Assent but some apply prospectively or retrospectively. The retrospective amendments do not disadvantage taxpayers.

Proposal announced : These amendments have not previously been announced.

Financial impact : Nil to low.

Compliance cost impact : Nil to low.